Obstacles, Opportunity, and the Road Ahead

With projected sales of $898 billion in 2022, still shy of the pre-pandemic level, the industry is managing through economic curveballs while innovating to build new success.

TREND 7

Obstacles, Opportunity, and the Road Ahead

DISCIPLINE AND INNOVATION KEEP FOODSERVICE FORWARD FACING

Anyone who conjured a vision of how the industry’s recovery might play out most likely had the industry picking up pretty much where it left off when the hard stop happened. Sure, a few things might be switched up but the fundamentals would be back in place and growth a given.

Well, not exactly. Bumps on the way to recovery complicate the process although they don’t stop the momentum and drive that will eventually lead to a new normal.

Pressure points remain but emerging as a bright spot is the idea that the industry can do more than prepare meals. During lockdown, operators landed on quick-thinking survival solutions. Many of these innovations remain in play, shaking up static notions of what the industry can be and switching up how it will continue to get bigger, better, stronger, and more tightly connected to its customers.

Statistically Speaking

Some of the industry’s recent hardships are best captured in numbers.

83% of restaurant owners in early March said their business was still recovering from the pandemic.

96% of operators experienced supply delays or shortages of key food and beverage items in 2021, with the interruptions expected to continue through 2022.

Food costs rose 17.6% between April 2020 and April 2022, hikes not seen for at least 50 years.

When gas prices hit an average of $4.86 per gallon in June, it set a new U.S. record. The jump was nearly 50% higher than last year.

Year over year, the price of consumer goods and services rose 8.6%. It was the largest 12-month increase since December 1981.

LIGHTS IN THE DARK

Dark and ghost kitchens sprung from need, providing meals for consumers and revenue for operators. Will these virtual presences become permanent as the normalcy of restaurant dining returns? Their upsides are obvious, lower start-up and fixed costs for the smaller space and, with no front-of-the-house teams required, less staffing needs. They also are ideal as lower-risk food labs to test-drive product launches and potential new brick-and-mortar brands.

Shakeout may thin the ranks but ghost kitchens are firmly rooted, the segment a magnet for both established chains and entrepreneurs. With Gen Zs so far showing strong affinity for shopping online brands, a habit likely to be adopted by Alphas, dark kitchens are expected to become a permanent industry presence. Market researcher firm Euromonitor says that by 2030, the segment could be a $1 trillion-dollar global segment.

Going forward: Whatever its trajectory, the business model will be refined as consumer needs dictate. A recently opened concept in Vancouver with more than a dozen dark kitchen partners sharing space also has a slick-looking storefront where customers can pick up or place orders.

MENU SHRINKAGE

Responding to supply chain disruptions, smaller kitchen staffs, and a drop-off in diners, many operations, including mega-giant McDonald’s, took a hard look at menus with an eye toward trimming excess. Turns out it hasn’t been such a bad move; as things revert back to normal, many expect to keep menus tightly focused.

Advantages of paring down menus:

Reduce the number of products
Decrease on-hand inventory
Cut down on waste

Simplify operations
Ease strain on kitchen staff
Allow cross-utilization of ingredients

DELIVERING SUCCESS

In pre-lockdown days, restaurant food delivery was mostly a pizza game, at 8% a mere sliver of total industry sales. That changed overnight. When COVID hit, five years of food delivery growth happened within just five weeks, according to McKinsey & Co., a global consultancy. Time has flattened the growth of meal delivery although it remains vibrant, an essential service customers won’t abandon. Online ordering is growing 300% faster than in-restaurant dining with 60% of consumers indicating that they have meals delivered at least once a week, per Nerdwallet.

With fees charged to both operators and customers, third-party delivery services are getting pinched, a situation that Datassential data shows may be hard to reverse. In a July 2022 study, 38% of consumers said either they have never used these services and don’t intend to or that, going forward, they will stop using them. Even Zs and Millennials, big users of the convenience, seem to be pulling back; 24% of Zs and 19% of Millennials said they will use them less. Further, 17% of Zs and 24% of Millennials say they have no plans to use them in the future.

Going forward: Ordering directly from restaurants seems to be the potential victor, a win that will be made easier with seamless online ordering and payment capabilities.

DAYPART SHUFFLE

The foodservice world is built around three consistent dayparts, the bulk of traffic for each neatly confined to a few hours around morning, noon, and evening. Work-from-home schedules and significantly different dining patterns have tossed out by-the-clock consistency, paving the way for traffic that can ebb, flow, and spike in unexpected ways. High traffic for breakfast and lunch come later while dinner sees some earlier action. Lunch diners come in late, linger, and make a smooth segue to happy hour.

