In the foodservice industry, restaurants must stay agile to thrive in the face of ever-changing political and economic climates. Presidential election years often bring heightened uncertainty as new policies are proposed that can affect taxes, labor, and consumer spending. For restaurant operators, understanding how these factors might play out in real-world scenarios is crucial. Let’s explore how key political and economic changes—such as tax policy shifts, labor laws, supply chain disruptions, and social issues—have impacted well-known restaurant brands, and how operators can adapt to similar changes in the future.
Tax Policy Changes and Their Impact on the Restaurant Industry
Changes in tax policy, particularly at the federal level, can have sweeping effects on the restaurant industry, from small independent operators to large chains. One of the most notable shifts occurred with the 2017 Tax Cuts and Jobs Act, which significantly reduced the corporate tax rate. While this move provided a financial boost to large chains like Domino’s Pizza and Darden Restaurants, allowing them to expand operations and reinvest in their businesses, smaller, independent restaurants didn’t benefit on the same scale. These larger corporations used the increased capital to grow their presence, creating additional competition for smaller operators who were left with fewer resources to invest in marketing, technology, or growth initiatives.
At the same time, changes to sales tax laws, especially in the digital realm, have also impacted restaurants that adopted online ordering and delivery platforms during the pandemic. As states began to enforce taxes on digital services, restaurants that relied heavily on delivery platforms like Uber Eats or DoorDash saw their margins squeezed. For smaller restaurants already working with thin profit margins, the additional cost of sales tax on delivery orders added financial pressure.
For restaurant operators, the lesson is clear: staying informed about tax policies is crucial to anticipating their impact on profit margins and operational costs. Adapting pricing strategies, exploring new revenue streams, or negotiating better terms with third-party delivery platforms may help offset these added costs.
Labor Law Changes and Minimum Wage Increases
Labor law changes, particularly those related to minimum wage, have had a profound impact on labor-intensive industries like foodservice. Fast-food chains like McDonald’s and Chipotle have had to respond to increasing wage demands across several states, including California and New York, where minimum wage levels have risen to $15 per hour or more. For McDonald’s, this led to the widespread implementation of self-order kiosks to reduce labor dependency and offset higher payroll costs. Meanwhile, Chipotle responded to rising wages by increasing menu prices and introducing digital ordering innovations to streamline operations.
In addition to wage increases, many restaurants are facing labor shortages due to changing immigration policies and visa restrictions, particularly in the food prep and agricultural sectors. Restaurants that rely on immigrant labor for roles such as line cooks and dishwashers have faced challenges in staffing, leading to increased labor costs and reduced operational efficiency. By exploring automation and enhancing employee benefits, restaurants can mitigate the financial impact of wage hikes and labor shortages while maintaining service quality.
Supply Chain Disruptions from Trade Policies and Tariffs
Changes in trade policies and tariffs can lead to supply chain disruptions that affect food costs and availability. The U.S.-China trade war from 2018 to 2020 serves as an example, where seafood and agricultural tariffs significantly impacted restaurant supply chains. For chains like Red Lobster, which depends heavily on imported seafood, tariffs on goods like shrimp and lobster led to price hikes and supply shortages. To manage these rising costs, some restaurants had to adjust their menu offerings or explore alternative suppliers to maintain profitability.
Similarly, supply chain disruptions impacted Chipotle, which sources large quantities of avocados from Mexico. In 2019, concerns over potential tariffs on Mexican imports threatened to raise costs for one of the chain’s key ingredients, forcing them to consider alternative suppliers and menu adjustments. Supply chain disruptions from tariffs underscore the importance of diversifying sourcing options and building flexibility into restaurant supply chains to withstand political uncertainties.
Social Issues and Political Stances Shaping Consumer Sentiment
Social issues and political stances also play a significant role in shaping public perception and, ultimately, consumer behavior in the restaurant industry. Chick-fil-A provides a prime example of how political affiliations and corporate values can influence a brand’s success. Over the years, Chick-fil-A has faced backlash due to its perceived stance on LGBTQ+ rights, which sparked boycotts and protests across certain regions. While the brand maintains a loyal following, its political affiliations have, at times, complicated its expansion into more progressive markets. This demonstrates that in today’s political climate, restaurant operators must be cautious about the social issues they engage with publicly, as these stances can impact their bottom line.
Conversely, Starbucks has successfully used its platform to engage in social and political discussions, aligning with causes like environmental sustainability and racial justice. By offering healthcare benefits for employees, supporting social movements, and promoting inclusivity, Starbucks has built a loyal customer base that aligns with its progressive values. However, even Starbucks has faced backlash from conservative groups that don’t agree with the company’s political stance. Still, their focus on social responsibility has strengthened their brand’s connection with a younger, more socially-conscious consumer base.
For restaurants, the decision to engage with social issues must be strategic. Operators should weigh the risks and benefits of aligning with political or social causes based on their customer base and location. While taking a strong stance may resonate with certain audiences, it can also alienate others, especially in polarized political climates.
Navigating Regulatory Changes in Food Safety and Sustainability
In recent years, regulations on food safety, health, and environmental sustainability have become more stringent. Brands like Sweetgreen and Chipotle have leaned into these regulatory changes, positioning themselves as leaders in sustainability and health-conscious dining. Sweetgreen’s commitment to using local, organic ingredients aligns with environmental trends that appeal to eco-conscious consumers, while also meeting stricter food safety and sourcing regulations. Similarly, Chipotle’s emphasis on ethically sourced, non-GMO ingredients has positioned it as a frontrunner in the health and sustainability space, capitalizing on consumer demand for transparency and responsibility in food sourcing.
However, these regulations can create challenges for restaurants that are less prepared to adapt. For example, stricter health and safety regulations have led to increased compliance costs for many independent operators, forcing them to invest in more robust food safety procedures and equipment. Additionally, the rise of bans on single-use plastics in certain cities has required fast-food chains like McDonald’s to switch to biodegradable alternatives, which often come at a higher cost.
For restaurants to thrive in this environment, it’s important to stay ahead of regulatory trends and consumer demand. Investing in sustainable practices and ensuring compliance with food safety regulations can not only reduce risk but also build brand equity among increasingly environmentally and health-conscious diners.
Keeping Tabs on the Industry and Political Landscape is Key
As we approach future election cycles, restaurant operators should keep a close eye on policy proposals and consumer trends, ensuring they remain flexible and prepared to navigate the challenges that lie ahead.
Tim Powell is a Principal at Foodservice IP.
Foodservice IP is a professional services firm based in Chicago, aimed at delivering ideas for managers to guide informed business decisions. To learn more about FSIP’s Management Consulting Practice, click here.
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