A businessman standing on a ladder, looking through a telescope, with 2023 and clouds in the background — Photo by Vecteezy.com

As many of us have left the pandemic behind in 2022 and begun traveling again, airlines started seeing profits. Restaurant sales have continued to improve since 2021, although higher menu prices and inflation had begun hurting restaurant traffic and sales in December. Without adjusting for inflation, hotel RevPAR has also fully recovered in 2022.

It may seem that everything is finally moving into a brighter future in 2023, but the truth is: the permanent impacts of the pandemic and the uncertainty of the market have pushed many industry leaders to further streamline their operations. Considering the existing challenges facing the hospitality and tourism industries, I expect 2023 will be the year for significant changes.

Food prices are unlikely to fall

General month-to-month inflation is easing, but not for most essential food items, especially when year-to-year inflation is concerned. On average, consumers were paying $4.25 for a carton of Grade A large eggs in December 2022, a jump from $1.79 a year ago. An outbreak of bird flu, high inflation, and cage-free-egg laws imposed by some states might be the reasons. Average butter prices went from $3.47 a pound a year ago to $4.81. Margarine, usually used as a substitute for butter, also saw a 43.8% year-to-year increase in December 2022. Moreover, the global food supplies in grain, oilseed, corn, wheat, and soybeans are projected to decline for the fifth consecutive year in 2023. Food costs have become uncontrollable, pushing businesses to re-evaluate their procurement process and offerings.

Labor shortage is improving but will not quickly go away

Big tech and financial firms began trimming the workforce in late 2022, leading to a shift in the labor market. While it is hard to suspect those workers who just got laid off from the top tech or financial firms would fill in the vacancies in the hospitality and tourism industries. The restaurant industry has finally seen workers returning in December 2022 due to higher wages, better working conditions, and a weakening labor market. Furthermore, continuous improvement can be expected because the share of job seekers interested in foodservice and restaurant jobs has resumed to the pre-pandemic level.

Since COVID, the industry has substantially increased hourly wages to combat the labor shortage challenge in the last few years. For example, the average hourly wage for fast-food workers in October 2022 was $15.17, 26% higher than the pre-pandemic level. An average sit-down restaurant worker made $18.70 an hour, a 21% increase from pre-pandemic. Nevertheless, higher wages alone cannot stop people from quitting in 2023. Workers’ demands for higher wages and better working conditions, as well as high-interest rates and inflation, have challenged businesses to update their operational structure for leaner operations.

Changes are coming in 2023

McDonald’s, a market leader in the quick-service restaurant sector, has already taken a move. In January, McDonald’s announced a plan to trim its labor force, aiming to transform the company with a leaner (corporate) organizational structure. McDonald’s also plans to revamp its offerings and customer loyalty programs. Updates are also coming to its restaurant formats, such as stand-alone kiosks selling desserts or coffee to promote automatic self-service and products with high-profit margins.

All McDonald’s plans to do is to help the company streamline its offerings with lower food and labor costs. To stay afloat or remain competitive, other restaurants, hotels, and airlines will most likely take a similar approach to streamline their operations.

A concluding thought

We are in a business that is resilient to challenges. The ones who are innovative and can quickly adapt to new changes survive and thrive. We have already seen many changes in operations, even during the pandemic. While I am uncertain of how many changes are ahead of us, I believe 2023 will be a year of big changes that will have long-lasting impacts.

What is your vision for 2023? What changes do you picture seeing in 2023?

Linchi Kwok
Professor at The Collins College of Hospitality Management, Cal Poly Pomona
CAL Poly Pomona