Photo taken in Bucharest, Romania
GettyRapid technology implementation and the continued growth of off-premise business are expected to be major narratives in the restaurant industry throughout the year, according to the National Restaurant Association. The association today released its 2019 State of the Restaurant Industry report – a crystal ball of sorts formed by the opinions of 1,000 restaurant owners and operators.
Industry-wide sales are expected to reach $863 million this year – up 3.6% over 2018. While positive, this number is relatively moderate, especially compared to the pre-recession environment when growth was in the 6% range. Such continued modesty has incited major changes in the industry, according to Hudson Riehle, SVP of research and knowledge for the NRA.
“Because of the environment, restaurant operators are laser focused on managing labor and their ability to get more efficiency and productivity gains out of a typical restaurant operation,” he said. “The industry has always been labor intensive and hasn’t traditionally been a technology leader. But now, in a much more modest growth environment, technology is front and center because of its capacity to drive additional traffic.”
What that means exactly is a more rapid integration of technology. As such, a whopping 70% of QSR operators plan to devote more resources this year to customer-facing, service-based technology like online or app ordering, mobile payments and delivery management. Further, 57% plan to invest more in back-of-the-house technology such as point-of-sale systems, and 41% plan to add customer-facing technology like ordering kiosks.
McDonald’s is setting the pace here, having recently invested $3.7 million in mobile app developer Plexure, for example, that will give the chain “enhanced access to Plexure’s technology, including back-end and front-end features, customer functionality and customer targeting.”
“Across all of our markets, we're using technology to elevate and transform the McDonald's customer experience," McDonald's president and CEO Steve Easterbrook said in a news release. "Our mobile apps play a key role in our digital acceleration, allowing customers to interact with us on their terms in a personal, customized way."
This announcement comes on the heels of McDonald’s purchase of Dynamic Yield, a tech company focused on personalization and artificial intelligence to improve drive-thru interactions, and on top of a years-long Experience of the Future effort that includes the systemwide deployment of ordering kiosks, among other features.
This is just the tip of the iceberg for restaurant technology investments. Chipotle’s loyalty program – introduced in March – boosted downloads of its mobile app by 480% year-over-year, according to Barclays Capital. Meanwhile, Yum Brands – parent of KFC, Taco Bell and Pizza Hut – is hiring a new executive charged with global, digital and technology strategy. Late last year, Pizza Hut acquired online ordering software company QuikOrder to accelerate growth in this space. These examples extend well beyond the big guys, too. Smaller concepts like Blimpie, Shake Shack and Paris Baguette have recently introduced mobile app updates, for example.
“Overall, restaurant operators are allocating a greater proportion of their budget toward technology. If you think about a small independent operator versus a large table-service operator, how they approach technology in their operation will be core to their business strategy,” Riehle said. “The basic paradigm that constitutes what defines a restaurant today is being rapidly redefined. It’s more about additional building blocks on the foundation – incremental gain enabled by new technologies and distribution systems.”
About those distribution systems, in the quick-service space more than 70% of customer traffic comes from off-premise channels (including the drive-thru). Fifty percent of fast casual traffic is from these channels and that number continues to grow. Chipotle, for example, is expanding its “Chipotlane” this year after adding drive-thrus for the first time in 2018.
Of course, the biggest story in off-premise is delivery and that’s not expected to change anytime soon. Although it’s only 3% of restaurant business now, Riehle – and many others – believe that delivery will grow exponentially within just a few short years.
“When we do our consumer research, it’s very clear that there is nothing more convenient than having a restaurant come to them and that is why delivery is the most rapidly growing piece of this off-premise business,” Riehle said. “What’s interesting now is that the lexicon of location is rapidly becoming antiquated and the industry is now about points of access versus location.”
Consumers, particularly younger demographics, are driving this train. According to the report, nearly half of takeout and delivery customers are under 35 years old. Fifty percent of millennials say they are more likely to have restaurant food delivered to them than they were just two years ago. This indicates significant staying power and, to capitalize on this, nearly four in 10 operators plan to invest more in expanding their off-premise business this year.
There are industry-wide concerns about delivery – namely much of this business at this point is facilitated through third-party aggregates like Postmates, DoorDash, UberEats and Grubhub. These companies not only take over a restaurant brand’s direct relationship with the customer, they also take ownership of that customer’s data. This is a big deal in an intensely competitive environment.
Still, Riehle said delivery is "absolutely" worth it simply because it is what consumers want.
“Having a meal delivered to them in a relatively short period of time is their definition of utility. If you go back to the advent of drive-thrus in the 60s and 70s, I would say the delivery arena is equally as important to the QSR segment now,” he said.
That’s not to say data isn’t important; in fact it’s more critical than ever. The number of restaurants per capita is at a record high and the best way to differentiate in a saturated space is to very clearly know your consumers and what they want.
“That has always been important, but with a greater shift to off-premise, it becomes more important. There is a lot of new data that is coming on stream which heretofore did not exist,” Riehle said.
And, considering the thin-margin nature of the restaurant industry, any piece of data can provide an advantage.
“The typical restaurant generates $900,000 average unit volumes in a year, which is about $2,500 a day. In that environment, the addition of one single party a day over the term of the year can be the difference between profitability and being in the red. The greater access an operator has to data, the more incremental sales gains they’ll get,” Riehle said.
There are a number of other themes from the NRA's extensive report – among them, continued labor pressures in a tight labor market, increased competition from new sources such as grocery and c-stores, continued growth opportunities in the breakfast daypart, menus that are influenced by local sourcing and healthier ingredients, and consumers who want cook-at-home meals from restaurants and cannabis-inspired food and drink options.
But perhaps the biggest takeaway from the report – for operators at least – is that consumer confidence will remain strong all year and consumer’s pent-up demand for restaurant services remains elevated compared to historical levels.
“What I can clearly say is this – over 90% of adults enjoy going to restaurants and it’s tough to get 90% of Americans to agree on anything, so that’s a good thing,” Riehle said.
https://www.forbes.com/sites/aliciakelso/2019/04/08/restaurants-turning-to-technology-and-delivery-to-navigate-a-moderate-growth-environment/ 2019-04-08 13:00:00Z
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