Tight profit margins and increasing labour costs may force reinvention of the foodservice industry, with automation offering the potential to offset increasing wage costs.
A study by US researchers has found that businesses in the foodservice industry are significantly more labour intensive and have decreasing returns to scale compared to other service industries, and that simply raising prices to become profitable may not solve the core problem.
“Some aspects of the foodservice model will have to be rethought,” said Amit Sharma, associate professor of hospitality management, Penn State. “Professionals in the foodservice industry need to find a way that will be economically viable and sustainable in the future, which might mean rethinking the model of how the business is being run.”
The researchers, who report their findings in the International Journal of Contemporary Hospitality Management, said that compared to other industries, the foodservice industry performed significantly differently in intermediate input. A key indicator of the partly finished goods value that an industry produces, intermediate input is calculated by taking an industry’s gross output and subtracting its value added — employee compensation, taxes on production and imports less duties and gross operating surplus.
“Intermediate input measures what goods and services an industry is either getting from its suppliers and/or how much value the industry is adding before they pass the final product onto consumers,” said Sharma. “In this case, restaurant owners may buy raw vegetables, turn them into a meal and then sell that dish to customers, or buy prepared vegetables, such as chopped lettuce and use them to create the meal or dish.”
The intermediate input for the foodservice industry is actually negative, while all other service industries showed a positive intermediate input, according to the research.
“So, what this means is that if your intermediate input is negative, either the industry gross output is low, or value added is high,” said Sharma.
The study shows that the foodservice industry gross output is also relatively lower than that of other service industries and that foodservice businesses have decreasing returns to scale. This means that increasing all inputs would lead to disproportionately lower increase in total output.
Sharma said that businesses could better use automation and technology to improve efficiency and save on labour costs.
“We are not talking about robotic restaurants, but we are now looking at where automation makes sense,” Sharma said. “Small measures of automation can also help, as long as it is focused on increased customer service while increasing labour efficiencies.”
For example, a restaurant could install technology that lets customers alert staff when they need assistance, rather than have the staff check on them every few minutes.
“There have been similar studies, for instance, in the manufacturing industry, but we wanted to compare our industry — hotel, restaurant and recreation-gaming industries — with the rest of the service sector,” said Sharma.
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