6 Tectonic Shifts and Challenges Facing Restaurant Owners and Operators in 2018

The excitement of working in the restaurant industry lies heavily in the constant state of activity, the constant challenge to execute consistently and the relentless need to stay ahead of the curve. From servers dodging oncoming trays and knife-wielding kitchen staff prepping for a busy dinner service to the ever-changing industry regulations, trends, and technologies, there are always new things to learn, improvements to be made, and tactics to apply to generate more success.

As restaurant consultants, it’s our job to navigate change by researching, analyzing, strategizing, and forecasting … and in the end – always keeping our clients’ best interests (and bottom line concerns) top of mind. We do this while continuing to evolve and improve our own perspectives on new hospitality concepts and how to better serve our clients well and stay ahead of the competition.

So, each year we call on our very own Dan Simons for some intel on forecasting industry hot-topics as he sees them for the coming year. The hottest topic from 2016 was most certainly sustainability. The importance of leaving this planet better than how we found it, is a continued, evolving source of interest, education, and involvement.

Below you can find Dan’s ‘6 Tectonic Shifts and Challenges Facing Restaurant Owners and Operators in 2018’. Also, be sure to view our restaurant industry predictions from 2017, 2016, 2015 and 2014 below as well:

  1. Venture Capital will continue to flow into restaurant tech, and continue to be destroyed at an increasing rate. From our vantage point, Meal Kits (which have been gobbling up venture capital far faster than people are gobbling up the Meal Kits), will pave the way. We’ll see this short-lived venture falter, consolidate, and ultimately collapse. Losers will be evident. We’re not confident there will be any winners, at least not at their initial valuations.
  2. The better burger trend will begin to collapse, with clear winners and losers. The growth buzz for this restaurant trend has been intense and seen remarkable growth over the past several years, but we predict the glory days of the better burger are in the rearview. Although we see similarities with the “high temp/fast casual pizza battle,” we believe there will be clear winners, and we’re looking at Blaze Pizza to light up fast casual pizza in 2018. We’ll be watching to see how it shakes out. For every big winner like Shake Shack or Blaze, there will be 10 or more losers.
  3. The demise of delivery concepts will take shape. This was a trend to watch, but as Dan summed it up in our Look Back last month, “The feast with delivery concepts will begin to see them feast on each other.” As they consolidate to get market share and cut costs, restaurants will realize the high fees paid to the delivery companies eat up whatever incremental profit they make. Consumer demand will remain high though, and one (or more) of the delivery players will figure out how to rip costs out of the system and win. Or, the one with the deepest pockets will grab market share, keep burning cash, and bet on the long game – when delivery is via driverless vehicle. Maybe that’s the answer. But food will still need to get from curb to front door. Maybe when reaching its delivery address, the sunroof opens and a drone flies the food to the front door or thru an open window after texting the guest and “ringing” the doorbell? Time will tell. For now, keep your eyes open on the sidewalk, and you’ll start seeing the robots with 4-wheels doing deliveries.
  4. Big chains of the old guard continue to collapse, restaurant industry analysis is clear: more closures in restaurants and retail, job elimination and shrinking kitchens, and competition will signify the end of the old guard but heat up new growth concepts grabbing locations, and landlords and developers have little choice but to keep filling the open retail spaces with food concepts. There are only so many nail salons, hair salons, escape rooms, and paint bars a developer can use to fill space. Massive shifts in the economy, as the Internet (and Amazon) eat traditional retail concepts, will also continue.
  5. The convergence of immigration policy, labor policies, rising wages, and low unemployment will put more stress on operators. While these issues will get worse in the short term, in the long run, the amount of automation coming into the industry will destroy so many jobs, it will lead to a flattening of wages and increase in unemployment. Jobs like cashiers, for instance, will all but disappear over the next few years, and 2018 will see the widespread onset of this trend. But, if your operation has a solid training program that can take former cashiers and develop them for other roles, you’ll end up with plenty of candidates over the next few years.
  6. Green Opportunities Abound. Savvy marketers should usher in 2018 armed with targeted, authentic playbooks that focus their corporate marketing departments on seeking out like-minded partnerships in order to develop impactful, responsible, sustainability-related outreach programs. As authentic, green-minded programs will (hopefully) abound, we see the “all-natural” stories, and generic catchphrases like farm to table, artisan, chef-crafted, and farm-inspired, becoming adopted by the largest of the restaurant chains and corporations, and prove even more meaningless than they were in 2017.

