Operators in both markets cite rising food and labor costs as their primary challenge
An early look at public restaurant performances from the third quarter so far shows sequential improvement in both sales and traffic compared to the first and second quarters. That, combined with a huge jump in current consumer confidence levels in October – 11%, the biggest increase since March 2021 – could create some optimism many of us have been craving throughout this challenging year.
But of course, this industry isn’t homogenous. Things are still quite stark with closures and bankruptcies dominating the headlines.
For restaurants in New York City – which boasts the most eating establishments in the United States – a summer slowdown was simply too much to bear. A new survey from the NYC Hospitality Alliance shows that 72% of restaurants reported declining sales in the summer – from June 1 through Aug. 31 – alongside slower traffic and higher labor costs. Just 5% of restaurants experienced an increase in sales, while 22% noted steady sales year-over-year.
For the businesses that reported a sales drop, 43% reported a decline of 1%-to-10%, while 29% experienced decreases from 11%-to-20%, and 24% experienced declines in the range of 21%-to-30%. Four percent reported a sales decline exceeding 31%.
That said, 33% of New York’s operators feel pessimistic about the fall season, while 26% feel uncertain and 41% have a positive outlook.
Driving much of the pessimism and uncertainty for survey respondents is the current regulatory environment, rising costs, and operational issues. Fifty-three percent of operators cite labor costs as their primary challenge, followed closely by lack of customers at 45%. The regulatory environment is the top concern for 39% of operators, followed by commercial rent costs (36%), inflation (32%), and insurance rates (31%).
“Declining sales, too few customers, and high operating expenses are a warning sign that many of our city’s restaurants and bars are struggling,” NYC Hospitality Alliance executive director Andrew Rigie said in a statement. “Our government leaders should heed this warning and focus on policies that support local businesses and not those that drive up costs and bureaucracy.”
Pulse check on Massachusetts’ industry
The Massachusetts Restaurant Association has also provided a pulse check on its eating and drinking industry, which is expected to contribute $32.6 billion to the state’s economy this year.
According to a new report from the association, conducted in partnership with the National Restaurant Association, 66% of full-service operators say their customer traffic is down from 2023, and only 20% of full-service operators think their sales will be higher in 2025.
Restaurant operators in this state also continue to face elevated costs, particularly in the two main cost categories of food and labor, with 97% of full-service operators saying food costs are a “significant challenge” and 98% of full-service operators saying labor costs are a “significant challenge.”
“It’s clear that elevated costs and inflationary pressures continue to make operating a restaurant challenging. Inflationary costs are being felt in households and consumers are dining out less frequently,” MRA president and chief executive officer Stephen Clark said in a statement.
Like their New York City counterparts, Massachusetts operators are also managing elevated costs that have impacted margins. Nearly 40% of full-service operators say their restaurant has not been as profitable this year versus last year, while nearly 60% say they’re still carrying debt accumulated since the start of the pandemic.
“The industry is on shaky ground, over the next few months, it appears we are going to see more of the same – softening sales and profitability will be challenged until labor and food costs are brought back to a more manageable level,” Clark added.
The pressures New York City and Massachusetts operators are facing contrast Toast’s 2024 Voice of the Restaurant Industry survey showing that about 63% of operators’ profits increased in 2024 versus last year, while just 4% said their profits decreased and 33% said their profits remained steady. The disparity proves the industry’s performance is increasingly uneven based on market, as National Restaurant Association senior vice president of research and knowledge Hudson Riehle predicted in the beginning of this year.
“You have all the different macroeconomic differences in regions, states, and metro areas. There are underlying economic infrastructures and different microeconomic climates which translate how different concepts can succeed. Occupancy, labor, utility costs, all of it can vary widely,” he said. “That is impacting restaurants differently in different areas. Looking ahead this year and beyond, that fragmentation of the industry overall will continue to grow.”
Contact Alicia Kelso at [email protected]
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