The end (of 2023) is nigh! And thus, it’s time for us to do another round of recapping the year that was with our top restaurant stories of 2023. Operating in the restaurant industry is always a difficult go and this year was no different. From inflation to unionizing to the death of ghost kitchens, our industry continues to change and adapt.
Let’s run down our top restaurant stories of 2023.
Inflation Hit Restaurants & Workers Hard
According to a new James Beard Foundation report, more than half of restaurants saw a profit decrease in 2023 compared to 2022. Lower profits were in part due to rising food and labor costs (which also saw a slow down in 2023), and also inconsistent consumer behavior due to inflation.
Inflation peaked at 9% in June 2022, but the effects were still clearly felt in 2023, even as deflation kicked in the past year.
Despite higher costs and more erratic consumer trends, it wasn’t all doom and gloom for operators. The majority of restaurants (67%) said that 2023 was a good or average year, and more than half (51%) said it was better than 2019, before COVID-19 raised hell.
Inflation also hit restaurant workers hard. Employee wages grew 4.9% year over year in October 2023, a big slowdown from when wage growth hit 10.5% in December 2021, the average base wage was $12.60, and average hourly earnings totaled $15.85.
Restaurant wage growth dropping is a bit of a two-fold. With less discretionary spending allowance, consumers are less likely to eat out at restaurants. Less profit means less dollars to throw around at staff. But it also means less tips for waitstaff, and that’s not even taking “tipping fatigue” into account.
The Restaurant Industry Continued to Unionize
While the restaurant industry has one of the lowest union membership rates in the country, organizing activity has been increasing over the past few years.
According to a Bureau of Labor Statistics report, 1.4% of workers in the “food services and drinking places” industry were union members in 2022. That number jumped to 3.3% in 2023, which still makes it the third-lowest unionization in the US. With that said, that’s a huge jump in membership. Meanwhile, restaurant-related unions have won 80% of votes since 2022.
And while a lot of these union efforts have been focused on larger chain operators like Starbucks, it’s crept into the independent restaurant sector as well. In 2023, for example, there was union organizing at Kaiser’s Grateful Bean Café in Oklahoma; Công Tử Bột, a Vietnamese restaurant in Maine; and Barboncino, a Neapolitan-style pizza restaurant in Crown Heights, Brooklyn.
Gen Z is also much more pro-union than their elders with a 64.3% union approval rating. Millennials came in at second with 60.5%. Gen Z and Boomers hovered just above 57%. So that trend of unionizing is only going to gain more steam in the coming years.
The NFL Started its Drive to Streaming-Only
While sports moving to streaming services has become a little more common in the residential consumer sector, it’s been a little slower to move for commercial vendors, like sports bars. However, streaming began to hit sports bars and sports-themed restaurants more directly in 2023.
It started this summer when the NFL Sunday Ticket transitioned from DIRECTV to YouTube for residential customers and EverPass secured the commercial rights. Then the NFL teamed up with EverPass to put two games on Peacock Sports Pass -- the Buffalo Bills and Los Angeles Chargers on 12/23, and one Wild Card playoff game on January 13, 2024. Peacock Sports Pass is a streaming service available currently only through UPshow.
It’s one thing to have a rando preseason or low-stakes regular season game as a streaming-exclusive. But it’s an entirely different ballgame when the NFL puts a postseason game as a streaming-only exclusive. It really forced sports bars to decide how serious they are about being able to offer every game to their guests.
Depending on how both of these games perform, it could be a major pivot point for how professional leagues do business with content providers and therefore how sports bars operate their business. And that’s a big deal.
The Death of the Ghost Kitchen
Ghost kitchens – aka virtual kitchens, cloud kitchen, dark kitchen -- are commercial kitchens optimized for third-party food delivery service. In short, they have no dine-in option for guests and only do delivery. Several menu and cuisine styles can come from the same ghost kitchen and under different restaurant names. It allowed investors and restaurants to field test different concept ideas from one location.
This was a great model during the pandemic where local ordinances forced restaurant dining rooms closed and restaurants could only do delivery for guests. But now the business model is showing signs of weakness.
For example, many guests were confused they couldn’t find physical locations of the restaurants. Some customers felt fooled or tricked, thinking they were supporting small independent restaurants. A large number of ghost kitchen customers have moved back to in-person dining at restaurants, something ghost kitchens are built not to offer. Ghost kitchens also heavily relied on third-party delivery apps like UberEats and GrubHub, which take up to 30% commission on every order. UberEats also dropped thousands of restaurants without storefronts this year, further straining ghost kitchen brands.
And 2023 saw the beginning of the end for the business model.
Kitchen United, which generated $175 million in funding and was backed by Kroger, announced it will sell or close all of their locations and focus on its proprietary software.
Reef Kitchens, backed by SoftBank, started closing their locations back in March to focus on licensing its technology to spaces like stadiums and airports.
Wonder — which initially intended to be a mix between a food delivery, food truck, and ghost kitchen — retired its mobile ghost kitchen model and opted for a less expensive brick-and-mortar concept in April.
In short, many of these ghost kitchens were really tech companies dipping their toes into the restaurant industry. It also goes to show that you need more than big funding to be successful in this industry.
There you have it! Our top restaurant industry stories of 2023. Stay tuned for our annual industry predictions for 2024 – coming soon!
