Krystal unveils a drive-thru-only unit. McDonald’s has a busy year ahead. What does consumer credit say about the economy? Lots and lots of jobs data to parse. These stories and more This Week in Foodservice.

It should come as no surprise that such factors as higher food costs, labor costs and energy/utility costs will continue to vex operators in 2023. But the news is not all bad.

“Moderate but positive employment growth across the economy and elevated consumer spending in restaurants will allow the restaurant industry to kick off 2023 on a more optimistic note than the last few years, but operators remain braced for potential challenges in the new year,” said Hudson Riehle, senior vice president of Research for the National Restaurant Association. Riehle was speaking about the NRA’s Business Conditions survey, which also not surprisingly, showed a mixed outlook for the industry.

November saw the Producer Price Index for All Foods increase for the 18th time in the last 23 months. “In this kind of economic environment, typical operators don’t have much margin for error. With major input costs escalating, they can make changes to align with local consumer demand while realigning operations for longer-term growth,” said Riehle.

Due to these challenges, 50% of operators expect to be less profitable in 2023, while another 34% expect their profitability to remain the same as it was in 2022, per data from the NRA.

Labor offers another set of mixed circumstances for operators from all segments. Despite adding nearly 2.2 million jobs for the 23-month period ending in November 2022, the restaurant industry employment remains at 462,000 positions less than its employment level in February 2022. In addition, 63% of full-service operators and 61% of limited-service operators (61%) say their restaurant does not have enough employees to meet customer demand. Further, 87% of operators say they will likely hire additional employees during the next 6 to 12 months, provided they can identify qualified applicants. And 79% of operators say their restaurants have job openings they are having difficulty filling.

At the same time, restaurant operators will continue to balance staffing needs with business conditions. Along those lines, 57% of operators say they would be likely to lay off employees during the next 6 to 12 months if business conditions deteriorate and the U.S. economy enters a recession.

In other words, 2023 is picking right back up where 2022 left off. It’s still complicated and will remain that way for a little while longer.

Foodservice News This Week

Image courtesy of Krystal

• Southern burger chain Krystal’s new prototype unit features a kitchen that’s 20% smaller than its traditional locations, per a company release. The 1,700-square-foot Center Point, Ala., double drive-thru restaurant is roughly 1,000 square feet smaller than traditional Krystal units due, in part, to the lack of a dining room. This unit also features a walk-up window for ordering as well as a pickup area for online orders and third-party delivery.
• The kitchen remains a key ingredient in generating that repeat business that operators crave. Take, for example, Chili’s. The chain halted a test program that used robots to deliver food to guests because it found that staff could do it faster and more efficiently. Further, the use of the robots, while novel and interesting, was not leading to repeat business. Now as part of its Kitchen of the Future initiative, casual dining is investing in kitchen equipment that cooks food faster and more consistently, per several published reports. And Chili’s is not the only chain looking to the back of the house to help draw more guests to the front of the house. At an investor conference this week, Red Robin announced plans to invest in a new flattop grill to help, you guessed it, enhance speed of service and improve food quality.
• Developing flagship restaurants remains popular among chains. Take, for example, P.F. Chang’s, which opened its fourth such location late last year. Why do operators like building flagship units? For a variety of reasons, really. These places tend to be in high-profile and high-traffic locations, which can introduce the concept to new customers. Plus, it allows the chain to provide an enhanced or unique experience compared to the typical prototype that will appeal to loyal customers. But flagships typically require a larger and more thoughtful investment than the typical prototype. What does it take to get that investment to pay dividends? restaurant development + design magazine dug into this very topic with the Toasted Yolk, a breakfast-brunch-lunch chain.
• Rock Bottom closed its Chicago location, after a 20-year run in the city’s River North Neighborhood. Rock Bottom came after legendary Chicago brewer Goose Island opened its brewpub but before such brewers as Half Acre and Revolution opened their locations. Rock Bottom drew locals and tourists alike thanks to what was a highly unique beer list at the time and a great rooftop beer garden. In 2020 Rock Bottom was acquired by its current owners SPB Hospitality. It’s important to note that just this location is closed. The chain still has locations in the Chicago market, namely in the suburbs, and it has units in California, Colorado, Maryland, Massachusetts, Pennsylvania and Virginia.
• McDonald’s is preparing for a busy 2023. The burger giant plans to shed some jobs and restructure a few things at the corporate level. As if there were not enough, McDonald’s also plans to speed up its rate of new restaurant openings as part of its Accelerating the Arches 2.0 initiative. The chain will look to “unlock more potential” from what it refers to as the three Ds: digital, drive-thru and delivery.

Economic News This Week

• The U.S. private sector added 235,000 jobs in December, per the ADP Jobs Report. This beat estimates which projected private sector companies adding 153,000 jobs in December, per published reports. And it was greater than the 127,000 jobs added in November. December hiring was strong across small and medium establishments while large establishments saw a drop in employment of 151,000 jobs. Among the industries showing job growth, leisure and hospitality was the strongest, adding 123,000 positions.
• Total nonfarm payroll employment increased by 223,000 in December, and the unemployment rate edged down to 3.5%, the U.S. Bureau of Labor Statistics reported. Employment in leisure and hospitality rose by 67,000. Foodservice and drinking places added 26,000 positions. Amusement, gambling, and recreation employers added 25,000 positions. Leisure and hospitality added an average of 79,000 jobs per month in 2022, down from the average gain of 196,000 jobs per month in 2021.
• Initial-jobless claims totaled 204,000 for the week-ending December 31, 2022, per the U.S. Department of Labor. This represents a decrease of 19,000 from the previous week. The 4-week moving average was 213,750, a decrease of 6,750 from the previous week.
• S.-based employers announced 43,651 job cuts in December, per The Challenger Report from Challenger, Gray & Christmas. This represents a 43% decline from the 76,835 job cuts announced in November. It is up 129% from the 19,052 cuts announced in the same month in 2021. In the fourth quarter, employers announced 154,329 job cuts, the highest quarterly total since the final quarter of 2020, when 222,493 job cut announcements occurred. It is 172% higher than the 56,749 cuts announced in the last quarter of 2021 and 102% higher than the 76,284 cuts announced in the previous quarter.
• Small business owners remain pessimistic about 2023 and expect business conditions to deteriorate, per the NFIB. In fact, the NFIB Small Business Optimism Index declined 2.1 points in December for a reading of 89.8. This represents the 12th consecutive month where the index came in at less than its 49-year average of 98. Owners expecting better business conditions over the next six months worsened by eight points from November to a net negative 51%. Inflation remains the single most important business problem with 32% of owners reporting it as their top problem in operating their business. In addition, 41% of owners reported job openings that were hard to fill, down three points from November but historically very high.
• Consumers continued to spend and borrow in November 2022, per the U.S. Federal Reserve. Consumer credit increased at a seasonally adjusted annual rate of 7.1%. Revolving credit increased at an annual rate of 16.9%, while nonrevolving credit increased at an annual rate of 3.9%. While some households are borrowing more to withstand inflationary pressures, economists see the growth as mainly a sign of strength in the economy.