‘5 Tectonic Shifts and Challenges Facing Restaurant Owners and Operators in 2017’

1.     Food Trend: Hand-Pulled Noodles
One of the most beloved, versatile global food items, the noodle, is experiencing a rebirth. Enter: the hand-pulled noodle. And yes, these specialized hand-pulled long, flat, and oftentimes perfectly chewy noodles are as wonderful as they sound. In fact, we’ve begun guiding clients on incorporating hand-pulled noodles dishes on their menus. From Chinese shop style signature cumin lamb with cabbage and spicy chili oil and beef & pork meatballs to curry chicken and drunken beef style with bok choy and bean sprouts, hand-pulled noodles pair well with just about any protein and/or vegetable and will prove a dish superstar.

2.     Sustainable Seafood: Championing a Necessary Cause. For Today. For Tomorrow
We appreciate the importance of continuing to educate ourselves, and our clients, in making responsible purchasing and therefore menu offerings in order to champion global, sustainable seafood. This issue should, and will, remain part of our restaurant and hospitality dialogue, both in recognizing progress already made and looking to the future as our responsible choices make even more of an environmental impact.

3.     This Isn’t Your Mom & Pop Shop: Farmer-Owned Restaurant Partnerships Take Flight
We love this trend as a source of sustainability at its best. One of our largest clients, Founding Farmers, has been pioneering the farmer-owned concept since its first DC-area restaurant opened in 2008. Partnering with North Dakota Farmers Union, Founding Farmers principles are steeped in their efforts to “take people back to the source; to the foods that are grown, raised, and harvested on American family farms…to affirm that family farming was, and remains, essential to our nation’s well-being.” As our industry becomes more mindful of the importance of sustainable responsibility, we see the concept of getting back to our nation’s roots, if you will, trending into 2017 and beyond.

4.     Reducing Waste: New Takes on Sustainability Efforts
Our team sees a growing interest in the importance of minimizing food waste, both in the industry as a whole and in consumer’s habits. Some trending examples we’ve seen are: making better use of kitchen scrapes such as using strawberry tops to infuse vodka, making pesto with carrot tops, and distilling proprietary spirits in-house. Seek out and experiment with new and improved avenues to recycle and reuse in your restaurant kitchens to improve your bottom line and sustainability strengths.

5.     Delivery Makes its Mark on a New Generation
Last year we highlighted restaurant To Go services as a great way to capture a whole new breed of guests: those who love your restaurant but sometimes prefer eating in the comfort of their own home. Now, our team is spotlighting a new take on delivery making its mark: delivery-only restaurants. These business prototypes (i.e. online restaurants) are a prudent way to save on operating costs since instead of a brick and mortar space, these outposts require little more than a commercial kitchen, culinary/online teams, and delivery staff. We see the key to success here as: a) using the power of social media to market your b) brand of fresh, delicious, high-quality food. Marry the two with an interesting, well-executed marketing plan and concise menus – and you just might be in business.

‘8 Tectonic Shifts and Challenges Facing Restaurant Owners and Operators in 2016’

1.     Non-traditional Bedfellows
This trend is unfolding, and the industry is watching. Owners and operators take heed, as more & more businesses will seek unique partnerships affording each party the unique opportunity to bolster business revenue, job creation strategies, and market presence/brand recognition. Be it the converging of restaurant+retail brands (such as the recent Urban Outfitters & restaurateur Marc Vetri and Target & Freshii partnerships), restaurant+hotel brands or any combination, interested parties need to seek good fits (i.e. brand cohesiveness, vision, growth plan), as there’s no telling how far a workable, non-traditional partnership can soar.

