For the past couple of months, inflation has been hitting Americans' wallets. Consumers everywhere are bemoaning the fact that it costs more to fill up their gas tanks, load up their grocery store carts, and cover their everyday bills.
And it's not just consumers. Restaurant owners are feeling the crunch from inflation, too. And the fear among real estate investors is that higher costs could cause restaurants to shutter, especially coming off of the dreadful year they just had.
Inflation is hurting restaurants big time
For much of 2020, restaurants were forced to grapple with forced closures and operating restrictions. To say their revenue took a hit during that time would be an understatement.
More recently, restaurants have been struggling with labor shortages as boosted jobless benefits, a lack of childcare access, and health concerns have kept unemployed people out of the workforce.
And while it's not just dining establishments having a difficult time finding workers, drawing in workers is a tougher sell for food establishments, given how customer-facing restaurant jobs can be and what little money restaurants have the capacity to pay right now.
However, restaurants are now facing a whole new issue: inflated food costs. According to the Bureau of Labor Statistics' latest Product Price Index, the price of grain rose 93.8% in June compared to the same period one year prior. Meanwhile, veal and beef prices were up 41.4% from the previous year, and cooking oil and shortening prices were up 34.8%.
And it's not just the labor shortages and food costs that are hurting restaurants. Higher gas prices mean it's become more expensive for restaurants to transport food. What's more, delivery companies may seek to pass their own cost increases on to the restaurants that contract with them -- and that's on top of the already hefty fees restaurants pay.
Given that many restaurants are still attempting to recover from the brutal blow they were dealt in 2020, they can't afford to be spending more money than ever before to feed their customers -- not when they also must bear the expense of sanitizer and other protective supplies that have become necessary during the pandemic.
Plus, because of supply chain issues, many common restaurant staples like chicken are in short supply right now, giving food establishments fewer options to choose from and leaving them with less power to negotiate with those who provide them with product.
The Millionacres bottom line
Of course, if food costs keep climbing, restaurants might really struggle to keep up, to the point that they're driven out of business. That could be catastrophic for real estate investors -- namely, the landlords who rent space to restaurants and the local commercial and residential property owners who could see their property values decline as local establishments close their doors.
Once supply chains manage to ramp up to match demand, inflation should start to ease up. But we may be several months away from that happening. For now, real estate investors will have to hope that restaurants somehow manage to find a way to hang in there.