May 12, 2023
Its May 2023, three years since the start of the COVID pandemic that has now been declared to be over. Three years since the world shut down and we withdrew from physical contact with others into what we hoped was a bubble of safety. Many would argue that the world has changed drastically and dramatically as we have emerged from the worst of the Pandemic. But we all still have basic needs including the need for a place to live that shields us from the elements, clothes to protect us, food to sustain us and a job to support us.
The workplace has changed for many with remote work becoming commonplace. But many, especially in the hospitality and food services industries lost their jobs since so few people were venturing out. Housing changed from a place primarily to protect us from the elements to a place that became our haven of social life – derived from and using computer technology and streaming services, that provided entertainment to the masses since movies, theatre, restaurants and travel became verboten.
The governments of the worlds were forced to increase the money supply by making direct payments to large swaths of people of the world who lost their jobs and had no way to provide for their basic needs or those of their family. This caused massive supply chain disruptions that led to massive shortages of products and services.
People became tired of the Pandemic and social isolation. Free masks, test kits and vaccines were offered and in many cases mandated. People had money, time and desire and went on a buying binge. Except they couldn’t get what they wanted because so many people had not been working for so long that the goods were not available. Prices began to rise and now governments of the world are shutting off the free money spicket and trying to siphon off and wring out the oversupply of money by raising interest rates. A recession may be next.
How does all of that relate to quick serve restaurant, QSR, style eating? During the Pandemic, people still needed to eat. However, restaurants closed, and people were afraid to go to grocery stores. As the Pandemic stretched from days to months to years, people discovered that fast food restaurants had a perfect solution – fast, delicious food that could be ordered online or through a drive-through window or delivered directly to their door. It did not require direct contact with another human. And it was not that expensive to feed a single person or an entire bubble family. Seems perfect for customers and fast-food operators alike. But Nirvana has been short-lived and full of trauma for QSR operators.
QSR operators lost employees and could not get replacements. Remember, people were afraid to go to work and the government paid many to stay home. Operators shut down dining rooms and moved remaining employees to the front lines – the drive-through lanes. But they still did not have enough help. To alleviate employee shortages, operators were forced to increase wages swiftly and dramatically to attempt to offset employee reluctance to work. The result, store profits plummeted, and operators have turned to technology to replace people. Ghost kitchens that only prepares food and eliminates the need for any front-line employees to service customers, kiosk order takers and mechanized food preparation are now the order of the day.
Cost of food and supplies soared. With less people working, production of food products necessary to make the meal was in short supply driving costs up. Sometimes there was not enough food supply and/or employees to open a restaurant for days at a time. The result, store profits further plummeted.
Solution – raise prices to attempt to cover the increased labor and food costs. The problem – customer count reductions. QSR is at the bottom of the food chain. Customer count is key in a business with low profit margins. Operators that attempt to raise prices to recoup losses resulting from increased labor and food costs lose customer count as customers cut back. Customers move toward unprofitable dollar menu choices or less visits or cooking at home. Now add in the possibility of inflation further increasing costs and the outlook for QSR is looking down.
But hope may be on the horizon. Inflation provides “cover” for QSR operators to reasonably raise prices. The high “combat” pay required to offset government payments to employees is now stabilizing and reducing as the government has stopped paying workers not to work. The supply chain is right sizing itself and while prices are not necessarily coming down, they are also stabilizing.
For those operators that can hold on a little while longer, equilibrium may be approaching which will again allow QSR operators to operate profitably.