2.     To Go Services
Fresh on the 2016 horizon is a new take on the classic quick-service delivery approach. To Go services from upscale eateries are banking on the potential of the virtually untapped “meals to go” market. Featuring guest favorites and specially selected offerings, To Go meal services allow customers to enjoy a great meal from their favorite local upscale restaurant in the comfort of their own home…without the shopping, prep, and cooking.

3.    All Day Breakfast
This could go on either side of the restaurant trend coin: food or business. As we see it, the decision to provide customers with all day breakfast is at the core a business one. One that must be planned for, strategized for, and allotted for in the annual back office financial forecast. We see the allure: allow guests this hearty, comfort food option all day, but owners and operators must first analyze the cost effectiveness and whether it fits within their restaurant service and brand identity before buying into this trend.

4.     Young Millennials as CEO’s
We’re seeing a shift in the restaurant business environment that feeds off the young, so to speak. Millennials are entering the industry as business owners and operators at a younger age, therefore 2016 is poised to present a challenge to established owners and operators to up their operational and creativity game in order to compete with the ideals, visions, and technological aptitude of their emerging, younger counterparts.

5.     Hotel Restaurants as Destinations
As food plays a big part in introducing visitors to a local area, positioning your hospitality platform to serve as the ultimate destination ambassador is good business. Developing a workable network requires reaching out to and partnering with local purveyors, but the effort to support your local area’s identity through your restaurant’s food service component, such as food menu references/anecdotal blurbs or daily specials featuring local harvests, is a great way to garner guest interest, and therefore keep ‘em coming back for more during their stay.

6.     Pressure on the Labor Market
We see this affecting the businesses of restaurant & hospitality industry owners and operators in 2016 as the challenging combination of rising minimum wage could consequently affect the pool of available of cooks. Hence, owners and operators will be paying more in wages, yet still struggle to find enough staff to run their kitchens smoothly.

7.     Malls as Restaurant Rows
This trend, already on display, will continue and accelerate as malls look for ways to compete against online retailers, such as Amazon. Mall owners and operators need to create “experiences” for the vast array of their guest demographic – experiences that are distinctive and engaging, and that can’t be recreated online. Look for restaurants to be at the heart of that innovation, along with event spaces to serve as an additional platform for unique experiences.

8.     Tipping
While the topic of Tipping is all the rage, we predict the status quo won’t change much over the next 12 months, although the lessons learned in 2016 will certainly affect the trajectory in 2017 and beyond.

That’s our wrap-up for 2016! See more predictions depicting main challenges, problems, and restaurant industry shifts we were watching in 2015 and 2014.

‘7 Shifts & Challenges Facing the Restaurant Industry for 2015’

From consumer shifts away from chain restaurants in favor of local eateries to the fall of the cupcake, fro-yo, and pop-up concepts – we predicted the shifts and challenges facing our industry in 2015.

Here are our predictions on the issues that we believed would have the biggest impact on the restaurant industry in 2015…

1.     Crowdsourcing Becomes Legit
The latest in the evolving landscape of raising capital: “crowdsourcing” (also called “crowdfunding”) is an innovative platform where restaurants and investors unite. We see lots of private equity looking for a place to call home, and with two basic crowdsourcing models (one rewards-based, one equity based) to choose from, as well as the help of restaurant industry online sites such as equityeats.com and Foodstart.com connecting interested parties with local F&B businesses looking for support, the crowdsourcing concept is one to watch! We also have our eye on federal regulations that are evolving relating to raising capital, accredited investor requirements, and disclosures.

