Foodservice Brief — December 2016

The marketplace is changing, and despite improving economic indicators the U.S. consumer landscape is fundamentally different than it was just a few years ago.  There always will be a need for convenience and meals that are prepared outside of the home to consume at home or elsewhere. Price is a constant consideration, and consumers also want to save time. Restaurant operators will need to differentiate themselves from the competition, keeping in mind price and convenience.  In the year ahead, it will be critical to stay relevant in consumers’ minds, focusing on innovative products, unique promotions, competitive pricing, stating the benefits of eating at restaurants vs. home, and delivering an enjoyable experience.

Here’s a look at what we’re watching now and for 2017.

The Future Is Now. Innovation is a word that is often bandied about when discussing how to appeal to consumers and encourage them to visit a restaurant. The restaurant industry faces a variety of challenges related to the fast pace of change, driven by consumer trends and changing demographics. Growing demand for healthier food and beverages, increased competition from grocery stores, heightened consumer expectations, and technology are reinventing the way restaurant operators must conduct business. Innovation not only means re-engineering the menu, but also staying relevant in a changing marketplace. The importance of Millennials and Gen Z will accelerate the industry’s need to be more innovative, as these cohorts are always looking for that “experience,” something new and different. Without innovation, operators will fall out of the consideration set and risk being overlooked by a large portion of the U.S. population.

Personal Choice Reigns. To stay current and relevant in this overcrowded restaurant marketplace, operators need to serve the foods people crave and be willing to customize according to consumers’ personal choices. Fast casual and full service restaurants have been the most accommodating in addressing the need for special menu preferences. Now we are beginning to see customization as a choice at more traditional QSRs. Restaurant operators cannot show a conventional menu with all possible options, but with touchscreens they can. Ordering food digitally makes it easier for consumers to customize what they eat. In 2017, more restaurant operators will be offering digital menu options, which will allow consumers to have it their way.  

Home Sweet Home. Consumers will continue to prepare and eat more of their meals in home. Commodity costs are expected to continue their decline. The lower costs may help restaurant operators in terms of offsetting higher prices for labor and medical insurance costs. However, as the gap widens between away-from-home and at-home food costs, it will make for a more challenging environment for operators to get a greater share of consumers’ wallet.  

Technology. Mobile ordering will grow exponentially. Domino’s is a prime example of the opportunity that exists with this technology. The chain has been on the leading edge of creating ways for customers to place their orders using numerous platforms. This is convenience at its best. Look for many restaurant operators to follow suit and capitalize on this growth opportunity.

Delivery. Third-party providers will continue on a growth path. These third-party delivery services, like Grubhub, Amazon, and DoorDash, are becoming competitors to traditional delivery options. While these delivery services don’t prepare the food, they provide a very convenient service – they get the food to the customer quickly and efficiently. Taking advantage of the increasing popularity of delivery will provide restaurant operators with another avenue to drive traffic. The individual restaurant operators will have to determine how best to take advantage of this growth trend. 

Restaurant Loyalty Programs. We are likely to see more operators developing loyalty programs to entice customers to visit their restaurants. This is definitely a means to engage with customers and entice them to make additional visits. Historically, these types of programs have been targeted to existing customers, avoiding what is known to be a very costly effort to attract new and/or lighter buyers. In 2017, we are likely to see more emphasis placed on attracting visits from lighter buyers. Our recent report, Losing Our Appetite For Restaurants, shows these buyers would find loyalty programs appealing.

Restaurant Industry 2017 Outlook

The traffic forecast for 2017 parallels that of 2016. Little to no traffic growth is expected. QSRs will increase traffic by an estimated 1 percent, faring better than they did in 2016. The modest gain for QSR will offset the anticipated 2 percent decline for full service restaurants, resulting in a no-growth traffic outlook overall.

With continued focus on consumers’ ever-changing wants and needs, operators and their partners are in a position to alter the current forecast. For all of the industry’s challenges, it is still in better shape than many brick-and-mortar retailers. What can you accomplish in 2017 to defy industry forecasts?