Recent data and reports from Square, a point-of-sale solution, has revealed that restaurants continue to struggle with the costs from inflation and higher wages.
Square released its Quarterly Restaurant Report in November, which uses data across Square’s food and beverage sellers to examine dining trends as well as shifts in consumer spending and restaurant wages. The report found that even though inflation peaked for full-service restaurants in April 2022, establishments are still grappling with the problem even as inflation cools.
“Despite inflation easing, restaurants are continuing to face a number of challenges in their operations whether it’s fluctuating food prices, employee retention, or ballooning payroll costs," said Ming-Tai Huh, Head of Food and Beverage at Square, in the report. "Many restaurants are grappling with how to balance these increased expenses while still offering affordability to customers. We’ve seen some restaurants lean on automation and other time-saving technology to keep margins under control."
Part of the reason for the inflation woes are increased labor costs, with full-service restaurants taking the biggest hit. According to the Square Payroll Index, when tracking average hourly earnings (inclusive of base pay, tips, and overtime), wages for full-service workers have grown 73.9% compared to 60.2% for quick-service restaurants since 2017.
“The cost of labor is growing faster than revenues in some segments, compressing margins in an already tight sector," said Ara Kharazian, Square Research Lead and principal developer of Square Payroll Index, in the report. "This trend will likely continue. Restaurants are hesitant to raise prices on consumers, but we remain in a pretty hot labor market so wage increases will have to come from somewhere if restaurants want to remain competitive."
However, there are bright spots to note. In its report on Black Friday and Cyber Monday sales, Square found that shoppers dined out at local restaurants in a big way during the weekend. Restaurant transactions were up 12%, while restaurants aimed to attract customers through Black Friday and Cyber Monday discounts, with a 28% growth in discounts redeemed this past weekend.
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