It's "carnage everywhere" for restaurant owners facing high costs and new rivals
Rising food, rent and labor costs, mixed with falling post-pandemic demand, are spelling disaster for some independently owned restaurants, industry experts say.
- The result is "carnage everywhere," says Robért LeBlanc, co-owner of LeBlanc + Smith, a New Orleans restaurant and hotel group — even as new entrants try to break through.
Driving the news: Many independent restaurants have struggled to cope with declining demand and higher costs, while pandemic-era loans are coming due, says Joe Pawlak of restaurant industry consulting firm Technomic.
- As a result, restaurants are raising prices — or shutting their doors.
- "The independents," Pawlak says, "can't survive."
Be smart: Cutting costs in an industry with already razor-thin margins is tricky.
- Restaurants traditionally plan their budgets in thirds, with one-third going to wages, another to food costs and the third to overhead and rent.
- Those that have attempted to cut food costs, Pawlak says, can end up with reduced meal quality.
- Meanwhile, cutting staff harms the guest experience.
Yes, but: Some restaurateurs are finding clever ways to stay afloat.
- At New Orleans' Lengua Madre, chef Ana Castro found that offering a tasting menu — with its set dishes and predictable ingredient needs — could change the math on her modern Mexican restaurant's budget.
- "Our food cost was 19%," Castro says. "We were serving truffles, caviar, but we were super controlled. We looked at bookings to see how many we'd have in a week and find highs and lows on the menu, [or ask our vendors] 'Can you offer me a less-looked-at source of fish?'"
Reality check: Most restaurants are still trying to force old business models to work in a new economic and social environment, sometimes by tacking on ill-defined "service charges."
- Such charges are showing up on bills at 16% of today's restaurants, according to the upcoming National Restaurant Association's State of the Industry Report.
- These charges are often vague, but some businesses say the fees are used to cover increased staff costs as restaurant workers demand better pay and benefits.
- At Dakar NOLA — considered one of last year's best new restaurants in New Orleans — service charges cover an $18 minimum wage for all staffers, plus health and life insurance, says co-owner Effie Richardson.
What's next: With little control over food and rent costs, restaurants will likely experiment with staffing.
- "We're always going to need labor in restaurants, but it's how you use it and optimize it" that can make the difference, Pawlak says.
That means there's a need for new technology to help automate menial, repetitive tasks while letting human staff focus on creating a real sense of hospitality.
- "People expect service as part of the entire experience," Pawlak says.
Axios' Karri Peifer contributed to this report.