Despite the changing times and increasing strain on operators to cope with a tighter labor pool and the shifting priorities of consumers, the foodservice industry has a bright future, according to the National Restaurant Association’s annual State of the Industry Report. Restaurant sales are projected to reach $889 billion in 2020 with a 4% growth rate, faster than industry sales growth of 3.6% or $863 billion in 2019.
That projected growth is driven by the fact that consumers are more confident in their spending power, driven by a healthy labor market, and are demanding more from the foodservice sector. The report’s data shows that 45% of adults wish that they ate out more often and that American adults average 5.3 restaurant occasions weekly.
“People want to use foodservice more but are not because of competing demands for consumer income,” Hudson Riehle, senior vice president of research and knowledge for the National Restaurant Association, said in an interview. “Operators need to do more to remain top-of-mind in terms of dollar-spend. Using new promotional tactics, the industry is in a much better position [to persuade consumers] than it was 20 years ago.”
Here are our five key takeaways from the National Restaurant Association State of the Industry Report:
Operators are (mostly) optimistic
The State of the Industry report indicates that 80% of operators believe that business conditions for restaurants are either “excellent” or “good,” though they are more likely to give positive remarks to their own restaurants than the overall industry.
The most optimistic restaurateurs concerning their own restaurants are quick-service operators (89% feel good or excellent about the conditions in their own restaurant), and the coffee and snack segment (88% feel good or optimistic). The latter is unsurprising, given the fact that the snack segment is one of the fastest growing in the industry, with 55% more of consumers going out for an afternoon snack or beverage more often in 2020 than they did two years ago.
Most operators also think that their business is healthier than it was two years ago, especially for quick-service and fast-casual restaurants as convenience becomes a top priority for consumers.
Labor woes are still the biggest industry challenge
Just because operators have expressed optimism about the health of their industry, that does not mean that business is without challenges. The biggest hump continues to be labor recruitment and retention, as three in 10 operators say they currently have job openings that they are struggling to fill.
Most restaurant segments identified labor recruitment and retainment as their number one business-related challenge (with the exception of casual-dining and coffee-and-snack segments, which cited sales volume as their top concern). Quick-service restaurants appeared to be most affected by labor concerns, with 37% of operators in that segment citing labor as their top challenge.
To address those concerns, operators are investing in new ways to attract new employees and also in retaining the ones they have:
“In this atmosphere of several years of intense labor pressures, operators are looking at new benefits packages, training programs and development programs to mitigate these issues,” Riehle said.
The other biggest labor problem is rising wage costs: On average, wages for quick-service and fast-casual employees rose 4.4% in 2019, compared to an average wage increase of 3.3% in the private sector as a whole.
Off-premise/delivery is one of the biggest growth drivers
The biggest industry buzzword continues to be “off-premise”: If you’re not focusing on attracting customers who want to dine outside your restaurant, then you’re missing out.
Three in four operators say that off-premise is their biggest growth opportunity, including delivery, takeout, curbside pickup, drive-thru and catering. Additionally, 52% of adults say that purchasing takeout or delivery is “essential to their way of life.” The reason behind the push for off-premise? Convenience. Customers don’t want to have to do more than push a button (or sometimes pick up a to-go bag) to get their restaurant experience.
This is particularly true for limited-service restaurants, where 80% of operators cite off-premise as the biggest opportunity for success.
“Off-premise is a long-term trend and not a fad,” Riehle said. “For quick-service operations, it’s not unusual to have 70% or more off-premise sales, because the consumer decision to go to a restaurant is occasion-specific. Convenience-driven needs counterbalance the sustained need for restaurants functioning as a social oasis.”
But despite the continued (and increasing) demand for delivery, especially among Millennial and Gen Z consumers, only about half of the restaurants say that they offer delivery, with even fewer family dining, casual dining, fine dining, and coffee-and-snack restaurants offering it.
Restaurants should not resist evolving consumer needs
Today’s foodservice consumer looks a lot different than they did five years ago. Value and convenience are two of the most-cited consumer needs. About 80% of operators say that their consumers are more value-conscious than they were two years ago. The intersection of value (particularly specials and personalized deals) and convenience (including delivery) is where today’s customer lives.
“Price paid for value received is an important equation,” Riehle said. “If that price paid did not meet consumer expectations, then they are quick to vote with their feet. Operators can look at operations costs and closely examine how they can better manage menu price increases while also offering a better everyday value proposition.”
The best way to tap into the intersection of convenience and value? The State of the Industry report suggests investing in a loyalty program (more than 8 in 10 consumers of all ages say they are more likely to visit a restaurant with a loyalty program) that rewards loyal consumers. 87% of adults say that they would pay attention to and try to take advantage of real-time, in-app specials.
Another way to mirror shifting consumer expectations: food and drink subscription services.
“Our research shows consumers are more likely to support subscription programs now than ever before, particularly among younger consumers,” Riehle said. “It’s that Netflix model of a basic subscription fee per month and then adding different packages on top of that that operators can really tap into.”
Technology investment is a key to success, but most operators are lagging behind
Consumer need for convenience goes hand-in-hand with technology innovation and investment. Constantly evolving mobile and smart technology has made the industry more fast-paced.
Currently more than 80% of operators say that technology usage provides a competitive edge for them, but only one in five would describe their technology as cutting-edge. Fine dining appears to have the most interest in investing in consumer technology: 77% of fine-dining operators will be investing in customer-facing technology like tableside tablets, and 54% will be investing in back of the house technology.
The biggest takeaway? Consumers are saying that technology that makes their experience frictionless — better, faster and more convenient — is key.
“Consumers are supportive of additional technology integration in restaurants, especially the availability of linking restaurant loyalty systems with different apps,” Riehle said. “Technology options exist much more now than they ever have before so there are so many things operators can do to increase their connectivity.”
Contact Joanna Fantozzi at [email protected]
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