Amid rising inflation, America's small- to medium-sized businesses, which the U.S. trade representative calls the "backbone of our economy," are no better off today than they were three years ago with respect to operational constraints. This is especially true for the fast-casual and quick-service industries.
Let's start with energy costs; the nation's250,000 fast-food and quick-service restaurants (QSRs), which account for some of the most energy-intensive buildings in the U.S., already pay five to ten times more per square foot in energy costs than commercial office buildings. This is no small matter; QSRs usean average of 81 kilowatt-hours (kWh) of electricity and 174,000 Btu of natural gas per square foot each year. As the average McDonald's is4,500 square feetand there are over13,400 locationsin the U.S., American McDonald's locations alone use nearly 4.9 billion kWh per year. That's as muchpoweras the Three Gorges Dam produces.
Given the sector's surprisingly high contributions to carbon emissions, we all have a stake in whether QSRs can lower their energy use, but they're unlikely to be able to do it on their own. Simply put, restaurants need assistance to cut their energy spend because they are also squeezed in other critical areas.
Since the start of the global pandemic, restaurateurs have fought a mostly losing battle against supply chain shortages and inflation.Wholesale food prices increased 16 percentbetween July 2021-2022, and restaurant owners, many of whom already operate on razor-thin margins, have been disproportionately absorbing the impacts. Grocery stores, for example, raised their prices by almost 12 percent between May 2021-2022, but restaurants onlyraised menu prices by around 7.5 percentin the same time period.
Inflation is taking a toll on QSRs' demand side, too. A whopping84 percent of U.S. consumers said they are eating out less oftento save money. With dipping revenues,45 percent of restaurant operators were unable to pay their July rent— a 7 percent jump over just the previous month– and38 percent of small restaurants are implementing hiring freezesdue to inflation.
Rising labor costs have also squeezed restaurants' bottom lines. The sector is still down some 750,000 jobs from pre-pandemic levels, and owners are having to consistently raise their wages in order to attract and retain workers. Data from theBureau of Labor Statistics shows the average earnings for eating and drinking place workers jumped more than fifteen percent between December 2020 and December 2021, the largest 12-month increase on record, and have increased by more than 10 percent since May of last year.
Still, in spite of these challenges, more than 90% of franchise owners say they take the environment and climate change into consideration when making their business decisions. Restaurant owners care deeply about the planet, buttwo-thirdssay they cannot tackle the climate crisisbecause they don't have the right skills and knowledge.Put it all together, and brands have bigger fish to fry than addressing their carbon footprints. Most of them are just thinking about how to keep their doors open.
For the sake of the planet and the 60 million people employed by small- and medium-sized businesses, doing nothing is not an option. Both the public and the private sector are going to have to help. Let's start on the public sector side. The federal government must resist the temptation to make engineering assessments and bureaucracy major impediments to accessing solar and storage tax incentives or emissions reduction grants from the $27 billion green bank. Such hurdles are annoyances for large commercial real estate companies, but for smaller restaurants, they are lethal since they can't afford big upfront costs and long delays. Speed and low barriers to entry will be essential.
It's also incumbent on the private sector to help the still-recovering limited-service industry meet urgent emissions reduction targets. Outsourcing energy management is a promising approach, as it removes barriers like up-front costs and the enormous information gap most QSR operators face. After all, lowering energy costs and a carbon footprint isn't as simple as just turning down the AC. There is a lot of equipment to install, negotiations to be done, bulk purchases to be made, and technologies to be leveraged. It's absurd to expect a small restaurant operator to have the relevant expertise.
Ultimately, green energy generation alone is not going to get us to net zero emissions. We are going to need to dramatically reduce energy consumption, too, and restaurants can play a huge role in that effort. Given their dire constraints, it is up to us to give them the tools to do so.
