Stable Sales and Inflation Relief: Why CapitalSpring is ‘Cautiously Optimistic’ About the State of the Restaurant Industry in 2023

The restaurant industry has experienced serious whiplash in recent years, with the pandemic, supply issues, price hikes, and struggles with employment. With 2023 underway, Jim Balis, managing director of the Strategic Operations Group at private investment firm CapitalSpring, explored what has improved this year, what problems still stand in the way and what to expect in the coming months.

“Where the industry stands today, traffic has tended to be down, depending upon the segment, and prices are up, both as a result of inflation,” Balis said. “Utilities are up, repairs and maintenance expenses are up, and it’s hard to get parts and uniforms. Inflation has impacted the entire P&L top to bottom, and margins have definitely been challenged.”

However, on the bright side, restaurant sales are mostly up or flat. Gas prices have decreased recently, bringing down the cost of having food delivered. Balis said businesses have seen most of the problems with the supply chain and backlog at ports alleviated. Issues with labor and staffing have eased, with restaurant concepts seeing more applicant interest compared to last year due to increased wages and a resurgence of dining out post-pandemic.

As a result, the cost of commodities is slowly beginning to decline. Balis and his team at CapitalSpring are hopeful this will lead to improved margins going forward.

“There's a lot of unknowns that seem to be around the corner, so I'm cautiously optimistic about 2023,” Balis said. “I think as we look ahead to the future, we're seeing relief, to some degree, across the board.”

In the meantime, restaurants can focus on what they can control and watch where trends are going to act accordingly. Some have made changes like scaling down menus; others are finding a niche in popular models like chef-driven fast-casual concepts or plant-based eateries.

More companies in the segment are increasingly investing in and adopting automation tools like

voice AI for drive-thrus or robots that make fries and beverages. Balis sees these advances in technology as a great solution to many of the headwinds in the industry and expects them to “completely proliferate in the market in the next 24 months or so.”

Balis has also seen an increase in technology that helps with utility savings. These systems are helpful for restaurants to ensure mechanical systems are running efficiently and that unnecessary costs are cut wherever possible.

“As more of these cost pressures are relieved a bit, that’s when we should see things improve. Balis explained. “It’s vital to keep a close eye on the environment to decipher how to navigate the coming year.”