Restaurant Investment Levels Rising But Owners Continue To Tackle Worker Shortages And Higher Food Costs

Despite continually rising inflation, one thing American consumers are reluctant to give up is eating out. 

One of the most significant casualties during the pandemic, restaurants are continuing their post-COVID comeback, with total transactions rising 10.3% in the second quarter of 2023, according to CoStar Group's BizBuySell. BizBuySell, the largest online business-for-sale exchange, lists restaurant sales transactions climbing 8% in the second quarter, following a 4.8% gain in the first quarter.

But according to its second-quarter 2023 insights report, rising interest rates continue to create a challenging lending environment, and buyers and sellers must be financially creative to get deals done. 

"Transactions have been climbing, but we're not yet at the prepandemic level," BizBuySell President Bob House told Benzinga.

House said inflation may not be affecting the number of people visiting restaurants but has negatively affected the amount of money restaurant owners and investors have made. 

"Revenue may be increasing, but profit has definitely been more challenging with supply chain issues and rising labor costs," House said. "Nonetheless, restaurants are commanding higher prices in the market."

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The two biggest economic factors for restaurant operations are employee and food costs. Wages continue to rise as the employment pool remains shallow, and food inflation continues to affect the bottom line. According to The Wall Street Journal, recent government data shows more than 1 million job openings in the hospitality sector — the majority in restaurants. 

Despite higher food and labor costs, BizBuySell's report says restaurant median cash flow was up 4.2% over the previous quarter, though down 1.4% from a year earlier.  The reason, House says, is that restaurants are continually working to overcome their labor shortage issues and streamlining their operations to get higher sales prices.

"Employment is still a challenge, but these businesses are improving their top-line revenue and commanding higher values. Last quarter the median sales price was $240,000 for predominantly independently owned restaurants, with 383 sold during the quarter. It's the highest we've seen in five years," he said. 

Although transactions are rising, restaurant sales prices are still trending down. The report says the median price in the second quarter dropped 14% to $300,000 from the previous quarter, with the median asking price in the second quarter down 8% over the same period.

In spite of those challenges, House remains bullish on the rest of 2023. 

"I think sales volume with continue to tick up," he said. "The economy is proving resilient, and jobs numbers overall are passing expectations. People still want to dine out." 

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