Another Challenging Year for Restaurants

If you thought 2016 was challenging you better hold on. 2017 is not poised to get better. Even with Republicans controlling both the Congress and White House and the opportunity for reduced regulatory burden on businesses, the outlook is tough for a host of competitive reasons and a continued over supply of eateries.

Chicago-based NPD expects restaurant industry traffic to remain stalled in 2017. Traffic to dine-in brands AKA casual dining, will continue to fall at a rate of 2%. They do however bode slightly better for quick serve brands with traffic projected to grow 1%, hardly a panacea in light of the expanded competition from grocery. And to further cloud the traffic picture, gas prices are projected to continue to rise again.

Innovation is critical to continued success and a way to stay competitive.

Consumers’ apetites for dining out continue to be stymied by the prepared foods industry. And the competition is not just coming from traditional grocery stores. Increased options and improved quality at C-Stores will continue to provide viable options for consumers. Take into consideration the attractive value proposition of better quality, more options, less expensive and convenience and you have a cadre of tough competitors for share of stomach.

So what’s a quick serve and any dine-in brand to do? First and foremost make sure to deliver on the basics. Create superior dining experiences. Immaculate restaurants and food quality are ways to win consumers for that next dining out occasion. Our research shows how important the customers the last visit plays into future decisions on a return visit to the same brand. Training or retraining staff to surprise and delight the customer is an inexpensive way to deliver that superior dining experience.

Innovation is critical to continued success and a way to stay competitive in a challenging environment. And I’m not talking about building an app. App downloads are down significantly as people are demanding apps that provide utility and it’s unlikely a restaurant brand can provide the kind of utility Uber provides, which is the standard by which most apps are judged. Instead, consider innovation on your menu with flavors from the season or capitalize on popular flavor profiles that consumers crave. Millennial customers are fond of bold interesting flavors you can’t find just anywhere.

Test different options in a few units before rolling out to the entire system. Our research show customers love the opportunity to weigh in on what their favorite brand is testing. Utilize a high performing store with a strong manager, this guarantees a meaningful test that can be replicated over and over. It also helps refine the preparation and presentation for a highly effective roll out.

We are also seeing technology playing a key role in innovation. Although probably the more expensive route it’s necessary to stay ahead of the curve on collecting critical data to analyze and leverage to better understand your customer’s habits and behavior. Once you know who your best customer is and what they like you can leverage that information to go get more of them.

Mobile ordering is growing exponentially and if having that feature makes sense for your brand make the investment. We are seeing many brands generating significant incremental sales and ROI on mobile ordering by leveraging intelligent upsell opportunities.

It’s not the apocalypse but these are challenging times for restaurant brands and prepared food in general. You’ve been in business a while now and you know it’s cyclical. Stay focused on the fundamentals of delivering great hospitality. Innovation is critical to staying competitive and technology will keep you ahead of the change curve.

Why does restaurant traffic die?

Regular reports have shown that multi-unit restaurant sales are at their worst performance levels in three years. Prices have risen for guests at most concepts due to increases in commodity and labor and sales are still down. Here’s what all restaurant brands have to face – increased traffic leads to higher sales. People in the door can buy from you, people at your competitor cannot.

Brands may look at their daily counts and see consistent traffic, year over year or period over period. For top performing brands like Panera Bread, Chick Fil-A and Shake Shack traffic doesn’t seem like much of a challenge. Today. Think about a brand like Roy Rogers that once had almost 650 busy locations and has now retrenched with about 50. Once strong traffic provided revenue for growth, now fighting to re-launch. Traffic patterns can change quickly. Here are some reasons why and how to address them.

New Competitors

The burger wars were waged between two or three major QSR players less than 10 years ago. Then fast casual burger concepts joined the fray with a new take on the menu and a more premium product approach. Compare that to what huge segments of the QSR were experiencing in the early 2000s: they wanted a burger and this was their only option. They didn’t love it but they were in the habit of settling. Smashburger presented a solution to these people. And they went. Once they were exposed to a more premium product, the habit was, er smashed. (Sincere apologies for the pun).

Now McDonald’s is negotiating with customers on their terms – finding ways to make their product appear more premium. They’re fighting against 60+ years of brand perception and experience. Brands have the opportunity to get ahead of this battle on their own. By getting out in the market and trying new concepts on their own and examining threats early. Because you are experts in knowing what your customer wants, you should be able to make reasonable leaps as to what bits of each concept will catch their attention.

The mistake brands make – especially huge brands – is feeling a need to steal a concept whole cloth by creating a clone concept or incorporating whole menu sections into their own. This is a major investment and distraction from what their best customers love about them. Just take the pieces that make sense for your menu, will increase occasions or sales and can be done well, operationally.

Changing Trends

Poke and other new menus made an impact in 2016. The number of locations for restaurants with a focus on poke grew dramatically. Assuming each has healthy traffic this year, the question has to be – where did diners stop going to visit their favorite poke place? Different than a shift in competitors, changing trends means a shift in the tastes of your core customers.

This presents two unique problems. First predicting these changing tastes. We’ve seen a rise in consumer interest in vegetarian or plant-based options. No one should be surprised by the growth of Veggie Grill at this point. Brands that have lost traffic in competition to a concept offering this must be asking why. They failed to accurately forecast consumer interest. This might be from a lack of research or perhaps a dismissal of the concept.

If predicted, how can restaurants capitalize on a trend? Casual dining or broad menu brands can simply add an item. Maybe test an LTO. This builds a moat against concepts solely focused on that trend. It also builds in defense those that might veto a visit to their place. A new focus on salads lets Domino’s win extra occasions from groups with members who want vegetables (or just don’t want pizza).

For an established brand with a tightly constructed menu, for example Jersey Mike’s, adding trendy items like poke is not easy. In this case, work to understand the underlying reasons behind the trend. It’s often more than the ingredient. In the case of poke, is it a seafood focus, an Asian flavor focus or simple novelty? Get to the root of the trend and find a way to reach your guests.

Shifts in Service and Experience Standards

Readers know immediately that shifts in service and experience are traffic killers. Casual dining brands has been dramatically eroded by the expectations created by fast casual. Similar quality meals offered in a quicker format at a lower price point. Now brands like Panera Bread and McDonald’s are offering kiosk based service that is changing the experience again.

Do not wait for the trades to report these innovations and shifts. Get out in the market and visit new concepts. See the menu presentation yourself, order yourself, try the food. Find the moments of delight and disappointment in each experience. Then compare against the experience your brand offers.

Keeping traffic steady (or growing it) means being vigilant. Brands need to work to stay on top of culinary, experience and fashion to see how consumers are changing. Understanding what consumers want means knowing how to keep them coming in.