US Restaurants Face Tough 2019

U.S. restaurant chains dealt with slow-growing sales and lower demand among consumers during 2018 — and more pain is expected in the New Year.

According to a report in Bloomberg citing analysts and industry watchers, U.S. restaurants are expected to face more pain in 2019 such as rising food and labor costs that will hurt profits and hamper plans to spend to grow. Even the big players aren’t immune. Bloomberg pointed to Starbucks, which already announced plans to close some of its U.S. stores, and McDonald’s, which has been changing its pricing and expanding delivery with Uber Eats to drive sales and stay relevant in an increasingly competitive industry.

Bloomberg reported that delivery and packaging will be a big issue the restaurant chains have to contend with in the New Year. Because consumers in the U.S. are getting used to food delivery, the big chains are getting into the market. That will prompt investments in technology to support delivery. On top of that, the companies have to share the revenue with the delivery service, which makes it harder to have a profit on customers who are interacting via mobile device or online.  The demand is also prompting the restaurant chains to spend money to develop delivery containers that keep the food as is, not turning it into a soggy mess. According to Bloomberg, IHOP overhauled its pancake container and the box shape so that food doesn’t slide around during deliveries and can stay fresh for 45 minutes. Meanwhile, Shake Shack is testing new packaging, noted the report.

Another issue for the restaurant chains in 2019 is the data they are amassing from delivery services. That is creating tensions between the delivery companies and the restaurant operators as to who owns the very valuable data. With the data, chains can create ads to keep customers coming back, with the largest companies likely to have the most power to access it. Food inflation could also weigh on the companies in 2019, with the potential for the cost of food to increase in the New Year.  Bob Derrington, an analyst at Telsey Advisory Group, told Bloomberg that the average foods costs could increase by around 5.4 percent. Labor costs will also increase as unemployment remains low, predicted Bloomberg in the report.