The restaurant industry struggles to satisfy demand as food prices increase and labor shortages persist. Customers are choosing cheaper menu items and visiting their restaurants less often. This comes as some restaurants report weaker sales or declining traffic in the second quarter, signaling that diners are cutting back on eating out to save money.
So is this the new norm for the restaurant industry? Jack Gibbons, the CEO of Front Burner Society, talks about the state of the restaurant industry and how consumer habits impact profits. 

Opening Bell

Is this economy a fresh start for restaurants?

here to discuss is Jack Gibbons Ceo of Front Burner Society. Thank you so much for joining us. Jack, I want to start with uh how do you see the state of the restaurant industry right now? You know, I would say it's probably the best of times and the worst of times. Mm That's simple. The best and the worst when, right now, when you think about the consumer, they are looking to get out of the house and find good news. And uh restaurants are a good place to find solace and it's time to get away with your family and have good vibes. You know? Well, the people are definitely gonna get out and when they can, when they can afford it, maybe they're saving up more. Do you think that the larger restaurant or the more expensive restaurants are the cheaper ones that are just easy to get a quick meal will fare better during this time. So our our in our portfolio at FB Society, we have a series of different kind of restaurants. So we have food halls, we have full service restaurants and we have fast casual. But what we find is certainly from a restaurant perspective of higher costs and some of the inflation and things like that. That's, that's a real thing that restaurant tours are facing. Um but at the same time, we do find that our brands tend to be um more lifestyle and aspirational and we find our, our sales are over last year, over the last two years And people are looking for ways to get out and have a relaxing experience that connects them to, you know, what they remember before the pandemic. That's a good point. But according to NPD group restaurant menu prices rose 7% on average in the last three months compared to last year. So do you think that restaurants still have the pricing power to offset the decline in customer traffic? I think there's some price elasticity depending on how you manage pricing. But I think at the end of the day, the consumer walks in and pays that bottom line on the check and says, did I walk away feeling value? And I think it's it's also a tale of other restaurants where some they walk in and they just walk out and said, man, I could have just made this at my house and other ones where they were sort of transported had this great experience. They just feel actually value even if they paid more. You know, a lot of that has to do with staffing shortages that we've been seeing impact the restaurant industry. I mean in some aspects, the restaurants are spending less on staff because they just don't have that many staff members. But also it could be affecting the company because now people are upset. There is taking forever to get their food. They're not feeling like they're, you know appreciated as customers. So how do you think that that staffing shortages impacting restaurant revenues? I think it's a real thing and I think, you know what, look, most of our restaurants are based in texas. And what we find is we combat it with some creative ideas on how to keep the people we have and we're not finding the same staffing shortages that other brands are. Because what we do is, you know, what in the past the brand was defined by just a consumer. What we've tried to do is build brands around a place where the, the actual employees want to work and it's fun and it's an energetic and they're proud of where they work and so in doing those things, what we found maybe compared to a lot of huge chains were not having some of those issues. Do you see that this increase in pricing is something that we can, can see continuing to happen? Because I mean, you just showed, we showed some video there at Mcdonald's, I was telling people earlier, Mcdonald's ice cream used to be like a dollar 25. Then the pandemic, it went up to a dollar 50 and now we just had some this weekend and it was a dollar 99 for a little ice cream cone. So we see the price is happening, these increases. Do we see that continuing to happen along with the what the Fed is doing to raise the basis points, you know, Shannon, what I see is that your restaurants where the consumer um, pais that dollar 99 for that ice cream and walks out feeling value. Um those, those are the winners in this. Um you know, where they really do have price elasticity, where somebody walks in and the first thing they think of, wow, this is, I don't know why they're charging this much. Those are the those are the groups, restaurant groups that are, are not going to do near as well uh, in this environment. So, and it's it is uh, the price, but the price and campuses the environment, the staff, the, you know, there's so many factors that I think a consumer sees his value and when you and your family walk in and you walk out say, wow, that that was a great experience, or I really felt value in that you're gonna go back as opposed to saying, my God, if you just focus on price, then the delivery of the restaurant didn't really meet that consumers needs. And we talked about this a little bit earlier, about how historically fast food chains have fared pretty well during the economic slowdowns, but which restaurant chains do you think are in the best position to benefit from the consumers trading that, trading down, especially when you say they're feeling valued going to these places, I would say the ones that really provide an experience for the consumer, It's um, you know, those um those drive throughs that um, you know, move really fast, they don't make mistakes, they're friendly, uh, when, when they're, I don't know what restaurant you're talking about, friendly no mistakes and fast food really, that happens. So again, it comes back, it's it's a big circle, right? So at the end of the day, creating a culture in that restaurant and in that organization where people want to work and you attract the best people, uh that's that's the differentiator because if you don't have enough people in your short that those are the stories that you hear over and over, the reality of it is there's other people in this markets that are doing hiring the right people creating this culture, building it around, You know, new technology and giving out of the box thinking that's all of a sudden providing a growth path for the future. And these are the brands are gonna be talking about in 10 years, the ones that are short staffed and don't know how to manage, they may not be around forever. Yeah. So then in that case, what's your outlook on the restaurant industry as a whole for the remainder of the year? So we're pretty bullish. Um you know right now a lot of our restaurants are in Dallas texas and Dallas is going through a boom. We're also regionally based primarily in the southeast and the restaurants that we're finding we have have have experienced year over year growth. They're continuing to do our staffing numbers are good. So maybe we're an outlier in um you know, the the overall industry, but I have a lot of friends in the restaurant business who, if you focus on higher quality, best in class, aspirational brands that and you can execute, it's, it's really a game of execution. The brands that aren't going to uh that are, that are crying about labor and crying about not be able to get people, they don't execute a plan and they don't, they're just maybe chains that just are thinking, so literally they can't call an audible and find out why people are not coming in. So I think, you know, just in general, I just think that, you know, execution and performance dictates a lot of those things. Well, it's also the cost of living in texas is a lot cheaper than some other places right about now. So I'm sure that helps. I don't know if it still is, I don't know if it still is as much as you think. You know, you've got a lot of people come from other states that have driven some of those costs up and certainly inflation on commodities on construction and building. But again, if you have those costs and you want to add those on to the consumer, you've got to have a value proposition that gives you some price elasticity that that makes it palatable for that guest to say, hey, I had a great experience and I recognize, I mean everybody knows about inflation going on today, you can see it at the price at the gas pumps. Um, but real quick, I just want to ask you this before we go, is this a good time to open a restaurant or a franchise? A lot of people are saying, hey, there's a lot of empty space. I can just go right in there and start a business. I think if you do it wisely, you like your costs are gonna be higher, but if you're able to pass those costs on, it's a great time to grow because there's not as many people growing. So we have access to probably better real estate than we've ever had as we're growing regionally. We're just finding great opportunities and we're finding that in all the places that we're opening, the consumer is looking for operators that can keep the restaurant staffed and um, you know, can, can create a compelling and exciting atmosphere, you know? Yeah. Alright, well look, let's hope we can all still afford to eat out and go get a little bit every once in a while. Thank you so much Jack, given Ceo of Front Burner Society