Broken Down Restaurant Economy
Industry Growing BUT PROFIT MARGIN SHRINKING
Last updated
Industry Growing BUT PROFIT MARGIN SHRINKING
Last updated
Industry Growth vs. Shrinking Profit Margins
Sales Growth: In 2022, the U.S. restaurant industry generated around $890 billion in sales, projected to surpass $1 trillion in 2023. Despite being below 2019 levels, restaurant spending increased by 13% in March year-over-year, outpacing overall retail growth of 2.9%.
Economic Contribution: Restaurants contribute nearly 5% to the U.S. GDP and account for 45% of household food budgets.
Challenges Facing the Industry
High Closure Rates: 60% of independent restaurants close within the first year, and 80% within five years. Lack of support from programs like the Restaurant Revitalization Fund threatens 86% of these establishments with potential closure.
Declining Profit Margins: Over 25 years, profit margins have fallen from 15%-20% to just 4%.
Increasing Costs: Rising costs of services such as credit card processing, third-party delivery, and technology can consume over 5% of a restaurant's revenue.
Need for Strategic Shift
Economic Sustainability: Traditional operations and best practices are no longer sufficient for economic sustainability.
Focus Areas: Operators must prioritize guest engagement, marketing, and customer segmentation.
Maximizing Customer Lifetime Value (LTV): A fundamental reevaluation of operations is needed to maximize LTV, which could revolutionize the industry.
