Starting a Restaurant: Is It Still Worth It?

The food business has always been a tough industry to succeed in. These days though, the challenges continue to present themselves one after another as restaurant owners try to keep their businesses above water. Now we are seeing a shifting labor force and higher inflation, and the restaurant industry can't seem to catch a break. That being said, if a restaurant is able to survive its first several years, it can reach long-term profitability and growth.

Considering all of these factors, is it worth it for entrepreneurs to start new restaurants? Or are the challenges too much trouble to try and overcome? Is an industry with high start-up costs, high operating costs, high levels of intensity and stress for workers and owners, combined with lower profit margins, actually worth the effort to get involved with? The simple answer is yes. Starting a restaurant will always involve a certain amount of risk. And although it seems that current circumstances are not necessarily in the restaurant owner's favor, the restaurant industry could actually see an explosion in business in the coming years. With investing, many live by the mantra of buy low and sell high, and the same idea is also applicable to the restaurant industry. While the restaurant biz has been undervalued in recent years due to extraneous events, many are predicting an explosion of business and activity as the restaurant industry strikes back.

As we continue to recover from the effects of 2020, people are getting back to their normal lives, and that means eating out. There is a hunger (no pun intended) and demand among customers who want to return to restaurants and have wonderful experiences with their friends and family. This, combined with other factors, such as new technologies in the industry, could create the perfect storm for the restaurant industry to reach levels of unprecedented success. That means now could be a great time to start a new restaurant.

Reasons Why the Restaurant Industry Will Be Successful

• Customer Demand
• DoorDash, Uber Eats, and Other Delivery Services
• Less Competition
• Room for Innovation
• Tech Investment Increasing
• New Tech Innovations
• Inflation Is Expected to Slow Down in 2023
• Revenue Is Increasing in the Restaurant Industry

• Customer Demand

  Customers are returning to restaurants as we have realized how big a part of our economy and culture they are. People are also as busy as ever, and not everyone has time to prepare meals at home. Takeout and delivery are also on the rise. Simply put, people need to eat, and that means with the right formula, restaurants can succeed.

• DoorDash, Uber Eats, and Other Delivery Services

  DoorDash, Grubhub, Uber Eats, and other services that deliver restaurant meals to consumers open up a huge opportunity for restaurants to serve customers who don’t want to eat at the restaurant location. These types of services are where we see technology-based businesses meeting consumer demand and social changes. According to company data, ever since experiencing a dip in revenue in the first quarter of 2020, Uber Eats has experienced continual significant quarterly growth. These delivery services can help restaurants be successful in a changing industry.

• Less Competition

  While estimates can vary, the rate of growth of new establishments emerging has also significantly slowed down. This does create an opportunity for new restaurants to stake their claim in the marketplace at a time when there is less competition than usual amongst emerging restaurants. New restaurants will be competing in a different market, one in which other competitors may be hesitant to enter. Restaurant entrepreneurs who have created a well-developed business plan and are ready to give it a shot can actually be in a position of strength during these changing times.

• Room for Innovation

  Adapting to changing circumstances has been a recipe for success for many businesses throughout history. Being able to see how the market is shifting and making adjustments to those changes, and filling a role within a newly emerging social dynamic has led to some of the most profitable businesses in the world. The current circumstances regarding the restaurant industry open an opportunity for innovative business minds to reshape the industry in a way that works for the changing market and allows them to become sustainable as a business.

• Tech Investment Increasing

  The tech sector is continuing to increase its investments in the restaurant industry. This indicates that the tech industry is projecting growth and increased revenue. Meaning that if the tech industry is putting money into the restaurant industry, they likely have good data that backs up a positive return on their investment.

• New Tech Innovations

  Increasing investment in the restaurant industry coming from the tech sector also brings with it new restaurant technologies and innovations. One of the biggest problems facing the restaurant industry in recent years has been labor shortages; the number of workers in the industry has struggled to bounce back.

  Total Restaurant and Food Service Jobs by Year:

  • 2019 - 15.4 million
  • 2020 - 12.8 million
  • 2021 - 14.5 million
  • 2022 (projected as of early 2022) - 14.9 million
  • 2030 (projected as of early 2022) - 16.5 million

  As the total number of restaurant and food service jobs is slowly growing back to its pre-2020 levels, restaurant owners are combating the challenges of being short-staffed by implementing new technologies. Additionally, while restaurant workers are returning, wages have also generally increased. By adopting new technologies such as contactless payment systems, scannable QR code menus, and more advanced online ordering systems, establishments can become more efficient. This increased efficiency can compensate for labor shortages and the rising cost of labor.

• Inflation Is Expected to Slow Down in 2023

  Inflation is expected to slow down in 2023 due to the Federal Reserve's increase in interest rates. In 2022 the yearly inflation rate is set to average out to somewhere around 8%, but according to the Congressional Budget Office, inflation rates in 2023 are likely to be somewhere between 1.8 percent and 4.6 percent, and 2024 inflation rates are estimated to be between 1.1 percent and 3.6 percent. This is great news and can relieve some pressure on restaurant businesses and allow them to lower prices for consumers and operate under more comfortable profit margins.

• Revenue Is Increasing in the Restaurant Industry

  Total sales in the restaurant industry increased in 2021 and 2022 since the drastic dip we saw in 2020. The National Restaurant Association projected in early 2022 that total restaurant and food service sales in 2022 would reach $898 billion, a number that exceeds 2019 sales, and as of late 2022, we seem to be on track to meet this number while also adjusting for increased inflation. Even as the industry continues to adapt and change, this is a good sign.

  Total Restaurant and Food Service Sales by Year:

  • 2019 - $864 billion
  • 2020 - $678 billion
  • 2021 - $799 billion
  • 2022 (projected as of early 2022) - $898 billion

Consider Location:

Traveling to iconic cities such as New York City, San Francisco, Los Angeles, and Chicago wouldn't be the same without visiting some of the fantastic restaurants and eating experiences these cities have to offer. Less lionized urban centers, such as Miami, Orlando, Portland, Seattle, Austin, Houston, Sacramento, Tampa, and Denver, also have amazing restaurants and food cultures. A city like Las Vegas is synonymous with food and entertainment. These types of cities will always be prime-time locations for restaurants. Although, generally speaking, the larger a city a restaurant is located in, the higher the level of competition will be present, along with potentially higher costs of operation. Smaller to medium-sized cities can also be highly profitable and have lower overhead, less competition, and less diversity of cuisine styles, which could be a beneficial situation for a restaurant entrepreneur.

Conclusion:

While restaurants are continuing to bounce back from the effects of 2020 and have now been battling higher inflation rates, increased labor costs, and a shortage of workers, there is a bright future ahead. Inflation is predicted to go down to 1.8% - 4.6% in 2023, new technologies are making restaurants more efficient, and customers want to eat out and order delivery. Workers are also starting to return to the restaurant industry, and total restaurant and food service sales are projected to exceed pre-2020 levels.

By looking at the data, we can see that substantial growth in the restaurant industry in the coming years is very likely. Not everyone shares this enthusiasm regarding the future of the industry, though. This results in fewer competitors vying for business. With fewer competitors willing to enter a changing industry, this leaves room for bold innovation that can maximize the potential of the current situation. Restaurant entrepreneurs with a strong concept and a well-thought-out business model that leverages technology and new trends and innovations in the restaurant industry can make a huge splash, positioning themselves for further success in the future.