Restaurants: Can You Pay the Rent?

 

The restaurant industry has long been a barometer for economic trends, with its performance reflecting shifts in consumer behavior, cost structures, and labor availability, according to Steven Johnson Grocerant Guru® at Tacoma, WA based Foodservice Solutions®.  

Today, the question looms larger than ever: Can restaurants pay the rent? The answer hinges on a quartet of challenges — food costs, labor costs, rent costs, and the ever-escalating expenses associated with takeout packaging.

The Rising Tide of Costs

Food Costs

Food costs are often a restaurant’s largest variable expense. In 2000, the average cost of food as a percentage of sales hovered around 28%. By 2023, this figure had climbed to over 35%, driven by global supply chain disruptions, extreme weather impacting crop yields, and increased demand for sustainable and premium ingredients. Restaurants must now navigate higher procurement costs while grappling with razor-thin margins.

Labor Costs

Labor costs have also surged. The average hourly wage for restaurant workers in 2000 was $6.75; by 2023, it had risen to $16.50, reflecting both inflation and efforts to provide livable wages. With fewer workers willing to endure the challenges of restaurant jobs post-pandemic, labor shortages have compounded the issue. Consequently, many establishments are operating with skeleton crews or relying heavily on automation to fill gaps.

Rent Costs

Rent has been a perennial concern. In the early 2000s, rent costs for restaurants typically accounted for 6-8% of gross revenue. Today, urban locations often face rent burdens exceeding 10%, especially in prime dining areas. With landlords raising rents to recoup losses from commercial vacancies during the pandemic, the situation is particularly dire for independent operators.

Paper Costs for Takeout

The takeout boom has exacerbated another major expense: paper and packaging. Sustainable packaging is now a necessity due to consumer demand and regulatory mandates. In 2023, packaging costs had risen nearly 40% since 2010, eating further into profits.

Hours of Operation: A Historical Perspective

Operating hours have steadily declined over the decades due to evolving consumer habits, labor constraints, and profitability pressures. Here's a snapshot of how the average hours per day have shifted:

·         2000: 14 hours/day — Restaurants maximized dining room usage to cater to early birds and night owls.

·         2005: 13.5 hours/day — Rising labor costs and suburban growth led to slight reductions.

·         2010: 13 hours/day — The Great Recession forced some operators to trim hours to save costs.

·         2015: 12.5 hours/day — The rise of third-party delivery began to shift focus away from dine-in service.

·         2020: 10.5 hours/day — COVID-19 lockdowns and staffing shortages drastically reduced operating hours.

·         2025 (Projected): Many operators wonder if they will have enough workers to expand back to pre-pandemic hours or if they’ll remain locked into lean schedules of 11-12 hours/day.

The New Footprint of Restaurants

In response to these mounting pressures, new restaurants are embracing smaller footprints designed for efficiency and profitability:

·         Built for Takeout: Kitchens are now optimized for takeout and delivery, with minimal or no dine-in seating. Some brands operate exclusively as ghost kitchens.

·         Technology Over Touchpoints: Customer service is increasingly automated, with mobile apps, QR codes, and kiosks replacing traditional servers. While this appeals to tech-savvy consumers, it risks alienating those who value personal interactions.

Think About This: The Future of Restaurants

The restaurant of the future must answer hard questions. Will food costs stabilize, or will climate change and geopolitical strife push them even higher? Can labor-saving technology fully compensate for a diminished workforce? Will rent concessions from landlords become the norm, or will high rents force more closures?

The industry is at a crossroads. Restaurants that adapt to these realities with agility and innovation — embracing new operational models while maintaining the essence of hospitality — may thrive. Those that cannot will struggle to survive in this new economic landscape.

Success does leave clues. One clue that time and time again continues to resurface is “the consumer is dynamic not static”.  Regular readers of this blog know that is the common refrain of Steven Johnson, Grocerant Guru® at Tacoma, WA based Foodservice Solutions®.  Our Grocerant Guru® can help your company edify your brand with relevance.  Call 253-759-7869 for more information. 

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