Food Service & Agriculture

MRA trends report predicts slow start to 2018

Despite ‘surprising’ sales gains in third quarter, restaurant operators expect hiring slowdown in next six months.

December 8, 2017
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The local restaurant industry is taking a wait-and-see approach to hiring next year.

The Michigan Restaurant Association (MRA) released its 2017 third-quarter trends report recently, reflecting responses from 603 of about 4,500 food-service establishments the MRA represents.

Respondents reported a 3.2-percent increase in same-store sales in the third quarter (July to September), compared to 2.7 percent in the second quarter. Same-store sales refer to the total dollar amount of sales in the company’s stores for the current period, compared to a period in the past.

Despite the sales increase, only 18 percent of operators plan to increase staff headcounts in the next six months, compared to 31 percent last quarter. Conversely, 16 percent expect to have fewer employees over the next six months, a figure that is up from 7 percent in the second quarter. Sixty-six percent said they planned no staffing changes.

Justin Winslow, president and CEO of the MRA, said the drop-off could in part be attributed to the ongoing battle for talent that cuts across all industries.

“The hiring slowdown likely reflects the difficulty operators across the state experience recruiting and retaining enough employees to meet demand,” he said. “As we have seen previously, operators are compensating for the labor shortage with simplified menus and more technology.”

James Berg, managing partner of Grand Rapids-based Essence Restaurant Group — which owns Bistro Bella Vita, Grove and The Green Well locations in Rockford and Grand Rapids — said his 20 years in the industry have taught him to be cautious with hiring projections.

His company, which employs 175 people, projects a 2 to 4 percent sales increase in 2018, which he believes is not enough to grow staffing levels.

“Especially as you go into winter, we are quite cautious in the Midwest with snow. You get a couple good snowstorms on the weekend, and that can be devastating to sales,” he said.

“I would think (a hiring slowdown) would be pretty consistent with what we’re thinking — and on a national level.”

Another factor to weigh is the uncertainty surrounding tax reform, Berg said.

“We are just cautious with the possible tax changes on the state and federal level. Regardless of whether it’s good or bad, we just don’t know what it’s going to look like in the next six months,” he said. “As we are finishing up our 2018 budgets, it would be nice to know some of these things.”

About half of the responses to the survey, conducted by independent research firm Cleveland Research, were from casual- and family-dining operations.

Eleven percent of responses came from pubs or bars, 9 percent “other,” 8 percent fast food, 8 percent fast casual, 6 percent fine dining, 4 percent cafés/coffee shops, 4 percent catering/contract food service, 1 percent breakfast/brunch and 1 percent convenience stores.

Sixty-two percent of establishments that submitted feedback were single-unit, independent entities, 12 percent were multiunit independent, 12 percent were multiunit franchisees, 6 percent were single-unit franchisees, 6 percent were multi-concept restaurant groups and 2 percent were corporate-owned chain restaurants.

Most survey respondents (51 percent) said they believe general business conditions six months from now will be about the same. Slightly fewer (30 percent) said they anticipated better conditions, and 19 percent expected conditions to worsen.

Food costs as a percentage of overall expenses declined in the third quarter to 31.7 percent, down from 31.9 percent in the second quarter, 32.2 percent in the first quarter and 32.6 percent in 2016.

Berg said Hurricane Harvey and the wildfires in California will continue to impact the price of beef, avocados and other produce on which the restaurant industry relies, although Essence sources produce locally as often as possible.

The MRA survey showed labor costs declined to 28.3 percent, compared to 29.1 percent in the second quarter, 29 percent in the first quarter and 30 percent in 2016.

Berg said his restaurants face a competitive landscape in Grand Rapids with the proliferation of similar-concept eateries competing for the same talent, which drives wages up.

“If we are taking out quality or trying to reduce labor costs to make the bottom line better, that will affect culture,” he said. “We believe culture trumps process.”

He said “menu engineering” — which includes, for example, paring down the number of offerings from 50 to 35 to focus on the best-sellers — is one way to boost sales and offset costs.

“You can’t raise pricing too much because of competition,” he said. “It’s through menu engineering and looking at what you’re offering. It’s looking at what are they eating and trying to meet that demand that way.”

Winslow said the 3.2-percent increase in same-store sales in Michigan restaurants in the third quarter is particularly impressive compared to the national decline of 2.2 percent.

“The same-store sales figures are an encouraging sign for Michigan’s restaurant industry because they demonstrate real growth and look stronger than many other parts of the country right now,” he said.

Berg agreed, noting Essence saw “modest” third-quarter sales increases at its four restaurants.

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