How do we judge 2023? In some respects, this was the first “normal” year the restaurant industry had since 2019. And yet everything seemed so not normal.
We spent most of the year worried about the economy. And yet by December, the U.S. consumer continued to spend, even if they did so a bit less often to adjust to prices. Restaurant companies boasted about performance and upped their projections for new unit growth.
Even so, the industry showed some cracks. Franchisees filed for bankruptcy. Consumers increasingly questioned the tip. Traffic is down, and consumers are wondering whether their visit was even worth it.
We can see all this as we look at the biggest stories from the year that was. So let’s take a look at the top stories of the year.
The California compromise
Hey, remember when we all thought $15 an hour was expensive? Good times. In any event, California fast-food operators will have to prepare for a $20 minimum, one that other industries and even independent and small chain and full-service restaurants will not have to pay.
It all came about when labor and industry advocates came together, agreeing to a watered-down Fast Act and the end of an effort to declare franchisors joint employers of their franchisees’ workers. The law will create a council to oversee regulations in the fast-food industry and sets the stage for limited-service chains to pay $20 an hour come next April. It also calls for annual increases in that wage.
The compromise has generated fear among operators in the state and is playing a role in McDonald’s franchise dispute. But large chains believe they’ll not only weather the increase but they’ll be able to grow.
The Subway saga
The country’s largest restaurant chain by unit count has been on the market all year, and we still have no idea whether Subway will actually be sold.
The sandwich giant was put on the market in January, which the Wall Street Journal reported. The company then said publicly that it was for sale a month later. It would take several months, however, before Roark Capital ultimately agreed to buy the chain for $9.6 billion—though that includes an earn-out provision based on performance.
And then, just when you think it’s all over, the FTC steps in and decides to investigate whether the deal would make the private equity firm Roark too powerful. So, at least for now, the deal remains a question mark.
Tipping and surcharges
Not all that long ago, a restaurant visit was simple: Get decent service, add 15% to your bill. Then it became 20%.
But then states and cities started taking away the tip credit. And they raised the minimum wage. Then labor got hard to find. And restaurants, unwilling to charge $12 for a taco, started levying surcharges instead. Meanwhile, fast-food restaurants started adding tips in a bid to get people to come work for them.
The result is a confusing and increasingly expensive visit to the restaurant. There is a growing backlash against tips. And the Biden Administration is looking at service charges as part of its effort to regulate “junk fees.” The result could change our tip culture forever.
Boston Market’s mismanagement
In 2020, a former Pizza Hut franchisee named Jay Pandya acquired Boston Market and then Corner Bakery. Three years later, the latter was in bankruptcy and the former was sued by US Foods for $11.7 million in unpaid bills.
As Restaurant Business would learn, the two chains under Pandya refused to pay bills without steep discounts and were sued more than 200 times, often by landlords over unpaid rent. Some of the lawsuits came from employees over unpaid wages, and the state of New Jersey temporarily closed Boston Markets there over some $600,000 in unpaid wages.
Corner Bakery has been sold out of bankruptcy. But Boston Market continues to close stores while it faces ongoing legal disputes.
Burger King’s challenges
In September last year, Burger King announced that it would invest $400 million into marketing and remodels. This year, we discovered exactly why the company needed the investment.
Three major franchisees filed for bankruptcy. Others were struggling and closed restaurants. And even some major operators like Carrols Restaurant Group were rethinking their business. Burger King’s sales struggled coming out of the pandemic and the company discounted too heavily, which proved problematic when inflation hit.
But the company is seeing better days now. Burger King’s parent company Restaurant Brands International overhauled management. The brand’s marketing appears to be generating sales and improving inflation has profits on the upswing. The publicly traded Carrols is the best performing restaurant stock of the year.
Here come the robots
In 10 years, we might look back on 2023 and think this was really the year’s biggest story. Well, that or tipping. But robots are coming for the restaurant business, whether you like it or not.
AI voice ordering is coming to more types of restaurants. McDonald’s and Wendy’s are increasing their use of the technology in tests, potentially setting the stage for two of the largest restaurants to use it. Chipotle and Sweetgreen are at various stages of developing automation technology that could revolutionize fast-casual restaurants (and maybe more). And AI and machine learning technology is increasingly prevalent throughout the restaurant to help make things more efficient.
The robots are definitely coming. And maybe for your job.
This story is part of Restaurant Business’ look back at 2023. Click here to read our other year-end coverage.
Members help make our journalism possible. Become a Restaurant Business member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.