We’ve covered at length the weird macroeconomic backdrop casting a tall shadow for the past two or so years. To summarize the weirdness, consider debilitating inflation, meteoric interest rates and spiraling consumer debt coupled with low unemployment rates and pent-up demand driving high discretionary spending levels. The restaurant industry has benefited from this resiliently discretionary consumer, who has shown a remarkable willingness to visit despite elevated menu prices.
This almost-counterintuitive trend also seems to be driving more optimism for operators and aspiring operators. According to a new report from Yelp, new restaurant openings surpassed pre-pandemic openings in 2023. This indicates the industry may have made a full recovery nearly four years after mandated closures were put into place to control a then-unknown and quickly spreading virus, which impacted an estimated 110,000 restaurants.
“The restaurant industry has proven to be resilient throughout the pandemic, with the industry seeing higher restaurant openings in 2023 than pre-pandemic levels for the first time. Even through economic challenges, restaurant owners continue to delight their diners, staying responsive to shifts in consumer preferences like the increasing demand for earlier reservation times and higher-end experiences, as Yelp data shows. In 2024, we expect to see this positive momentum continue as the restaurant industry continues to meet the moment,” Cliff Cate, Yelp’s VP and GM, Restaurants, said in a statement.
In addition to consumer habits, driving many of these openings is an influx in entrepreneurial activity, including franchising, created by the pandemic. In 2022, for instance, over 5 million new business applications were filed in the U.S., the second highest on record.
Zoomed in a bit, Yelp’s data shows that 10% more restaurants opened in 2023 versus 2022, while 2% more restaurants opened in 2023 versus 2019. Generating most of these numbers were dessert and pop-up concepts, both up 66% year-over-year. Additionally, creperies (63%), hot pot concepts (53%), and pasta shops (48%) showed strong growth in 2023.
Categorically, Mexican cuisine had a strong 2023, with over 9,100 new restaurant openings. This was followed by bars (6,863), sandwich concepts (6,562), breakfast and brunch concepts (5,939), and food trucks (5,297).
Meanwhile, the top five states with the largest number of new restaurant openings in 2023 were:
- California (8,694)
- Texas (5,449)
- Florida (4,674)
- New York (4,356)
- Illinois (1,794)
Cities boasting the largest number of new restaurant openings last year were:
- New York (4,739)
- Los Angeles (3,424)
- Miami (1,720)
- Houston (1,560)
- Chicago (1,508)
Interestingly, 2023’s openings were largely consistent month-over-month, with over 4,000 openings each month and a peak at 4,799 in July. Conversely, openings in 2019 were far bumpier, ranging from 3,769 in February to 5,542 in May.
During a recent interview, Hudson Riehle, senior vice president of the research and knowledge group at the National Restaurant Association, said he expects the industry to continue bullishly growing throughout the next decade and continue to gain market share away from the grocery/retail sector.
“The pandemic was a black swan event that accelerated many underlying trends in the industry, like innovation and technology and as a result, the industry has evolved to better adapt to new generations and new environments,” Riehle said. “For younger consumers especially, restaurants have become essential to their lifestyle, and I think that will continue.”
That’s not to say everything’s rainbows and butterflies, however. A high level of restaurant openings is bound to come with a high level of closures and other challenges. In 2023, for instance, business bankruptcies rose 30% as operators piled on debt to navigate Covid-era pressures while also navigating high interest rates. And though improved sales and outlooks pushed the small business optimism score to a five-month high in December, according to the NFIB Small Business Optimism Index, it remains about 6 points below the 50-year average.
“Small business owners remain very pessimistic about economic prospects this year,” NFIB Chief Economist Bill Dunkelberg said in a statement. “Inflation and labor quality have consistently been a tough complication for small business owners, and they are not convinced it will get better in 2024.”
That said, there’s enough optimism to open more businesses despite these persistent challenges, meaning this weird economic backdrop will likely continue to cast its shadow for the foreseeable future.
Contact Alicia Kelso at [email protected]