Chain Restaurants: Present & Future
Technomic presented the state of chain restaurants, now and next, during Restaurant Leadership Conference 2022 in Scottsdale, Arizona.
Obviously, the entire hospitality industry is facing significant struggles. Rising costs, supply chain chaos, labor shortages and challenges, inflation… The past two-years-plus haven’t been easy.
However, there’s reason for operators and their leadership teams and staff to be optimistic. Additionally, independent and small-chain operators can learn from Technomic’s findings.
Challenges & Threats
Well, let’s take our medicine first, starting with the supply chain. In short, it’s bedlam.
Joe Pawlak (standing in for David Henkes) and Richard Shank of Technomic said as much during RLC 2022. Per their data, 35 percent of operators dropped at least one manufacturer between 2020 and 2021.
Whether because of rising costs, an inability to consistently deliver product, or other factors, operators had to adapt. Clearly, there’s a nasty trickle-down effect when an operator drops a supplier.
And then there’s inflation. Interestingly, Shank calls what we’re seeing currently as “existential inflation.” Relating to consumers, this means their confidence is shaken in terms of spending.
Of course, this type of consumer perception manifests in several ways. For example, some guests cut down on visits. Others will cut down on ordering, skipping appetizers and desserts. Perhaps they have one less beer, glass of wine, or cocktail.
Also, some guests “trade down.” Meaning, there are consumers who opt for casual restaurants rather than fine dining. Or, they’ll move from fast-casual to QSR.
Looking at the numbers, however, nearly 40 percent respondents to a Technomic survey say they’re visiting restaurants less. This makes sense, as 81 percent are concerned about how inflation will impact them personally.
On the operator side of inflation comes pricing. During Pawlak and Shank’s presentation, they used QSR dinner pricing as a real-world example.
According to Technomic, the tipping point for guest perception of good value is just $7. At only $10, consumers feel things are getting expensive.
As Pawlak and Shank pointed out, this is a problem. After all, the average price for dinner at a QSR is $10.08. That number may already be higher today.
Medicine taken, we can move to the good news.
First, Technomic predicts a strong Q3 this year. Additionally, they don’t expect double-digit year-over-year inflation.
In terms of labor, Technomic doesn’t expect costs to go down. However, they do anticipate that they’ll level off rather than rise.
Then there are the numbers. For the top 500 chains in the US in particular, 2021 was a “banner year,” according to Pawlak. On an aggregate basis, sales for the top 500 (McDonald’s is number one, for those wondering) are up 17.9 percent.
Also, every category of restaurant is performing better. The top 500 chains, for instance, are up 18 percent year-over-year. Midscale restaurants are up 38.5 percent. Casual is up 30.2 percent while fast is up 22.2 percent, QSRs are up 13.2 percent. As far as the biggest bump, fine dining is up 56.9 percent.
Looking at 2019 for obvious reasons, the industry was down 49.1 percent in sales in April 2020. However, the industry was down just about a single percentage point in February of this year compared to the same time in 2019.
So, how do we keep sales trending upward when facing inflation and other threats? Pawlak, Shank, and Technomic have some advice.
Operators, for instance, can implement the “balanced barbell” pricing strategy. In this model, high-value items drive business alongside premium offerings. In other words, don’t discount the entire menu just to entice guests to keep visiting.
Once guests get a taste for falling prices, they’ll consider the lower prices the standard. After that, any increase can be perceived as “too expensive.” Of course, discounting the whole menu also impacts guest perception of the brand negatively.
In addition, Technomic suggests offering higher net profit discount bundles, and implementing off-premise, large-party strategies.
Should Technomic’s predictions prove true, the industry may see an even stronger Q4 and start to 2023.