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Remember Mr. Wonderful’s dire predictions about the restaurant industry? Well, Shark Tank investor Kevin O’Leary is back for another serving of tough talk, warning that even more restaurant closures are on the horizon.
O’Leary, known for his no-nonsense approach on the entrepreneurial reality show, first addressed the issue in 2021. He cited rising labor costs, supply chain disruptions, and increased competition from delivery apps as reasons for the industry’s struggles.
Now, in 2024, his warnings are ringing even more true. O’Leary points to continued inflation squeezing both restaurant profit margins and consumer wallets. He argues that many restaurants haven’t adapted their business models to the new economic realities.
He wrote for the Daily Mail. “The inflation virus is still infecting America’s post-pandemic economy. Supply chains crippled by the COVID pandemic lockdown haven’t recovered. Food costs – especially for proteins like chicken, beef and seafood – are up 30 to 40 percent over the last 36 months.“
While some might scoff at Mr. Wonderful’s pessimism, the data seems to back him up. Industry reports show restaurant closures are outpacing openings in recent years.
Zane Tankel, CEO and chairman of a large Applebee’s franchisee echoed a similar sentiment except his theory is customers are ditching fast food chains and going for more sit-down options: He told Fox Business in an interview: “They’re abandoning fast food, quick serve more and more and ironically, going to casual dining.”
As Red lobster faces more closures on the heels of filing for bankruptcy, the southern fast-casual chain, Cracker Barrel struggles to stay relevant amid declining sales and patrons. They’re betting on a $700 million transformation, hoping it will be enough to get them back in the game.
Andy Puzder (former CEO of Hardee’s/Carl’s Jr.) said on “Varney & Co.”: “There will be a lot of restaurants underperforming. Middle-performing restaurants are going to go away. Very good-performing restaurants will become midland or low-performing restaurants.”
Multiple fast food CEO’s and insiders are hinting at the fall of major chains, and the need for them to pivot if they don’t want to sink.
So, what’s the takeaway for restaurant owners and diners alike?
For restaurant owners, O’Leary emphasizes the need for innovation. This could involve menu revamps focusing on value, increased automation to streamline operations, or exploring alternative revenue streams like meal kits or online ordering with tighter margins.
For diners, the message might be to brace for potential price hikes and consider supporting establishments that offer a unique experience or exceptional value.
O’Leary suggests this restaurant meltdown is a period of adaptation, and restaurants will be forced to get with the times or simply, go down with the ship.
