Bars, restaurants caught between inflation, supply crisis and labor crunch as rebound ‘runs its course’

Restaurant operators and workers across the U.S. are struggling to rebound from the pandemic, and are battered by a lack of staff, skyrocketing prices and supply shortages.

Paula Tejeda is one of them. 

Even after mass vaccinations, customer traffic is “still very shaky,” Tejeda, the owner and founder of Chile Lindo, a deli and coffee shop in San Francisco, said in an interview with Yahoo Finance.

“The hospitality business, which is restaurants, small coffee shops and bars, are not back. We do not have enough foot traffic,” the business owner added.

The worldwide outbreak delivered a massive shock to the restaurant industry — which now employs one million fewer workers than in 2019 and has yet to return to pre-pandemic levels. 

Meanwhile, COVID-19 infections are threatening a new surge ahead of the winter: on Friday, news that Austria would reimpose a broad lockdown rattled investors, and fanned concerns about how the U.S. might be impacted if cases spike.

For the leisure industry, the recovery has been anything but smooth. Restaurant and bar sales were flat in October versus a month earlier, according to the Commerce Department’s latest retail sales data. 

It signals the pressure the hospitality industry is under pressure from rising inflation, strict vaccination requirements, labor shortages and supply chain constraints — and the Delta variant surge that menaced the economy over the summer.

“We would have expected it to pick up but it hasn’t, I suspect it’s a sign that the recovery and branch from dining has kind of run its course,” Michael Pearce, Senior US economist at Capital Economics, told Yahoo Finance in an interview.

“The problem is that we know restaurant prices are going up, so we would have at least expected the nominal dollar value of spending at restaurants and bars increasing, the indication is that the trend is no longer going upwards,” the economist added.

‘The backlash is serious’

SAN FRANCISCO, CALIFORNIA – AUGUST 11: A pedestrian walks by a closed restaurant on August 11, 2020 in San Francisco, California. More than 2,000 businesses in the San Francisco Bay Area have permanently closed and many more small businesses are struggling to stay open as the coranavirus (COVID-19) pandemic continues around most of the world. (Photo by Justin Sullivan/Getty Images)

The COVID-19 pandemic ushered a massive change in the restaurant industry, with many forced to close, while others had to make the decision to reduce their workforce, and lean more heavily on technology.

But now, restaurants have fully reopened and guests are back, and restaurants are looking to hire again. However, the environment is one in which employees are in short supply: the so-called “great resignation” has left millions of jobs unfilled.

Although the industry is recovering, many restaurant employees have left the industry for good.

Meanwhile, small businesses like Tejeda’s are falling behind larger companies in the race to raise wages — making it even harder for them to attract a shrinking pool of available workers now that unemployment dropped to 4.6% in October. New regulations designed to address COVID-related concerns have presented an added burden, some argue.

We can’t deal with more bureaucracy. It’s enough. We already had enough [before] COVID…then we have a bunch of regulations because of COVID.Paula Tejeda, cafe owner

In San Francisco, this summer, the minimum wage for all workers in the city and county increased to $16.32 per hour — $0.25 more than it previously was at $16.07. But some small businesses say they can’t keep up given tight margin profits and soaring prices.

“Hourly wages are very high,” Tejeda explained. “Without the foot traffic that we depend on, we’re talking about selling a $2 coffee and a $8 empanada in three hours while you’re paying $18 an hour. I ended up closing three days a week. It just didn’t make sense for me to be open.”

Additionally, the industry-wide bottlenecks have also forced business owners to wear several hats: “from shopping to picking up garbage, to cleaning,” Tejeda said. 

It’s a balancing act between keeping the restaurant afloat and keeping employees happy.

With the holiday season fast approaching, business owners are beginning to feel the heat from a rise in inflation, supply chain chaos and worker shortages. The National Restaurant Association reported last month that 4 in 5 operators are understaffed — including 81% of full-service operators and 75% of limited-service operators.

Many have had to increase their prices to afford the wage hikes, and being transparent with the customers about the reason for these changes. However, Tejeda hasn’t quite done that yet. 

“I cannot pass on the expenses to my customers, the backlash is serious,” Tejeda said.

Meanwhile, other challenges have started to boil up for business owners in the Bay Area.

At the peak of the pandemic, restaurant parklets — the outdoor dining fixtures built on sidewalks and parking spots — were key to businesses surviving. However, the city will start imposing new rules on the now-permanent structures, and that could signify a financial blow for struggling small businesses.

“They need to give us a little more time to recover,” said Tejeda.

“We can’t deal with more bureaucracy. It’s enough. We already had enough with what pre-COVID meant then we have a bunch of regulations because of COVID and now more because of the parklets,” she added.

The fate of outdoor dining

People enjoy outdoor dining as the spread of the coronavirus disease (COVID-19) continues, in New York City, New York, U.S., February 4, 2021. REUTERS/Jeenah Moon

People enjoy outdoor dining as the spread of the coronavirus disease (COVID-19) continues, in New York City, New York, U.S., February 4, 2021. REUTERS/Jeenah Moon

In New York, outdoor dining has sparked a heated debate, and prompted city officials to codify one of the most transformative changes in recent decades. It’s become a contentious battle that has fueled a group of residents to sue the city last month, detailing complaints about outdoor dining.

Despite the ongoing litigation, the city planning commission voted unanimously on Monday for a zoning text amendment that will create a clean slate for the city to develop and regulate a permanent program. 

“Open Restaurants has saved more than 100,000 industry jobs and countless small businesses from financial collapse, and this yes vote is a critically important first step towards developing a sustainable future for this very popular program,” Andrew Rigie, executive director of the NYC Hospitality Alliance, told Yahoo Finance in a statement. 

While outdoor dining is facing uncertainty, this winter could be a make-or-break moment for some restaurants, especially for New Yorkers, after the city announced that propane heaters could not be used to provide warmth for outdoor dining amid fire safety concerns. 

Meanwhile, restaurants still have to mitigate the effects of a labor crunch and supply chain disruptions that are hindering their ability to thrive. Some power players have leaned into technology to fill in the gaps, especially those dealing with employee shortages.

Restaurants can be slow to adapt to new technologies, as the transition is expensive and complex. But the trend could become imperative to them flourishing post pandemic.

“There’s no question the future of the hospitality industry depends on digitization,” Enrique Ortegon, SVP, SMB, Salesforce, told Yahoo Finance in a statement.

“It’s become more imperative than ever for restaurants to embrace technologies that both optimize their customer experience and boost the productivity of their staff with effective tools and training that set them – and their business up for success,” he added.

Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter: @daniromerotv

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