Inflation continues to be the top challenge for restaurants as they look ahead to 2023, according to a survey conducted by TD, America's Most Convenient Bank^®, at the 2022 Restaurant Finance and Development Conference in Las Vegas, Nevada. The poll collected insight from 300 restaurant franchise operators and other finance professionals to identify restaurant franchise finance trends.

In addition to inflation as the top challenge that restaurant franchise professionals are facing, they also cited the labor shortage (32%), supply chain disruptions (16%) and rising interest rates (11%) as factors impacting their businesses. Despite concerns around inflation, operators are still finding opportunities to invest. Data uncovered that investments in physical locations remain a priority from a service perspective, though a near equal number of respondents intend to focus on developing digital and delivery services.

Labor quality and availability has been a particular pain-point. When asked to describe the labor quality and availability due to the current macro environment, 69% respondents said they noticed a decrease in labor quality and availability. Just 24% reported that they have seen an improvement in labor quality and availability.

Top Investment Plans Focus on In-Store Reimagining or Remodeling

While restaurant franchise operators face a number of challenges stemming from the current macro-economic environment, they continue to plan for the future—investing in their businesses to stay ahead of the competition. 41% of restaurant franchise operators said that they plan to invest in in-store reimagining, remodeling or in digital and delivery systems.

Many restaurant operators are looking to invest in technology to further streamline the process from placing an order to receiving your food, with 38% of operators planning to invest in technology such as a new POS, digital signage or other in-store tech and 37% planning to invest in mobile ordering. Respondents also reported that their restaurant franchise plans to invest in delivery service (23%) and alternative payment methods for speed and convenience (16%). Just 15% reported that their restaurant franchise had spending cuts planned, and 11% of restaurant operators selected that they have no investments planned.

"Our survey found that the majority of restaurant franchise operators plan to invest in store digital and delivery systems, as well as in reimaging and remodeling. The plethora of investment opportunities that are available to restaurant operators speaks to how much the restaurant industry is constantly changing to meet consumers' demands," said Mark Wasilefsky, Head of Restaurant Franchise Finance Group, TD Bank. 

Restaurant Franchise Operators Report Optimism for Year Ahead

Looking ahead to 2023, two out of three (66%) restaurant franchise operators and industry professionals feel optimistic amid the current macro environment. However, 18% of respondents selected that they feel indifferent about the future of the restaurant industry and 13% of respondents selected that they feel negative about the future of the restaurant industry.

"Many restaurants went through a major shift during the pandemic with an increase in demand for delivery and takeout options," continued Wasilefsky. "As many people are beginning to restart their pre-pandemic routines, restaurants are likely to see another change in dine-in options. The industry is extremely resilient, and operators must adapt to meet consumers' demands in an ever-changing restaurant landscape."

Wasilefsky added, "There are material challenges ahead for the industry. Below the revenue line, challenges in labor and inflation are creating compressed margins. At the same time, consumers are demanding a better digital and in-store experience, which requires an investment in their physical and digital presence. Brands with solid digital and delivery programs and up-to-date facilities will have a distinct advantage. In addition, operators with stronger balance sheets and overall better liquidity positions will be able to take advantage of this opportunity to grab market share."