What a New Trump Presidency Means for Restaurants
It doesn’t matter who you voted for or even if you voted at all - a new (old?) administration is taking power and, if the rhetoric is to be believed, bringing a swath of changes with it. I dug through Trump’s campaign promises, looked at the goals of his previous administration, and compiled the top ways I think this administration is going to change the restaurant industry for better or worse.
There are going to be fewer investment dollars to go around.
Neatly compiled in this X thread by journalist Catherine Rampell, a number of Wall Street analysts are predicting significant interest rate increases under the new Trump administration. It’s well known that as interest rates increase, the general appetite for investment decreases. This is known as the Investment Demand Curve. As interest rates go up, borrowing capital becomes more expensive. Because of this, investments using that capital must perform better in order for the investor to profit. If interest rates are 4%, and an investment returns 4%, that means that the investor simply broke even. So because investment profits are harder to come by when interest rates are high, investors get much more selective about their investments, only sending dollars where they’re confident the returns can outstrip the interest.
If interest rates go up, investors are going to become more conservative with their money. They’re going to be investing less and in fewer properties. That means you’re going to have to fight even harder to get a piece of what little is available. And, even if you are able to secure the capital, you’re going to be under increased pressure from the investor to perform well and post returns that still deliver profits when compared with the high interest rates. This could mean operating in ways the prioritizes short term profit over growth or being forced to part with more cash than is healthy for the business. If you’re looking to secure investment in the next few years, I suggest you start looking now.
Fewer regulations could lower compliance costs, but…
Trump has made it a cornerstone of all of his campaigns to cut regulations - one of his more traditionally conservative policies. Some may remember his famous “1 in, 2 out” executive order to that end. Conservatives argue that regulations often introduce costly bureaucratic overhead to businesses and while this can be debated, I’m sure you have at least one regulation in mind that you wish would just go away. Under Trump, there’s a much higher chance you’ll get your wish than there would have been under a more liberal administration. In particular, Trump has talked repeatedly about repealing the Affordable Care Act (ACA), which carries with it numerous requirements for the types of health plans that must be provided. Repealing the ACA would likely open the door to cheaper healthcare plans becoming available for use and purchase.
Regulation can be onerous, no doubt about it, but it often exists for a reason. Take the rash of changes that followed a Jack-in-the-Box E. coli outbreak in the 90s for example. Few things will erode trust in a foodservice brand faster than health-related issues. While we might all enjoy a little less paperwork, with less safety infrastructure in place it’ll become all the more important for you to do own food safety work not just in-house, but all through the supply chain to ensure you don’t become the next Chipotle.
No Tax On Tips could slow the push to increase the minimum wage.
Though the details have yet to be published, the Trump campaign has talked at length about eliminating some level of tax on tipped income. Though the benefits of this to workers are debated, most agree that the public would view this policy as as significant boon to the financial lives of tipped workers which could lead to less pressure on lawmakers to increase federal and state minimum wages. Lower minimum wages offers restaurant employers more freedom to determine the right payscale specific to their restaurant and not be beholden to a formula that takes a much larger area into account. Additionally, a lower minimum wage allows restaurants that do pay significantly above minimum wage to be much more competitive than if everyone was forced to pay that rate by law.
Tariffs are likely to increase the prices of goods across the board.
Catherine Rampell’s thread I linked above also compiles claims that tariffs are likely to increase prices for a broad swath of goods. This will obviously negatively impact this industry which has already been seeing significant increases in the cost of goods since the start of the pandemic. It’s apparently common belief that tariffs are paid by the exporting nation, and while tariffs have been shown to have negative economic impacts on exporting nations under certain circumstances, the tariff itself is actually paid to the US government by the importer. This means that goods coming into the US will become more expensive. This cost will almost certainly have to be passed on to the consumer at every level. Goods are more expensive to import, so they’re more expensive to sell to distributors. Goods are more expensive for distributors to stock so they’re more expensive to sell to restaurants. Goods are more expensive to buy for restaurants, so they’re more expensive to sell to your guests. Consumers are already eating out less because of prices, this will almost certainly make that trend worse.
If at all possible, I recommend signing pricing agreements with your distributors which limit the impact these increases will have on you. I would also recommend replacing aging equipment soon to take advantage of still-relatively-low prices and low interest rates.
Increasingly strict immigration enforcement could significantly reduce the labor pool.
It’s something of an open secret that at least 10 percent of the hospitality industry is staffed by undocumented workers. Trump and his campaign have promised mass deportations and a plethora of policies preventing additional immigrants from entering the country. For an industry that’s already struggling to find and retain quality help, a reduced labor pool could become a real problem.
I don’t have a real recommendation here. If you’re relying on undocumented labor, it’s not likely your preference to be doing so. Either you would like to be able to afford a fully-documented labor force or you would like to be working towards legitimizing your undocumented workers and would if you could. But it’s not just the employees that are at risk. Trump has hinted that he’ll hold non-compliant employers accountable as well. I would suggest speaking to your lawyer about your obligations and options.
Overall, I believe the policies the Trump campaign has spoken about will result in a challenging 4 years for the restaurant industry. While some additional freedoms might come into play, they all come at a cost. Tariffs and immigration policies I expect to hit particularly hard. Of course, this is only the beginning and Trump has been billing himself as pro-business from the beginning so it’s plenty possible that his administration will do plenty of good for the industry - I guess we’ll find out together.
What are you hoping for from the new Trump administration? What are you worried about? Send me an email at Kris@GetAFreshPerspective.com and let me know - I read every one.