Jan 24, 2024 - Business

It's "carnage everywhere" for restaurant owners facing high costs and new rivals

Illustration of a restaurant blackboard menu sign cracked and broken.

Illustration: Annelise Capossela/Axios

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?'"
Serigne Mbaye and Effie Richardson pose for a photo at a service window inside Dakar NOLA. The moody lighting highlights the pair looking at each other as they stand in the window opening.
Chef Serigne Mbaye, left, and Effie Richardson co-own Dakar NOLA. Photo: Jeremy Tauriac for Dakar NOLA

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.

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.

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