- Restaurants are closing earlier and charging more this summer.
- A labor shortage is leaving them understaffed, so they can’t operate on pre-pandemic hours.
- Lost revenue, higher wages for workers, and food inflation has caused them to hike up prices.
Even in an increasingly vaccinated America, dining out just isn’t the same as it was two years ago.
At many restaurants, you can no longer linger past dessert as late as you once could and you might end up forking over more dollars for your meal. It has a lot to due with a labor shortage and inflation, which are making it difficult for restaurants to compensate for all the business they lost during the pandemic.
“The worst of COVID for the restaurant business is right now,” Christopher Bates, a master sommelier and founder of FLX Hospitality, which operates five restaurants in New York’s Finger Lakes region, told Insider.
Restaurants typically catch up on bills in April before heading into the busy season of summer, he explained. But that’s when most restaurants shut down last year. While restaurants fortunate enough to not shutter permanently have gradually returned over the past 18 months, Bates said, they’re now under pressure to capture revenue before the pending slow season of winter.
“But we can’t catch all revenue available because our industry doesn’t have the workforce to do that,” he said. Consequently, they’ve been closing their doors earlier than usual. “We’re currently sitting in the six months where we need to make up for three winters and two years’ worth of business, but we don’t have the ability to be open for as many meals or hours necessary to do that.”
A labor shortage means higher wages and fewer hours
A record 5.6% of restaurant workers quit in April. That number is more than twice the rate of the economy as a whole, not counting farming jobs, according to Gordon Haskett Research Advisors.
In April, a record high of 1.34 million of the sector’s jobs were open, per the Bureau of Labor Staistics. A Joblist survey found that a third of former hospitality workers won’t return to the industry because they want higher pay, better benefits, and a new work environment.
It’s working. Unable to keep locations staffed at pre-pandemic levels, restaurants are competing for workers with sign-on bonuses, perks, and higher wages.
Wages among food and beverage small businesses have been accelerating at the fastest pace among all business in hard-hit service sectors, per platform data from payroll and benefits provider Gusto. They’ve risen 21% since the beginning of the year, from an average of $12.92 an hour in January 2021 to $15.66 an hour in June of 2021.
While some have blamed the labor shortage on unemployment benefits, Bates says that’s misleading, calling the shortage “a much broader issue” due to everything from childcare to “the inconsistency of the hospitality industry and the way it’s been built for over the last 100 years.”
Inflation is causing restaurants to hike prices
Operating on fewer hours and shelling out more for workers has left restaurants looking for ways to make up for lost revenue. Plus, food prices are on the rise.
“We don’t want to cut product costs and impact the quality or experience, and at the same time we’re paying considerably more for labor than we ever have,” Bates said. “Between product costs and increased labor costs, the only way to offset this is to adjust prices where it’s feasible.”
The cost of food away from home (such as food ordered at restuarants) rose by 0.7% last month, based on BLS’ Consumer Price Index released this week, and is 4.2% higher than a year earlier. A note from JP Morgan suggested that could be the result of wage increases for hospitality workers, which is getting passed on to menu prices.
Inflation is an endless cycle in the restaurant industry: The labor shortage is hijacking prices and thus contributing to a broader rise in inflation nationwide, but additional increased consumer prices in food are causing restaurants to further hike prices.
Prices for various food items have gone up since the start of the pandemic, Insider’s Joseph Zeballos-Roig and Madison Hoff reported. Consider the price of beef and veal, which was 13.2% higher than the price before the pandemic as of June. Pork prices the same month were 11.4% higher than pre-pandemic prices. And prices of some bakery items, such as bread and cakes, have also increased compared to pre-pandemic, but not as high as meat increases.
Despite the current turmoil of the restaurant industry, Bates feels confident about its future. “We are having some challenges and it’s hard, but I feel very confident that coming out of this we’ll be a stronger, better company,” he said.