Why the Restaurant Industry Is Shifting Away From Discounting
Moving away from deals and coupons and toward everyday value. The economic trend for nearly every restaurant operator in 2022 was to raise prices, with most companies taking mid-single digit– or sometimes double-digit menu price increases in order to keep pace with inflationary trends. But just as operators need to be careful not to alienate customers by increasing menu prices too much, they also must learn how to balance enticing customers with deals while making sure revenue still grows. As this period of economic uncertainty continues, there has been an operational trend away from discounting and more toward everyday consumer value—a more complex equation that doesn’t just take price into account, but also quality of food and beverages, uniqueness of menu items, experience, and speed of service. On recent earnings calls, several restaurant executives have mentioned taking a break from discounting in order to improve revenue returns for an industry that’s just lapping the COVID-19 omicron-related downturn from last year, including Bloomin’ Brands, Brinker International, and Restaurant Brands International. “We’re seeing an attempt to shift away from discounting to offer something more consistent with everyday value for the consumer with a margin construct that makes sense for the restaurant,” Sara Senatore, a senior research analyst with Bank of America told Nation’s Restaurant News. “Several restaurants are reducing the amount of promotional activity and risking a reduction in traffic, because that traffic isn’t necessarily profitable for them.”
How to Create a Restaurant Culture of Aspiration
Regardless of industry, all companies must look inward to find the talent they need to succeed. It’s a fact. High talent turnover is inherent in the restaurant industry. It’s estimated that three out of four restaurant employees are planning to leave their job. Furthermore, the average restaurant loses $150,000 yearly in just staff turnover, while losing a front-line employee costs a restaurant employer, on average, $5,864. Companies are introducing new incentives to attract employees, but hiring alone won’t address the situation. Instead, it is my experience that to build a stronger organization with lower turnover it’s imperative to do two things—create incentives for your existing employees to stay and grow future leaders from within your company. This becomes more important in an economic downturn. When employees realize that even if times are tough, you are going to stick with your commitments to invest in their education and development, that drives even more engagement and motivation to perform. As a former CEO of Darden Restaurants, I’ve found that a key starting point for investing in your people is to tap into their aspirations. When you believe everyone who walks through your doors has the capacity to rise to the level they aspire to, and you make it known that you are willing to help them advance by providing the development they need, that’s powerful. The next steps involve taking action. Below are some key strategies for turning those beliefs and aspirations into career progression within the company, in efforts to retain your people and expand your internal talent pipeline.
The State of Guest Experience in Fast Casual
New report. Welcome to the great fast casual split. Don Fox, chairman of Firehouse Subs, believes an argument can be made COVID-19 altered the landscape of fast casual more than any other. The reason takes only a quick tour around foodservice to grasp. The same logic behind why quick-service operators, or “fast food,” proved Teflon to early setbacks is why they’re now driving forward. Digital adoption provided a boost, sure, but, in all, the drive-thru remains the separator. Casual and full-service restaurants generated somewhere around 8 percent of sales outside the four walls pre-virus. That’s climbed closer to 15–20 percent, depending on brand, yet the incrementality, Fox says, remains cloudy. Dine-in traffic, although rocketing out of 2020–2022 lows, isn’t scaling as fast as off-premises, just as was the case in 2019. But fast casual? Disruption formed two branches. Some chains tagged convenience and an appeal to off-premises consumption as new defining traits. Drive-thru—once a disqualifier—became a must-have. As did digital threads to piece it together, like apps and mobile ordering. The other branch, meanwhile, dug deeper into the roots—cuisine and on-site experiential service. It’s hard to predict whether these lines will push closer or further apart going forward. It’s likely the answer falls somewhere between extremes. The table stakes to compete won’t ignore either demand.
How Restaurants Can Take Advantage of the Wild Energy Market
Tips to add some certainty into your restaurant operating budget. t’s not just eggs. Rising inflation has affected the price of nearly everything in the last year, from meat and alcohol to airfare. (Though, eggs are probably most notable; in January, the price of eggs was more than 70 percent higher than a year prior.) Restaurant and hospitality professionals know that fluctuating prices are simply part of doing business, and that these changes are often out of their control. But there’s one budget line item you can control: your energy spend. As with the price of other commodities, energy prices fluctuate. Lately, these markets have been nothing short of volatile. This matters because energy spend makes up 3-5 percent of the average restaurant’s operating costs. In a volatile energy market, a restaurant business is going to benefit most from a proactive approach. Here are some of the reasons behind recent price fluctuations, and tips for how restaurants can have more control over their energy spend. Understanding energy market volatility. The price of natural gas, which influences the price of power, more than doubled in the last half of 2022. In fact, twice last year, energy reached almost $10 per MMBtu. (MMBtu is the acronym for Metric Million British Thermal Unit, a standard unit of measurement of natural gas. You’ll often see this used in updates on the price of energy.) Looking at natural gas prices over the last year, the sharp dips and rises were due to several factors, including the extended, unplanned closure of a liquefied natural gas (lng) processing plant in June. A lack of severe winter weather resulted in energy prices dropping even further in recent months. Though this is always a possibility, it was not expected.
