PESTEL analysis of the restaurant industry
This detailed PESTEL analysis of the restaurant industry examines how the industry is influenced by macro factors globally. As everyone needs to eat, the importance and power of the restaurant industry are not difficult to imagine. However, it is also true that not everyone eats in or orders food from restaurants.
Political factors that impact on the restaurant industry
Governments influence the restaurant industry with a variety of rules and regulations. Different countries have different tax systems and food standards that restaurants must adhere to. In some countries, health and safety regulations are very rigid and monitored, while in some others, monitoring is somewhat flexible even though the regulations are strict.
In many developing countries, restaurants see increased demands during the time of local and national elections. On the other hand, political instabilities may force consumers to tighten their budgets and may even stop eating out altogether.
In times of political unrest or instability, consumers may be less likely to dine out, leading to decreased sales and revenue for restaurants. Additionally, political tensions can impact the availability and cost of resources, such as ingredients, labour, and real estate, further exacerbating the challenges faced by restaurant operators.
In difficult times, government subsidies become very important for restaurants. For instance, the UK government subsidised millions of restaurant meals as part of the “Eat Out to Help Out” programme to help the industry get back on track after the first lockdown.
Economic factors that impact on the restaurant industry
One key element of this PESTEL analysis of the restaurant industry is economic environment. The global food service industry is expected to grow from $2,540.05 billion in 2022 to $5,194.60 billion by 2029 (Fortune Business Insights, 2023). The two key segments in this industry are Full-Service Restaurants and Quick Service Restaurants.
Eating in restaurants is not usually a need, but a want. Consumers need to have enough disposable income to spend on it, and for them to have enough disposable income, the economy needs to be in good conditions.
When consumers have enough money in their pockets, many of them eat out with family and friends or order foods from their local authentic restaurants, or famous brands such as McDonald’s, Subway, KFC, Pizza Hut, Domino’s, Five Guys, Chick-fil-A, Dairy Queen, Wendy’s, Burger King, Nando’s, Hungry Jack’s, and many others.
However, during the time of recession and other challenges, one of the first things people cut down is restaurant food. This puts an enormous pressure on the industry. Many restaurants fail to deal with this intense pressure and close their operations.
The global lockdowns have destroyed many restaurants around the world. However, the industry has rebounded well. For instance, the chain restaurant sector in the USA was valued at around 44.86 billion U.S. dollars in 2021, up from the previous year’s total of 36.99 billion U.S. dollars (Statista, 2023).
Inflation and the rising cost of goods sold are also significant challenges for the restaurant industry. As the cost of ingredients, labour, and other operating expenses increases, restaurants must either absorb these costs or pass them on to consumers through higher menu prices. Both options can negatively impact profitability and ultimately lead to some business closures.
Generally, running a restaurant is not cheap. Labour wages, rent, tax, food cost, and maintenance cost are sometimes very high particularly in countries such as the USA, the UK, and Canada. The costs in some cities such as London and New York are also far higher than those in many other cities.
Finally, the restaurant industry is notorious for its high turnover rates, making recruitment and retention a constant challenge. Finding and retaining skilled, reliable employees is critical for maintaining consistent service quality and managing labour costs. Offering competitive wages, benefits, and opportunities for professional development can help restaurants attract and retain top talent.
Social factors that impact on the restaurant industry
Examining the social environment is the next stage in this PESTEL analysis of the restaurant industry. Eating in restaurants is a daily routine for many people in some countries, while this is not the case in some others. While in many developed countries, the restaurant industry is well developed and caters for all types of customers, it is slowly developing in many developing economies and attracting global fast-food brands.
Due to economic development, people in many countries are busier than ever before. However, their engagement in economic activities reduces their time for food preparation. Therefore, they often depend on restaurant food which is indeed a boost for the industry.
However, many people are gradually becoming aware of the consequences of regularly eating restaurant foods and focusing on organic and home cooked food. This will surely impact on the industry.
One of the most significant consumer trends impacting the restaurant industry is the growing demand for healthier dining options. Consumers are increasingly concerned about the nutritional content of their meals and are seeking out restaurants that offer fresh, locally sourced, and health-conscious menu items. To stay competitive, restaurants must continually adapt their menus and operations to cater to these evolving preferences.
According to the Heart UK (2023) many high street restaurants and fast-food chains serve meals with four times of the UK’s national maximum daily recommended levels of saturated fat in a single meal. In fact, fast food is behind the epidemic of obesity, and diabetes in many countries. Therefore, restaurants need to offer healthier food options to the customers.