Going forward: A bump up in traffic during off-peak hours such as mid-to-late afternoon is an operational coup. It can be encouraged by adjusting staff so that service remains attentive.

LANE CHANGES

What’s a restaurant without tables for guests to settle around? For some chains, it’s the future, with a growing number of new units designed with only drive-thru lanes. Once unfathomable, these new designs, fully automated for speed, convenience, safety, and cost efficiency, come in response to changes in consumer behavior, specifically the growing reliance on restaurant meals for at-home consumption. In November 2021, drive-thru sales accounted for 42% of all restaurant traffic, up from just 26% in February 2020. On-premises dining accounted for just 19% of traffic in November 2021. It’s believed that, especially in the quick-service sector, this model will become dominant.

Going forward: QSR concepts should add drive-thru capability, if possible, but even operations lacking the space should make it fast, simple, and seamless to pick up carryout orders. Delivery direct to their car is the best-case service scenario.

WOULD YOU LIKE A SLURPEE WITH THAT?

Helping to eliminate the veto vote from meal orders and further enhance convenience for deliveries, DoubleDash, an offering from DoorDash’s delivery app, allows users to order from multiple restaurants and even toss in some retail purchases, say a box of diapers or a can of ground coffee, for only one delivery fee. After meal orders are placed, a map pops up that shows nearby stores in the DoubleDash universe; many Walgreens, 7-Eleven, Wawa, and QuickChek are among available options. Dash drivers are instructed to pick up nonperishables first, then grab the meal.

Going forward: Expect to see further convergence of restaurant food delivery with grocery items, liquor, office needs, and pet supplies with speed of service increasingly factored into these business models. Also: expect that supermarkets will up their meal-prep game, easily packing a fully prepared dinner for four amongst organic grapes, laundry detergent, paper towels, and Greek yogurt.

WHAT TO KNOW ABOUT LTOs

Proving to be a boon in the industry rebound, limited-time offers (LTO) can be smart tools to build traffic, convert new customers, and goose up revenue. A recent consumer insights study found that 35% of consumers have visited a fast-food restaurant they’ve never tried before specifically to check out an LTO. Strong-selling LTOs often work like magic, handily shaking off signs of consumer ennui. Some of the standouts:

Diablo Dare Sandwich with ghost peppers, chipotles, and jalapeños bundled with vanilla milkshake
Taco Bell Nacho Pizza
Pepperoni Pizza Egg Breakfast Sandwich on a Bagel
Bacon and Mozzarella-Stuffed Pretzel Bites

Kyoto Bloom Cocktail with gin, fresh strawberries, yuzu sake, and elderflower liqueur topped with club soda
Bacon Beast Biscuit
Superseed Protein Pancakes
Sirloin Steak Street Tacos
Peach Milkshake, an annual item growing in popularity and sales

Going forward: Whatever the corporate goals for an LTO, its primary mission is to build traffic and revenue. Stay close to the core brand, throw in a few surprises, and make it special with a little premium pizzazz. That Kyoto Blossom Cocktail? Consumer research by Datassential showed off-the-charts consumer interest.

_{^{Sources: National Restaurant Association: 2022 State of the Industry Report (2022); New York Times: Food Prices Approach Record Highs (2022); The Hill: Gas Prices Hit New Record High (2022); U.S. Bureau of Labor Statistics: Consumer Prices Up 8.6% Over Year Ended May 2022 (2022); Restaurant Dive: Ghost Kitchens Could Be $1T Global Market By 2030 (2020); McKinsey & Co.: Ordering In (2021); Fundera: 20 Food Delivery and Online Ordering Statistics for 2021 (2021); Food Institute: Drive-Thrus Could Give Full-Service Chains New Opportunities for Growth (2022); USDA Economic Research Service Food Price Outlook (2022); Prepared Foods: New Food Industry Platform Unleashes Creativity for Chain Restaurants (2021); Nation’s Restaurant News: U.S. Sales Forecast to Hit $898B in 2022 (2022); Alignable, 68% of SMBs Say Gas Price Spikes Have Hurt Their Business (2022); National Restaurant Association: Economic Indicators (2022); Yahoo!: What Was the Highest Gas Price in U.S. History? (2022); CNBC: Inflation Continues to Rise (2022).}}