How Hospitality Tech is Overcoming Hurdles
It is paramount to adapt to the ever-changing expectations of the customer. Integrating your technology and bringing all vendors and partners under one roof, and one API, can have a significant positive impact on your hospitality business. As the forecasted dip in the economy comes to fruition, this is vital to your operational efficiency and bottom line now more than ever. As we head toward uncertain economic conditions, businesses continue to pivot with evolving customer expectations. Smart hospitality technology centered around payment processing, inventory tracking, and innovative ways of ordering remain at the center of the ongoing conversation of how to get customers through the door while constantly improving their experience. In fact, Yahoo! and Fact.MR, recently reported that smart hospitality technology is expected to expand by a staggering compound annual growth rate (CAGR) of 22 percent over the next decade—increasing the global valuation from its current $37.41 billion to $273.27 billion by 2033. Hospitality leaders can begin by carefully considering the pros and cons and asking for regular feedback throughout the implementation process. As they integrate their technologies and vendors into a single dashboard view––encompassing all ordering and payment channels––they can ensure that they are using these tools in a way that benefits both their business’ bottom line as well as their customers.
How Restaurants Can Overcome Labor Costs
The race against minimum wage is the difference between an operator staying alive or crashing and burning. You like cooking and you want to open a restaurant. You have the layout of the restaurant in your head and have big aspirations. The restaurant is about to open and yet you have no one that wants to work. One of the biggest hurdles restaurant owners have is not the dream but the reality. Being in business does not mean it is plug and play. No wonder why about 20 percent of small businesses fail the first year in business, according to the Bureau of Labor Statistics. Along with high food prices, labor is the next-biggest expense for a restaurant. In an industry with already razor-thin profit margins, the race against minimum wage is the difference between a restaurant staying alive to run another race or crashing and burning. The federal minimum wage is $7.25 per hour in 2023 according to the Fair Labor Standards Act. States can have their own minimum wage but must at least pay $7.25 per hour. If your barbecue restaurant has the best ribs, you will have a line out of the door, and you would need enough staff to handle the business. The minimum wage in Texas is $7.25 per hour in 2023. Your profit margin would be higher since your labor costs would be low. Let’s take the same example but your barbecue restaurant is in California. The minimum wage in California is $15.50 per hour in 2023. That is more than double per hour in labor costs. Your profit margin would be substantially lower since your labor costs would be high. How do you then win the minimum wage race? It is called sweat equity. You will need to work in the restaurant while you find more labor. You are the last line of defense when it comes your restaurant. If an employee does not come in, you will need to make up the difference. Once you have enough employees you can pull away gradually. .
How Automation Is Driving Restaurant Sales
Right across the U.S. The restaurant industry has embraced technology and, of late, it’s been at the leading edge. From the humble QR code, which quickly became a mainstay during the pandemic, to recent reports of “digital-only” restaurants, tech is starting to define service for restaurants and customers alike. There has been an avalanche of commentary and analysis on how automation and AI have collectively helped restaurants cope with now all-too-familiar challenges: labor, supply, inflation. But it’s not all about coping and survival – or it shouldn’t be. Traditionally, technology also equips humans (and businesses) with tools that they can use to thrive. And with a sustained uptick of restaurant spending – January 2023 was up 24 percent on the same month last year, according to the US Census Bureau – the conditions are ripe for flourishing. So how can automation help restaurants cut costs, maximize sales, and boost their bottom line? Here are five ways it’s already happening:
Did You Know?
Understanding the impact of commercial refrigeration in 2023. In a standard commercial kitchen, what is the single most important feature of the room? It’s not the customized drawer or aesthetically hip cupboard. Alternatively, it’s the placement of commercial refrigeration: you can make the case that they are truly transformational pieces of equipment in the food industry, and the tipping point in a restaurant’s daily operations. In terms of their bottom lines, most commercial operators don’t need hyper-customized cooling equipment. They simply need reliable refrigeration designed to last 365 days a year, seven days a week, 24 hours a day.
Employee Tip
Labor crunch triggers widespread effort to loosen teen labor rules. A shortage of job candidates has prompted the legislatures of at least 10 states to propose easing restrictions on when and where teenagers can work, fueling a controversy that’s sucking in restaurants. Many of the suggested regulatory changes address either the hours minors can work, particularly during the school year, or how exposed they can be to the sale of alcohol.
Bielat Santore & Company – Restaurant Industry Alert
BACK ON THE MARKET!
Closed Middletown, Monmouth County New Jersey neighborhood tavern is back on the market after initial purchaser cannot fulfill contract contingencies. One-story 5,212 square foot tavern building with an adjacent two story 600 square foot garage, located within a block of Sandy Hook Bay “Ideal Beach.” Adjacent 10,000 square foot parking lot. Sale includes Middletown Type “C” – Plenary Retail Consumption Liquor License. $750,000 – buys real estate and liquor license!
Contact Richard Santore, 732-531-4200, for additional information.
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