Customisation and personalisation are also increasingly important to restaurant consumers. Diners want the ability to tailor their meals to their specific tastes and dietary needs, and they expect restaurants to accommodate these requests. Offering customisable menu options and catering to special dietary requirements can help restaurants attract and retain a diverse clientele.
Technological factors that impact on the restaurant industry
Technology has immensely impacted on the restaurant industry. Consumers can now order their food from a restaurant’s website and pay online. Similarly, restaurants of all sizes and types have partnered with online food delivery services such as Uber Eats, Just Eat, Deliveroo, Hungry House, and many more to respond to the growing demands of takeaways.
However, it should be mentioned that third-party delivery platforms charge restaurants 20%-30% service fees per order. These fees can cut into restaurant profits, making it essential for operators to carefully consider the costs and benefits of these services.
Social media and online reviews play a significant role in shaping consumer perceptions and decision-making in the restaurant industry. Maintaining a positive online presence and effectively managing customer feedback is essential for attracting new customers and retaining loyal ones. However, managing social media and online reputation can be time-consuming and requires a dedicated strategy and ongoing attention.
Technology advancements in automation and artificial intelligence (AI) have the potential to revolutionise the restaurant industry, offering new efficiencies and cost savings. Examples include automated food preparation equipment, AI-powered customer service chatbots, and data-driven inventory management systems.
While these technologies offer exciting opportunities, they also present challenges related to implementation, cost, and potential job displacement. Therefore, the industry’s adoption of AI seems to have made somewhat slow progress.
Environmental factors that impact on the restaurant industry
A major element in this PESTEL analysis of the restaurant industry is the discussion on environment. Restaurants impact on the environment in different ways. Many people do not finish their meals resulting in waste. Likewise, packaging waste is another environmental issue.
In addition, restaurants need to buy meat from companies which are often accused of using excessive amount of water. Therefore, restaurants need to work on reducing the impact of their operations on the environment.
Energy efficiency and conservation are additional environmental concerns for the restaurant industry. Implementing energy-saving measures, such as upgrading lighting and equipment, can help restaurants reduce their environmental footprint and lower utility costs. However, the upfront investment required for these improvements can be a barrier for some operators.
Legal factors that impact on the restaurant industry
Assessing the legal environment is the last component in the PESTEL analysis of the restaurant industry. In the UK, restaurants are given a rating from 5 to 0 (5 being very good) which they need to display at their premises and online so that consumers can have a clear idea about the hygiene practices at their chosen restaurant (The Food Standard Agency, 2022).
Restaurants also need to abide by the employment/labour laws. If they are found in breach, they can be fined by relevant authorities. Many global brands have already been fined in some countries because of their failure to adhere to the rules and regulations.
Restaurants must also prioritise the health and safety of their employees. This includes adhering to occupational health and safety regulations, such as providing proper training, equipment, and facilities for employees to perform their jobs safely. Compliance with these regulations is essential for protecting employees, reducing the risk of accidents and injuries, and minimising the potential for costly legal issues.
Summary of PESTEL analysis of the restaurant industry
The restaurant industry is facing an increasingly complex landscape of issues and challenges. From political and economic factors to changing consumer preferences and technological advancements, restaurant operators must navigate a wide range of obstacles to achieve success in today’s market.
By embracing innovation, focusing on customer experience, and building strong relationships with suppliers and partners, restaurants can overcome these challenges and continue to thrive in this competitive industry.
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Last update: 11 April 2023
Fortune Business Insights (2023) Food service market size…, available at: https://www.fortunebusinessinsights.com/food-service-market-106277 (accessed 10 April 2023)
Heart UK (2023) Heart UK Study….., available at: https://www.heartuk.org.uk/news/latest/post/7-heart-uk-study-finds-high-street-restaurants-serve-meals-with-four-times-recommended-saturated-fat (accessed 11 April 2023)
Statista (2023) U.S. chain restaurant industry market size 2011-2021, available at: https://www.statista.com/statistics/1174168/chain-restaurant-sector-market-size-us/ (accessed 11 April 2023)
The Food Standard Agency, (2022) Food Hygiene Rating Scheme, available at: https://www.food.gov.uk/safety-hygiene/food-hygiene-rating-scheme (accessed 10 April 2023)
Author: M Rahman
M Rahman writes extensively online and offline with an emphasis on business management, marketing, and tourism. He is a lecturer in Management and Marketing. He holds an MSc in Tourism & Hospitality from the University of Sunderland. Also, graduated from Leeds Metropolitan University with a BA in Business & Management Studies and completed a DTLLS (Diploma in Teaching in the Life-Long Learning Sector) from London South Bank University.