As much as we like to try, nobody can predict the future. People and businesses are settling into the new year and preparing for what’s ahead, but what is that exactly? 

The easy answer is that different industries will find that different challenges and successes await in 2023. We spoke with Jessica Dunker, president and CEO of the Iowa Restaurant Association, to get a pulse on the restaurant industry and what she’s predicting and preparing for in the coming months. From navigating inflation to finding innovative labor solutions, Dunker said the industry is gearing up for another year of obstacles.

“It’s hard, because we’re an industry that wants to please people,” she said.

Inflation and ingredients

In her response to the Business Record’s Economic Outlook Survey, Dunker said the biggest threat on the horizon for the restaurant industry will be “inflation [continuing] to negatively affect discretionary spending in restaurant, tourism, travel and retail businesses.” Restaurants are seeing this already, she said, as people are coming in and skipping appetizers and drinks to save on their bill.

Beyond consumer choice, inflation is also hitting the businesses. “For the first time ever, the restaurant industry is experiencing a simultaneous 15% increase in the cost of goods and cost of labor,” she said.

For the first time ever, the restaurant industry is experiencing a simultaneous 15% increase in the cost of goods and cost of labor.

JESSICA DUNKER, president and CEO, Iowa Restaurant Association

According to the December Iowa Operators Survey, which analyzes eating and drinking establishments throughout the state, 97% of food service operators said food costs are going to be a “significant challenge” in the coming year.

Restaurants and bars are sitting at the confluence of these two challenges that are beyond their control. In order to survive, Dunker said, these operators (and consumers) are going to have to be flexible. “There will be restaurants, particularly independent restaurants, whose menus just look different,” she said, because they can’t afford the ingredients they need or can’t raise prices to compensate for the expensive ingredients. “We are reaching the threshold for what consumers are able to pay for going out.”

While she understands diners worry about their own wallets, Dunker said there’s an unexpectedly easy way to help restaurants when going out. Just order a beer and some fries. “They aren’t the most expensive items, but they’re the most profitable,” she said.

Solving workforce issues

Since the COVID-19 pandemic upended the traditional labor market, nearly all bars and restaurants have struggled with finding and keeping talent. “[The industry] laid off 66,000 people in March of 2020, and a lot of them didn’t come back. They found other things to do,” Dunker said. Iowa’s worker participation rate continues to rise to levels similar to its pre-COVID percentage.

The restaurant industry continues to build back talent by increasing wages and making benefits more attractive. “It is an employee’s market. If you don’t pay the wages the market is offering, you will not have employees,” Dunker said.

The industry is looking to youths to help solve this problem. The association is looking at ways to remove some of the barriers for teens who want to work, like updating rules and regulations that prohibit jobs for certain age groups. Dunker said the association is also an advocate for a proposal from the Iowa State Workforce Development Board to create a “work license” similar to the school permit for young drivers. A work license would benefit younger teens wanting to work hourly after-school jobs.

Still, labor remains a pain point that Dunker believes will continue in 2023. However, this challenge has been driving innovation in the industry. You’ll likely continue to see more technology use, like ordering on your phone or at a kiosk, and offering special to-go or prix fixe menus to reduce the amount of serving staff necessary, she said.

Additionally, establishments are closely considering their relationships with third-party delivery systems.

“My hope for [the future of] the industry is that we can find a model for third-party delivery that is profitable to restaurants as well as those third-party companies,” Dunker said. We know consumers love that convenience, she added, “but it’s something that is just sending money out the door for restaurants.”

Sustainability efforts

Several industries are making more concerted efforts to be cleaner and greener and to reduce their negative impacts on the ecosystems they inhabit. Going forward, sustainability is also going to be an important focus of the restaurant industry, Dunker said.

“There’s a lot of ways that restaurants can really help with sustainability that people don’t think about, and one of those is food waste,” she said. “Because it’s also cost-efficient to do so, I think we’re going to see more visible sustainability efforts.”

Going beyond recyclable to-go containers, Dunker predicts there will be more fundamental operational ways that owners and managers will seek to incorporate sustainability.