2.     Fast Casual Pitfalls
It seems as though the private equity love affair driven by venture capitalists envisioning a new industry, but who don’t necessarily know the realities of restaurant economics, may have crested. The fast casual business model is colliding with rising minimum wage and higher healthcare costs. Many of these concepts do not have the pricing latitude to just “charge more” and many have their COGs latitude limited by smaller menus and limited product lines. The full-service concepts with tipped employees (albeit also facing tipped minimum wage increases in some parts of the country) and broader menus may see their flexibility start to command a higher value within this changing landscape. The Cinderellas, like Chipotle and the soon to be Cinderellas like Sweet Green, will solve and clear these hurdles, but for the middle of the pack and below, watch out.

3.     Attorneys & Advisors as Investors
As restaurant operators continue to grow their businesses and concepts, we’re seeing industry-centric attorneys and professional advisors actively participate in developing and facilitating their business plans. This participation is going beyond just professional services, as we’re seeing these roles expand to include equity investor and board member. This trend, in which attorneys and advisors parlay their expertise into equity positions be it on the carried interest side or as active, direct investors, seems to be a win/win for all involved.

4.     Landlords & Developers as Investors
Landlords and developers have always made big bets on large multi-use developments. Now they are going beyond just curating and attracting tenants, and getting active on the ownership side. Their strategy: securing a successful restaurant tenant then attracting subsequent office and retail tenants who will pay higher rent, once the anchor is locked in. While in most respects this isn’t new, it used to take the form of “landlord contribution” aka “tenant improvement dollars,” whereas now we are seeing it more and more as the landlord stepping into the equity or membership interest side of the equation to be able to attract the most valuable of tenants.

5.     Big Data Overload vs. Big Data Success
Unless restaurant operators and managers are willing to do the homework necessary to successfully streamline their technology and database systems, we see very few operators having the ability to master big data and turn it into insights that are actionable and formulated to truly drive sales and improve operations. The success stories are seen where a disciplined approach is taken by the operator to only spend time looking at the data that is distilled into actionable insights. Just because everyone wants to connect to the latest and greatest API with offers of finding gold under the rainbow, it doesn’t mean the best operators will allow themselves to drown in the data ocean.

6.     Credit Card Security
Resistance to EMV (Europay, MasterCard & Visa, aka smart chips) cards equipped with computer chip technology used to authenticate transactions will finally be overcome by small and medium size operators, who are starting to see the lofty cost and collateral damage effects of credit card fraud. Operators will be seeking expertise for new hardware and payment processes, understanding end-to-end encryption options, and percolating on cyber-hack coverage via insurance policies. As companies become aware of the liability shift from card issuers to merchants, the speed of investing in change will increase dramatically.

7.     Big Brands Go Abroad
Since many of today’s millennials aren’t clamoring for another large, chain restaurant setting up shop in their U.S. cities and towns, it’s increasingly difficult for big chain institutions to maintain an engaged customer base and keep guests from frequenting their smaller, more specialized local eatery counterparts. But worry not for the big corporations, their growth potential abroad, via lucrative licensing and joint-venture partner deals will provide for plenty of upside, even as many of the brands stagnate in the U.S.

And finally, below are our predictions for the restaurant industry we forecasted in early 2014. How do you think we did?

‘9 Tectonic Shifts & Challenges Facing Restaurant Owners & Operators in 2014’

1.     Anti-Chain Sentiment
Or as we like to call it: the death of the chain restaurant as we know it. As our research shows, diners are savvy – they want to know where the food comes from, how it’s prepared, and how employees are treated – and they see the difficulties facing chain restaurants to consistently serve truly fresh, good food, and how that becomes the definition of a chain restaurant: big and industrialized, not homogenized. This sentiment will lead diners away from the typical chain experience, in favor of local eateries or insightful, evolving chains offering real food in work environments employees can love.

2.     Use of Big Data
We see a shift from restaurants viewing credit cards as just another fee to be paid – to recognizing their value as a valuable marketing spend. Loyalty has become more about tracking diners through their payment records and their dining habits, and unlocking ways to utilize that data in customizing the guest experience each time… and ensuring they return again and again.

