Rent delinquencies for independent restaurants declined by six percentage points in March. According to new data from Alignable, 34% of small restaurant owners couldn’t pay rent last month, versus 40% in February, 38% in January and 52% in December.
The last time this figure was this low for restaurants was a year ago.
Restaurants were one bright spot in an otherwise gloomy report. Thirty-eight percent of small businesses overall had a hard time paying rent this month, including 56% of automotive repair shops, 48% of travel and lodging and 44% of retailers. March represented the largest increase in rent delinquencies in the past five months, Alignable reports.
Small business owners continue to face a confluence of challenges, including rising interest rates and higher occupancy costs. Seventy-four percent of business owners say higher interest rates are hurting their business. Just last week, the Fed raised interest rates another quarter percentage point, bringing the rate to between 4.75% and 5% - the highest level since September 2007.
Further, 52% of small businesses report higher rent prices versus six months ago. Inflation overall continues to be a burden, with 48% of small business owners citing higher costs across the board as a hindrance.
Because of these lingering factors, optimism has also taken a hit. Sixty percent of small business owners believe a recession is imminent, marking a 5% increase from February. Most cite the banking crisis – including Silicon Valley Bank’s collapse – as a reason for their increased anxiety.
For restaurants, however, business seems to be holding somewhat steady. According to preliminary data from the U.S. Census Bureau, eating and drinking places registered total sales of $92.7 billion on a seasonally adjusted basis in February. While this was down more than $2 billion from January, it is up nearly $3 billion above December. Combined January and February sales are nearly 20% above the trendline established in 2022, the National Restaurant Association reports.
Still, much of this number is coming from menu prices, which remain over 8% higher than last year, and the elevated menu costs may be dampening demand. According to the association’s measure of pent-up demand, 41% of adults say they are not going out to restaurants as they would like, which is the lowest level reported since before the pandemic.
Accordingly, traffic is down slightly compared to last year. According to Revenue Management Solutions, traffic was down 0.3% in February 2023 versus February 2022. Circana forecasts that higher food prices will continue to influence consumers’ spending behaviors this year, including through trade downs to quick-service restaurants versus full-service restaurants. That said, “value” is defined more robustly than in the past and restaurants that adjust their approach to deliver convenience, innovation and targeted promotions will be best positioned, Circana notes.
“Price will always be important, but consumers define value differently. For example, consumers who visit a restaurant aren’t necessarily looking for the cheapest meal,” David Portalatin, Circana food and foodservice industry advisor, said in a statement. “They’re looking for the menu items they crave or foodservice outlets that offer quality and variety and enable them to treat themselves.”
Contact Alicia Kelso at [email protected]