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 difficult times, government subsidies become very important for restaurants. For instance, the UK government subsidised millions of restaurant meals in 2020 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
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 they have enough money in their pockets, many of them will 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. The value of the chain restaurant sector in the USA was $138 billion in 2019 which went down dramatically in 2020 due to the lockdowns (Lock, 2021).
Moreover, 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.
Social factors that impact on the restaurant industry
Examining the social environment is the next stage in the 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 reduce their time for food preparation. Therefore, they often depend on restaurant food which is indeed a boost for the restaurant 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. Bailey (2021) states that both fast food and dine-in restaurants serve up more cholesterol and trans-fat than the food cooked at home. 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.
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 these companies charge restaurants 20%-30% service fees per order.
Environmental factors that impact on the restaurant industry
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.
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, 2018).
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.
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Last update: 27 July 2021
Bailey, L. (2021) 4 Reasons dining out is just as bad as fast food, available at: https://www.mensjournal.com/food-drink/4-reasons-dining-out-just-bad-fast-food/ (accessed 27 July 2021)
Lock, S. (2021) U.S. chain restaurant industry market size 2011-2021, available at: https://www.statista.com/statistics/1174168/chain-restaurant-sector-market-size-us/ (accessed 26 July 2021)
The Food Standard Agency, (2018) Food Hygiene Rating Scheme, available at: https://www.food.gov.uk/safety-hygiene/food-hygiene-rating-scheme (accessed 22 July 2021)
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.