At the annual Vibe Advisory Council meeting, David Henkes, Senior Principal and Head of Strategic Partnerships, Technomic, gave a presentation on the current state of the hospitality industry, which included data from Technomic’s quarterly Consumer and Operator Outlook.
Here are some of the key considerations and strategies from his presentation.
Economic Uncertainty and Cost Pressures
The year started with a flurry of concerns, from nervous consumer sentiments to the threat of tariffs to adverse weather conditions impacting performance across the industry. Rising costs have been a concern since last year’s inflation drove prices up. And now, the looming specter of tariffs is worrying many operators.
“This cost increase couldn't come at a worse time because the industry is already struggling with a value challenge, a value image problem,” said Henkes. “And alcohol, where a lot of the margin is made, is also going to take a hit in terms of price increases.”
These factors collectively contribute to an inflation rate within restaurants that outpaces the broader economy, intensifying financial pressures on businesses.
When it comes to tariffs, Henkes was surprised to find only 64% of those surveyed were concerned or very concerned about tariffs. The areas where they expect to feel the effects most include food ingredients, packaging, equipment (especially with the 25% tariff on steel and aluminum imports), and imported alcohol.
Possible Solutions
Businesses are dealing in a variety of ways, including increasing local sourcing, raising prices, implementing service charges, and adjusting portion sizes. However, the challenge lies in balancing profitability without alienating price-sensitive consumers who also value unique experiences.
“When we talk about the restaurant and those concepts that are winning, it's all about providing the experience,” said Henkes. “And so, when you start to reduce the portion size or cut back on popular or maybe higher cost SKUs, some of those things start to impact the experience.”
And value doesn’t always mean price. In fact, Henkes says while traffic is down, when consumers do go out, they're actually willing to spend a bit more so that they can make that one occasion special. “Because they're visiting less often, when they do go out, they're still value-oriented, but it's not necessarily about price. It's about that atmosphere and experience, which really becomes critical, particularly in a flat is the new up environment,” he says.
Henkes noted that many operators are infusing value and unique experiences into their establishments through things like happy hours, more limited-time offers (LTOs), new items, and a focus on building rewards and loyalty. “LTO is the innovation playground—that ability to bring new news— is really where we're seeing a lot happen,” he said.
What’s Next?
Technomic has gone back to issuing possible scenarios as a guide for the future. Their current scenarios range from:
High-End: Negotiations result in no major tariff increases, consumer price index spikes are avoided, and consumer spending bounces back.
Baseline: Tariff levels do increase, but maybe not as greatly as feared. U.S. GDP is downgraded by .3-.4%, pressure on pricing intensifies.
Low-End: Full-on trade war commences, with U.S. GDP downgraded by 1-1.2%. Heightened inflation, reduced consumer spending, and increased recession risk.
With the constantly changing tariff situation (just on Monday China and the U.S. agreed to slash tariffs to 30% for 90 days), it’s hard to say which scenario will end up becoming reality.
No matter what happens, resilience and adaptability will define successful bar and restaurant operations. Embracing innovation, fostering customer loyalty, and astute financial management are pivotal in mitigating challenges and capitalizing on emerging opportunities.
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