Square has recently published the latest Quarterly Restaurant Report, which provides a detailed analysis of the current trends shaping the food and beverage industry. Drawing on data from its merchants, the report offers insights into evolving consumer dining preferences, changes in spending patterns, and the impact on restaurant wages.
The quarterly restaurant report for the Spring 2024 edition highlights significant shifts in the sector, shedding light on emerging dining trends, the dynamics of payroll costs, the influence of technological advancements on operational efficiency, and more. Keep reading to learn more about what the restaurant industry holds in 2024.
Key Takeaways
- Increase in Payroll Costs for Full-Service Restaurants and Bars: The report highlights a significant rise in payroll expenses for bars and full-service restaurants, with wages increasing by 66% from 2017 to 2024. This is due to the employment of more highly skilled workers for tasks that are difficult to automate. In contrast, cafes and quick-service restaurants (QSRs) have leveraged technology to reduce operational costs.
- Impact of Tip Credit Regulation Changes: The “One Fair Wage” Ordinance in Chicago is set to eliminate the city’s tip credit system by 2028, mandating incremental increases in the minimum wage for tipped employees. This change will result in a 76% increase in the minimum wage for these employees, affecting payroll structures and operational costs for restaurants.
- The shift in Consumer Dining Patterns: The report notes a shift in consumer dining behavior, with a decline in weekday lunch outings and an increase in weekend dining. This change is attributed to the rise in remote work, which has led to higher restaurant traffic on weekends and sustained popularity of happy hour gatherings post-pandemic.
- Regional Preferences for Spirits: Consumer preferences for spirits show regional variations, with vodka and tequila being particularly popular. Cities like Los Angeles, Miami, and San Antonio strongly prefer tequila, suggesting that restaurants in these regions can expect increased demand for tequila-based drinks during the summer.
Square Releases Spring 2024 Quarterly Restaurant Report Highlighting Industry Trends
On May 14, 2024, Square unveiled its latest Spring Quarterly Restaurant Report. This report offers an in-depth look at the evolving dynamics and trends within the restaurant industry as it progresses.
A key finding of the report is the significant rise in payroll expenses for bars and full-service restaurants, which is linked to the employment of more highly skilled workers. These workers are required for tasks that are challenging to automate. The report reveals that over the past seven years, there has been around 66% increase in the pay for restaurant and bar employees, from $10.96 in 2017 to $18.17 in 2024. This increase is also 26% higher than in the retail sector.
The report also examines payroll expenses as a percentage of revenue, noting that these costs have increased more rapidly in certain sub-sectors than in others. While bars (38%) and full-service restaurants (40%) have experienced a rise in payroll costs since 2019, cafes (42%) and quick-service restaurants (38%) have seen a decrease.
Talking about it, Ming-Tai Huh, Square’s Head of Restaurants, explained that full-service restaurants and bars depend increasingly on highly skilled employees to carry out difficult tasks, leading to higher payroll costs. In contrast, cafes and quick-service restaurants (QSRs) face a different scenario. These establishments can leverage technology more effectively to automate and streamline operations, thereby reducing operating costs for both the front and back of the house.
The report also sheds light on the implications of changes in tip credit regulations.
To provide some context, on October 6, 2023, the Chicago City Council approved the “One Fair Wage” Ordinance. This legislation mandates gradually eliminating the city’s tip credit system over five years. Under the ordinance, employers must incrementally raise the minimum wage for their employees each year without offsetting these increases with tips earned. Full implementation is set for June 30, 2028, when employers can no longer apply a tip credit to wages.
According to the report, this legislative change is expected to increase the minimum wage for tipped employees by 76%, from around $9 to around $15.80 per hour for businesses with 21 or more employees. The first of these increases will take effect in July this year, with annual increases to follow until the ordinance is fully enacted in 2028.
As of last month, over 60% of restaurant workers in Chicago were earning a base wage of $15.80 per hour. Currently, the median restaurant worker in the city earns $16.12 per hour before tips and overtime and $21.70 when tips and overtime are included.
Source: Square
Ara Kharazian, the research lead and principal developer of the Square Payroll Index, noted that 22 states have already increased their minimum wages this year, and more are expected to do so in the upcoming months. Additionally, numerous state and local governments are drafting legislation to phase out tip credits. In an industry characterized by narrow profit margins, restaurants can enhance staff efficiency through technology, allowing employees to devote more time to customer interactions rather than repetitive, manual tasks.
The report indicated that although remote work has become widespread, the happy hour tradition continues to thrive, with end-of-day gatherings slightly surpassing pre-pandemic levels. There has been a noticeable shift in consumer behavior, with a decline in weekday lunches and a rise in weekend dining, mirroring the evolving balance between work and leisure.
Analyzing restaurant and bar traffic from 4 to 6 p.m., happy hour has remained robust, even slightly exceeding the levels seen in 2019 as of 2023.
Ara points out that consumers are reducing their restaurant spending, and total expenditures have actually risen. The more significant shift is in consumer behavior. Before COVID-19, people often ate lunch near their workplaces and went out for drinks after work during the weekdays. However, with the increase in remote work, restaurant spending has now moved predominantly to weekends, experiencing peak traffic.
The report highlights a competitive edge in consumer preferences for spirits, with vodka and tequila jockeying for prominence despite regional differences. Los Angeles, Miami, and San Antonio strongly prefer tequila, with New York City and Houston also favoring this spirit. Whether in a margarita or other cocktail forms, restaurants in these cities can expect a busy season ahead.
Annually, restaurant spending surges at the end of March when patio season begins, continuing robustly through early September before a natural decline prior to the holiday season surge post-Thanksgiving. This trend is especially pertinent as restaurants prepare for the summer rush, a time marked by increased dining out driven by warmer weather and outdoor activities.
About Square
Square is an online banking system run by Block, Inc., that supports businesses of all sizes. It facilitates several business operations and enables companies to accept credit card payments by utilizing cell phones as point-of-sale registers.
The platform provides tools for business owners to sell products, manage inventory, process transactions, schedule appointments, engage with customers, process online orders, and more. It caters to various industries, including food and beverage, retail, home and repair services, and fitness and beauty.
Square’s offerings include enabling online sales, providing BNPL options through Afterpay, building customer loyalty, managing appointments, and facilitating staff recruitment and payroll. Additionally, it integrates financial services tools at the point of sale, allowing merchants to obtain business loans and manage their finances effectively.
Conclusion
The Spring 2024 Quarterly Restaurant Report by Square highlights significant trends in the food and beverage industry. Notably, there has been a substantial rise in payroll costs for bars and full-service restaurants due to the need for skilled labor, while cafes and QSRs have reduced costs through technology. Changes in tip credit regulations, particularly in Chicago, will impact wage structures.
Additionally, consumer dining patterns are shifting, with remote work leading to increased weekend dining and sustained happy hour popularity. Regional preferences for spirits, particularly tequila in certain cities, present opportunities for targeted marketing. These insights underscore the evolving landscape and challenges faced by the restaurant industry in 2024.
