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Restaurants face 'a long road to recovery' even as Omicron wanes

Restaurants — scarred by COVID-19 and related restrictions — may never climb back to pre-pandemic levels, a grim new report suggests.

According to the National Restaurant Association's latest industry report, the beleaguered sector is being held back by staffing shortages worsened by the Great Resignation, surging prices and other structural issues that have hindered a complete recovery. And there's almost no end in sight, even as the Omicron wave of infections have fallen steeply.

"Of all the industries in America, the restaurant industry was the one that was most severely impacted in terms of employment and sales declines," Hudson Riehle, the trade group's senior vice president for research, told Yahoo Finance Live in a new interview.

"Tens of thousands have gone out of business...it's a long road to recovery," the analyst added.

Labor has been one of the most difficult obstacles for restaurants, with nearly half of all operators citing recruitment and retention as top challenges for 2022. In fact, the trade group noted that the restaurants-and-accommodations sector had a whopping 1.7 million job openings during the middle of 2021 — the highest number in the 20-year history of the data set.

The group expects total industry employment to reach 14.9 million this year — an addition of only about 400,000 jobs from 2021, and still 1 million fewer than pre-pandemic levels.

"The restaurant industry is the nation's second largest private sector employer. Through December, restaurant industry employment was still down by over 650,000 positions — that's well over a 5% drop off of that pre-pandemic peak," Riehle revealed.

The analyst went on to explain that "one of the most important questions for the industry over the upcoming several years is what happens with that re-migration pattern of workers back into city center areas," which took a significant hit during the height of the pandemic as many workers relocated to suburbs.

To combat labor challenges, new business models like ghost kitchens and other off-site adjacent services, in addition to the digitalization of menus and carry-out options, will become increasingly important — and may capture some of that employment growth, Riehle warned.

Besides labor, price increases and supply chain headwinds have also weighed on operations and margins.

According to the report, 90% of restaurant operators say food costs are higher than they were pre-COVID, with 80% estimating that higher labor costs will likely continue to rise in 2022.

Meanwhile, 96% of operators report supply shortages or delays of key food and beverage items in recent months. About 8 in 10 full-service operators, and 2/3 of limited-service operators, were forced to adjust menus due to supply chain disruptions, the data found.

Still, the association expects 2022 to be a better year than 2021. The trade group estimates that sales will hit $898 billion this year, up from $864 billion in 2019.

"The consumer has documented quite well over the past couple years that they enjoy and will continue to use restaurants in their daily lifestyle," Riehle said. He noted increased pent-up demand that shows consumers view dining out as an "essential part of their lifestyle."

The National Restaurant Association estimates that sales will hit $898 billion in 2022, up from $864 billion in 2019
The National Restaurant Association estimates that sales will hit $898 billion in 2022, up from $864 billion in 2019

But not every consumer has been eager to return.

According to a new note from Bank of America (BAC), older Americans have been hesitant to dine out again, despite falling COVID-19 cases across the U.S.

Of those aged 76 and above, restaurant spending was at a 12% decline on a two-year basis for the week ending January 29 — down significantly from the October-November average of +3%.

This compares to 0% on a two-year basis for Baby Boomers (age 57-75), +8% for Generation X (age 41-56), and +17% for Millennials (age 25-40) during that same time period.

"In our view, concerns around COVID likely continued to weigh down spending by the older generations but it suggests further upside potential in spending for these households in the coming months once the Omicron wave fades," the big bank added.

Alexandra is a Producer & Entertainment Correspondent at Yahoo Finance. Follow her on Twitter @alliecanal8193

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