Restaurants are staring down a new reality in the post-pandemic world.
After pivoting during the height of Covid-19, restaurateurs have been forced to navigate a labor shortage, soaring inflation and shifting consumer habits.
The end result? Lower margins and, for many businesses, a battle to survive.
In some segments of the restaurant space, there’s another dynamic at work: an increasingly crowded marketplace.
That’s according to a recent report released by small business lender Ondeck Capital, which tried to identify the most — and least — competitive restaurant concepts based on the number of restaurants of each type per 100,000 residents to determine the density of each concept, which was then measured against a national average.
In San Jose, Mexican is the most competitive restaurant concept, while burger is the least. In California, Korean is the most competitive while steakhouse is the least.
Steak still sells but Korean chicken brings the heat
In the Ondeck Capital report, steakhouses were identified as the most competitive sector of industry in the nation due to heavy market saturation, especially in cities across Ohio, Indiana, Kentucky, Wisconsin and Kansas. Beef and pork processing have long been important industries in the Midwest.
French cuisine, rooted in meticulous technique with an emphasis on ingredients, remains the most competitive concept in coastal communities such as San Francisco, Washington, D.C. and New York as well as pockets of the South including Charleston, S.C. and New Orleans.
Heavy competition was also indicative of demographic ties within a community. Italian cuisine was most prevalent in Albany, Chicago, Boston and Pittsburgh, while Mexican food and tacos are crowded concepts across much of the Southwest, including Dallas, Houston, San Antonio, Austin, Phoenix and Albuquerque.
One hot concept that is on the rise, but hasn’t reached a saturation point in many markets, is Korean cuisine.
“Korean fried chicken is what everybody wants right now,” said Alex Susskind, senior director of programs and professor at Cornell University Nolan School of Hotel Administration. “It’s a twist on something we’ve had in our food system for a long time, and this is something that’s new and different in that regard. It’s a flavor profile that excites people and I don’t know of a market with a Korean chicken place that isn’t just going gangbusters.”
‘Bloated’ casual dining ripe for a reset
According to the National Restaurant Association, food businesses are expected to contribute $1.4 trillion in sales to the U.S. economy this year, roughly 6% of real GDP. That’s up from $472.4 billion in 2022.
In addition, food service and restaurant employment has swelled 56%, from 14.2 million employees in 2022 to 22.9 million today.
But much like the Great Recession’s slash-and-burn effect on fine dining, the post-Covid, pent-up demand for in-person dining experiences may result in a reset.
“The market overbuilds and then it adjusts,” said Susskind. “There’s going to be a market correction if it hasn’t already taken place.”
Susskind identified casual dining, which includes Applebee’s and Chili’s chains, as well as fast casual outlets such as Chipotle and Panera as the two main sectors of the restaurant industry that are currently “bloated.”
“There was a time that made sense to grow, but then the pandemic got in the way of that,” Susskind said.
However, he’s quick to add that in “booming markets,” all bets are off.
“I think you could open a restaurant that sells pig feet in somewhere like Austin and there would still be a huge line out the door. Sometimes it’s going to be market specific,” he said. “Atlanta is another example of a super growth market where young consumers are situated. Those are the places where business is growing.”
