2023 was the year that killed restaurants.
We promised to get real this year with more useful content to our hospitality clients and we're starting with the most sensitive topic amongst the food brands in our community. "The Year that Killed LA Restaurants" was the headline for The LA Times, chronicling 65 restaurant closures and the grueling, bleak look ahead as we enter 2024. And it's hardly confined to California - it's something we're seeing in every city.
92% of operators say the cost of food is a significant issue
(State of the Industry, National Restaurant Industry)
Since revamping our online presence, our focus has shifted to creating meaningful content and sharing the authentic stories within our community. This year, we're delving into the challenges faced by our community members and collaboratively seeking creative solutions. Sadly, we've noticed troubling trends in financial struggles, closures, and pivots within the food industry.
The past few years have been rough thanks to Miss Rona who caused a roar of supply chain issues and inflation, labor struggles and a shift in consumer behavior. Now that government assistance has ran out, restaurants are in trouble. This is why we launched a series of content to address the root causes, shared stories, solutions and inspiration, but mostly to show you that you are not alone.
The increase in food brands suffering from a deficit is growing. There is evidence of problems industry-wide.
We have watched our clients in food products, hospitality, restaurants, brick and mortar, and wholesale share a common trait that is impacting their growth potential. Even the most attractive brands are suffering quietly behind closed doors. The causes are never ending:
lack of funding
behavior shift amongst consumers
categories that are trending downward (in 2023 we saw on average vegan down 9%, fast casual down 20%)
sales are down causing difficulty in other areas of the biz
Economically speaking, consumers are in a "vibe-cession" mindset, influencing how they discover your brand, perceive its value, and make purchases. It's crucial to shift your approach from backend to frontend. We've delved into these factors and strategies for this significant shift over the past few months.
There is a negative delta between the financial projections and the reality of the brand's books.
Food brands often end up strapped for cash because they kick-started their journey (or year) with inaccurate financial projections. The root cause? A lack of financial literacy and false promises based on old growth models. Nowadays, food brands are luring investors with grand visions of scalability, deviating from the old model of modest, independent startups. The issue? Many pitch decks paint an unrealistic picture, and that's a red flag. Scaling is proving tougher than expected, and struggling businesses need to face the truth instead of perpetuating a cycle of fundraising without addressing core problems. It's time for honesty and strategic rebuilding.
Investors are calling bullshit.
The era of rapid growth and massive paydays is fading. Investors, savvy and budget-conscious like the rest of us, are becoming more cautious with their money. Flashy projections may look good on graphs, but when actual business growth falls short, it leads to a cycle of investor fatigue. Big promises, desperate fundraising, cutbacks, quarterly struggles, repeat. The bubble in food and hospitality is bursting, mirroring the tech trend of unfulfilled returns.
This has been dubbed the “Sweetgreen Effect” - both before the pandemic but especially since. Most know it as hockey stick growth. It goes something like this:
A company raises hundreds of millions of dollars and launches a new to the market concept that promises to “change the food system” →
Rapidly expands and gets buzzy press/social →
IPOs, achieving a big liquidity event for the original investors (Yet the sad reality is that most businesses don’t even achieve liquidity) →
And yet, remains an unprofitable business
What can we do to stop the cycle?
While we aspire for widespread change in food systems, it's crucial to acknowledge that food isn't like tech, with only rare exceptions. Check out Food Tank's list of 122 organizations driving change in the food system—few promise massive scale or attract millions in investment. Sadly, we observe many brands opting for quick fixes and poor leadership, rather than adopting sustainable practices for long-term success.
Here is what we predict to be the trend to break this cycle:
modest intentional growth
capital raised on honest conversations, smaller amounts for specific needs
less emphasis on categories, more on healthy brands and good leadership
healthy portion of capital generated by the business (rather than matching investors)
Unpopular opinion, but the right thing to do: focus on scaling good behavior.
From folks in the industry who are applying them real-time…
We need solutions so we started with our team member Advisor Chef Erik Oberholtzer, asking him how to break this cycle. Erik Oberholtzer advises founders to “scale good behavior" - a less popular, but wise opinion. Establish profitability in your initial locations before seeking extensive investment to avoid the pitfalls of premature expansion. Stay true to your values, offer a unique product, and prioritize profitability, smart operations, and a distinctive "you factor" to prevent growth from becoming a perpetual struggle or leading to business failure.
Last - be unafraid to get vulnerable. Tell your advisors, mentors and investors what is really going on, so that you can garner real advice. Jot down the offerings they share and become a student to rebuilding your brand. The food system is relying on you!
Let's ditch false promises, embrace vulnerability, and rebuild our brands together—because the food system is relying on us.
– ANTOINETTE MARIE JOHNSON