KANSAS CITY – The effects of the COVID-19 pandemic that closed restaurants throughout the country together with the rampant inflation that followed has placed unprecedented pressures on the foodservice sector. Those pressures are forcing changes both in the fare served and how the surviving businesses are structured, and it will have a lasting impact on the category.

Restaurant chains are making significant investments to adapt. Restaurant Brands International’s Burger King business unit, for example, is embarking on a two-year, $400 million plan to “reclaim the flame.” Of the $400 million, $280 million will be put toward modernizing restaurant technology to reduce labor and operating costs, and improve how the chain engages with consumers through its digital app. The investments will help the company adapt to how consumers shop today and address a very tight labor market.

Starbucks Corp. is on a similar path to reinvent its business to meet the changing needs of consumers and fuel growth. The company plans to invest $450 million in its existing US store base in fiscal 2023 with continued investments in fiscal years 2024 and 2025. There is tremendous opportunity to expand and diversify store formats across cafes, pickup, delivery-only and drive-thru-only locations, according to the company. Starbucks also is in the process of reinventing its in-store operations to meet growing customer demand for customized hot and cold beverages as well as warm foods.

The National Restaurant Association recently likened running a restaurant business today to playing the game Jenga, “with operators carefully pulling from the foundation of their operating plans to prop up new supports in a changing economy.” Adding to the pressure are across-the-board rising costs.

About 95% of a restaurant’s sales go to food, labor and operating costs, all of which are increasing each month, according to the NRA. In a survey released in mid-August, the group said wholesale food prices increased 16.3% in the last 12 months while menu prices rose 7.6%.

In the NRA survey, 88% of operators said their total food and beverage costs are higher than in 2019, and across the board, many other costs are up. Specifically, 65% of operators said their occupancy costs are up from 2019 and 80% said their utility costs are up from 2019.

The economic circumstances underscore why restaurant chains like Burger King and Starbucks are trying to produce more through such diverse channels as drive thru, delivery, in-store and pickup, with less labor and reduced operating costs.

The category changes should be seen as a signal by food and beverage manufacturers. Foodservice operators are working diligently to reduce costs, and suppliers should redouble efforts to support them. Hormel Foods has done a good job through the development of value-added items that require less labor to prepare, and the Kraft Heinz Co. recently said it is planning to grow its foodservice business.

There is an expectation that as the worst of the COVID-19 pandemic fades and the current high inflation rates eventually fall, that the market will return to some form of normalcy. In some categories that may be true, but foodservice may be an outlier. The pandemic forced significant change in how consumers interact with operators, and there is no indication the market will return to the way it was.