There’s no doubt about it: Americans LOVE to eat! And we have the restaurants to prove it. There are approximately 364,000 restaurants in the U.S., which include everything from full-service restaurants, to quick-service restaurants (fast food, snack, and non-alcoholic beverage bars), fast-casual restaurants, grills, buffets, and cafeterias.
There are also a number of specialties that fall under the umbrella of the restaurant industry including increasingly popular food trucks and restaurant franchises, which are individually owned and operated businesses that benefit from the marketing and operational assistance provided by a franchisor.
For many people, owning a restaurant is a labor of love—a love for food, cooking, creativity, and customer service. But it also can be a very stressful industry with fluctuations in food prices, employee turnover, and demand tied to the weather and the economy.
Despite the perceived high failure rate due to heavy competition, cyclicality, and workforce issues, here’s a look at the restaurant industry to help you determine if it might be a niche you’d like to include in your portfolio.
The big-picture numbers
- According to the National Restaurant Association and Deloitte and Touche, the average guest bill at a limited-service restaurant is $9-10, and at a full-service restaurant, it ranges from $11 to $35.
- Most customers pay with cash, credit, or debit card, so receivables are low. The collection period is less than 1 day because payment is received at the time of service.
- Restaurants depend on a consistent stream of customer traffic to maintain cash flow, often relying on “regulars” to create a sustainable business. Sales can be somewhat seasonal, with higher volumes during warmer weather.
- The cost of food is the largest expense and represents about 42 percent of sales. Fluctuations in commodity pricing influence wholesale food prices and can significantly impact gross margins and profitability.
- Labor accounts for 20-21 percent of sales, though pay rates for many restaurant workers are at or just above the minimum wage. Periodic increases to minimum wage laws reduce profitability and force restaurants to look for ways to cut costs.
- Rent is about 7-8 percent of sales, and operating margins range from 5-6 percent of sales.
Top trends within the restaurant industry
Still rebounding from the recession
The industry experienced three consecutive years of declining sales during the last recession, but as the economy continues to recover, increased demand for eating out is projected to drive restaurant industry sales. Overall, restaurant sales were projected to grow by 4.3 percent in 2017, according to the National Restaurant Association. This growth in demand also should drive restaurant employment.
Impact of social media
According to the National Restaurant Association, people who use social media and mobile phone “apps” dine out more frequently than others, so restaurants are utilizing social media to market themselves and reach this key audience. Since dining out is an important part of their lifestyle, social media users are actively engaged in restaurant experiences and are likely to connect with establishments and post or read reviews online. These socially savvy customers also are more likely to use services like online ordering and mobile phone ordering apps.
More focus on health and the environment
Consumers are increasingly seeking out food that is healthy, locally sourced, and environmentally-friendly. As a result, chefs are creating restaurant menus that contain diet-conscious items, nutritious children’s dishes, and gluten-free/allergy-sensitive options. Locally sourced, sustainable meats, seafood, and produce are other hot trends, as are restaurant gardens and farm-branded ingredients.
The food truck movement
Food trucks provide quality—and sometimes gourmet—meals on the go at reasonable prices, making them a trend that is projected to grow as brick and mortar restaurants look for ways to expand reach and generate incremental sales. According to Nation’s Restaurant News, the cost for a food truck ranges from $10,000 to $100,000, versus $1 million+ for a traditional restaurant.
Shifting to digital signage
Digital menus and signs are growing in popularity, helping restaurants reduce operating costs, increase sales, attract and entertain consumers, and promote brands. In fact, according to QSRweb.com, the use of digital menus translates to an average sales increase of about 5 percent. Switching to digital menus and signage requires an upfront investment, but ultimately, they lower operating costs by requiring less manpower/expense to update.
What bankers can serve up for restaurants
- Efficiently managing cash and credit/debit card payments from customers (the average guest bill at a full-service restaurant is $11-35).
Solutions to consider: Merchant services, remote deposit capture, remote cash deposit
- Managing cash flow and “prime cost”— the cost of food and beverages plus labor expenses (which averages 60-70 percent of sales).
Solutions to consider: Line of credit, online/mobile banking, ACH services with blocks and filters, term loans
- Funding investments in property, kitchen equipment, and dining room amenities to attract customers in a competitive restaurant market.
Solutions to consider: Real estate loans, equipment financing, line of credit
- Efficiently paying staff (20-21 percent of sales) and minimizing employee turnover.
Solutions to consider: Payroll services, employee payroll card
- Adhering to governmental health, safety, and sanitation regulations.
Solutions to consider: Line of credit, term loans
Want this kind of in-depth analysis on more than 300 other industries?
All of the industry information in this post came directly from the Vertical IQ Industry Profile on Restaurants. Reviewing this profile, or even doing a quick five-minute review of the industry’s Call Prep Sheet, gives you valuable insights into your restaurant banking prospect–their opportunities as well as the issues that may be keeping them up at night.
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