Inflation is Taking a Bite Out of Restaurant Profits, but for How Long?
BizBuySell recently published its Quarterly Insight Report highlighting trends on Main Street. As the restaurant industry continues to recover from the pandemic, the report offers some good news for business sellers. 2022 was an exceptional year that saw a 20% jump in restaurant acquisitions. This bounce comes after a 6.5% increase in 2021, indicating diners are back and ready to dine out. Adding to the positive reports for restaurants, operations sold with stronger financials and at higher prices. Cash flow for the restaurant industry is up 13% and restaurant transactions showed median revenue up 7% over the previous year. Even with all these gains, business owners and brokers continue to share that supply chain issues, inflation, and the potential decrease in consumer spending all remain questions for 2023.
Navigating the Inflation Landscape
The main ingredient every restauranteur is concerned about? Eggs. A staple on many restaurants inventory list, the price for eggs has skyrocketed. The recent rise in egg prices spiked after an avian bird flu outbreak in 2022 that affected more than 43 million egg-producing hens. The FDA, which monitors the supply and cost of eggs, reports that after astronomical high prices at the end of 2022, the price per carton is decreasing, which will help restaurant’s bottom lines and margins.
Overall inflation and the rate hikes the Federal Reserve has issued to rein in inflation are also on the minds of business owners and brokers. The good news? The Fed’s most recent rate hike of a quarter point is the smallest since March 2021. While signaling that more increases are to come to contain inflation, this smaller adjustment indicates that inflation may be easing.
As restaurant owners look to keep a happy and committed workforce, easing inflation is most certainly a welcome sign. Business owners have reported to BizBuySell that hiring continues to be challenging, with certain markets having a harder time than others. Restauranteurs report that retaining employees with a focus on a welcoming and positive company culture isn’t the primary problem, it’s finding new workers that remains a challenge. Potential employees are looking for competitive rates, and in addition to increasing labor costs, inflation is reducing tips for servers as diners spend cautiously.
If current trends continue, and inflation continues to fall, the gains the restaurant industry saw in 2022 should hold steady. For those looking to sell a restaurant, data shows pent up demand for restaurant ownership. 2022 closed with a 14% increase in sales price, to $249,000, up from $220,000 the previous year, so buyers will need to compete to close a sale this year. Restauranteurs are showing resilience and creativity to maintain profitability and continue to serve customers.