3.     New Tech Companies Disrupt the Software and Hardware Dinosaurs
Lets face it: the major restaurant POS systems are dated, operating on core code written decades ago. Sure, they try to keep up by layering-in new hardware that still performs the same functions and evolving the UI, but all that leaves is an allegedly evolving, old system. New players in hardware and software business will challenge the established players by writing new scratch code that is more nimble, often-open source, and thus evolve their business models to focus on subscriptions that have value instead of the addictive, sometimes damaging relationships many restaurants currently have with their POS providers. They are dependent on the providers for upgrades and (notoriously bad) tech support. New, intuitive UI will replace the hard the hard-to-use, long-to-train, complicated-to-update UI that is so common today.

4.     Top Chef Envy
As the millennial generation grows up posting their lives online and seeking meaning through instant celebrity with a “Hey look at me” mentality, all this comes at a cost: there is a generational disconnect in working hard to perfect a trade, vs. false expectations and delusions of grandeur (and stardom). While in operations, there is always the dose of reality, in the schools, journalism, and blogs, there needs to be a shift back to conveying the importance of building a foundation for a career … instead of chasing the chance to be the next best thing. It’s not about ‘Likes’ – it’s about the real work that creates legacy.

5.     Health Care Challenges
We foresee winners and losers in the great Health Care challenge of 2014. The winners: businesses that embrace health care as a great opportunity to support employees and their families. They will find ways, through cost effective methods such as shifting food and labor costs and the like, to offer comprehensive benefits to their team. The losers: businesses that will criticize, complain, and attempt to avoid, thereby losing the loyalty and support of their staff, all at the expense of their business.

6.     Living Wage, Minimum Wage & Tip-Credit Interpretation
Restaurant workforce wages will be spotlighted in 2014 as we watch business models featuring an $8-9 living and minimum wage go out the window in the face of the+ $11 hourly rate. Local legislative interpretation of tip-credit comes into play as well, as the uninformed local legislators do harm to workers and businesses alike, in the name of solving a problem where one does not exist. Private Equity’s (rightful) love affair with fast casual will be re-evaluated as average wages in the non-tipped labor models rise substantially. We foresee the industry winning the battle to educate legislators and activists about the value of the tip-credit, but nothing will slow the push towards living wages and higher minimum wages.

7.     After Farm-to-Table
Now that we’ve witnessed the industry shift towards sustainable, farm-to-table, local, and real foods, we see menus and interior design looking for what is next. Restaurants won’t have to highlight fresh, real food on every menu item; it’ll be translated by the overall brand concept and will come to be expected. This also rings true for interior design. Design will evolve from the current “it all looks reclaimed” to innovative, unique and interesting elements that while environmentally friendly, do not necessarily need to include exposed light bulbs, cast iron, and brick with peeling paint.

8.     Near Field Communications (NFC)
As most guests have smart phones in their pockets, around their wrists, and in their glasses (and surely someday embedded in their bodies), mobile pay, micro-geo location, and targeted, fast communications tools are industry game changers. Just think how incredible it will be to know when guests walk through the door, what they’ll order, when they’re ready to pay, all without talking to them, and being able push information to them as they walk or drive (or hover) nearby … all enabled by your computer systems and through the wave of their smart phone over an NFC compatible device.

9.     Adios Pop-Ups, and Food Trucks 2.0.
Pop-ups and food trucks were never going to be long-term food & beverage business models. Pop-ups were driven by the recession that created lots of empty spaces combined with entrepreneurs with as much desire as ever, but less access to large sums of capital. Now that the idea of a pop-up, regardless of the chef/offering, is not novel, the dining public won’t be as fixated or eager to attend. Food trucks also created a path for entrepreneurs in a cash-strapped environment combined with less job prospects than in years past; but these tactics are changing as companies are hiring more, and capital becomes more readily available to properly execute new concepts. Food trucks will continue to evolve as either a promotional extension of an existing brick-and-mortar concept or as a means to getting into a brick-and-mortar location after testing the food and establishing a following.