At the recent Citi Emerging Restaurant Forum in NYC, Citi Managing Director Brian Anton kicked things off with a review of some of the major trends the bank has observed across the industry. First and foremost, is a major shift in the drivers of restaurant valuations — traffic is King. Gone are the days of sky-high restaurant valuations based on the rapid opening of new doors. Instead, the strongest multiples are being earned by concepts with strong comparable store sales growth, traffic in particular. More on this in theme #1 below along with six other themes that are shaping the restaurant industry.
1. Traffic is the Lifeline
While it may be tempting to focus your energy on whitespace and the relative ease of opening more stores to grow revenue, it’s a wise business choice to focus on the performance of existing units and same-store sales (SSS). Same-store sales are highly correlated with share performance price (see theme #3).
The ticket to sustained same-store sales? You guessed it. Traffic. You need to drive consistent, dependable traffic to your units so you can realize the recurring revenue that comes from repeat customer visits and grow your business.
2. Quality is Key
This theme probably needs no explanation because if you don’t offer quality food and ingredients, your days as a restaurant are likely numbered. Today’s themes revolve around selling ingredients with seasonal, limited time menu items or LTOs that are tied back to specific, fresh ingredients. Just look at the PSL craze that Starbucks created that gets renewed every time the first leaves begin to turn colors in the fall. Another example is Pincho Factory who have added a “Vaca Frita Grilled Cheese” Chalkboard Menu special. Featuring Pincho Factory’s homemade Vaca Frita (braised beef) smothered in Gouda cheese and heaps of other fresh ingredients, the LTO is available for a very limited time.
This trend also taps into consumer FOMO (fear of missing out). If they don’t get in and get a dish while it’s featured, they may miss out on it for the entire season.
3. Investors Keen on Large Addressable Markets
It’s commonplace when trying to assess where to invest time, money, and energy that businesses and investors conduct a TAM analysis (total addressable market). The restaurant industry is no different and this theme focuses on the fact that broad consumer appeal and a long runway for profitable growth are attracting investor attention in droves right now.
According to an article in the Nation’s Restaurant News, “Greg Dollarhyde, who has made numerous restaurant investments over the years an investor can find a restaurant with, say, $4 million earnings before interest, taxes, depreciation, and amortization, or EBITDA, and help it grow up to $10 million, with little debt. The investor can then flip that restaurant, and move onto another investment. “ The article also states that “Restaurants are relatively safe from the Internet encroachment that has hurt businesses like retailers — making the industry a safer haven for consumer-oriented investors. And consumers will always eat at restaurants.”
4. Health and Wellness on the Minds of Consumers
While health and wellness aren’t at the center of the conversation, many consumers are demanding more healthy menu items as a direct result of popular diet trends like Paleo, Keto, Gluten-free, and Vegan. As restaurants strive to meet these demands, this trend sees the marriage of “better for you” with better taste. Just because menu items are healthy doesn’t mean they have to be boring or bland.
Using modern customer engagement tools, you can understand which of your customers are embracing healthier eating habits and target them directly with specific menu items and offers that reinforce the health and wellness message.
5. Groce-rants Are Emerging
This year has seen Amazon getting into the c-store game with cashier-less stores and opening brick-and-mortar 4-star review locations. Restaurants are experiencing another trend which is a grocery store/restaurant hybrids (also known as grocerants) popping up. Driven largely in part by millennial desires for what they want, when and where they want it, grocerants are part gourmet restaurant, part marketplace. Think a few years back to Dean and Deluca who has been tapping into this theme for a while. But new concepts have struggled to educate consumers about the experience. This theme may need more time to see if it takes hold on a larger scale driven by consumer need for convenience.
6. The Customer Experience is More Important Than Ever
You can’t continue to market to consumers like it’s 1999. The time is now to engage your customers in highly personalized experiences and messages delivered via email, SMS and digital channels or, you’ll be left in the dust by your competitors.
Today’s connected consumers demand personalization and if you’re not engaging them with messages and offers that speak to their behaviors, you’re missing out — big time. When you have data about what your customers buy, where they buy it, and when they visit, plus deeper data like lifetime value, you have a full picture of them and can send them targeted campaigns to engage, retain, and keep them coming back again and again.
This is what the future of customer engagement and personalization at scale looks like and no longer does it require a six-figure system to power it with the data you need. Modern customer engagement platforms do all the heavy lifting for you, saving you time and automatically provide you the data you need to target your customer segments in meaningful ways that increase traffic and revenue.
“That ability to look at segments of our customers and communicate with them both in an automated way and in a very intentional marketing program way has been a game-changer for us. “ – Keith Cox, President & CEO, Pacific Catch
7. Increase in Demand Is Being Driven by Delivery
Delivery. It’s both a blessing and a curse to today’s restaurant operators. On one hand, delivery has become a common expectation of consumers. However, delivery can be a mixed bag for restaurants who benefit from the increased demand it brings, but suffer from huge hits to margins and the lack of control to the customer experience that comes along with it. As more consumers choose to dine in and order delivery, the traffic lifeblood we discussed in theme #1 starts to get shaky. As more and more delivery services crop up, more technology integrations will be required to power them. Think about how those integrations will benefit or hinder your servers and consumers before you jump headfirst into the choppy delivery waters. There are smart alternatives that can drive the increases in demand that delivery offers (See theme #6) that don’t destroy your margins.
In this post, we’ve explored 7 themes impacting restaurant owners and operators right now and into the future. From driving traffic to owning the customer experience and the many implications that delivery brings to the table, which of these themes is top of mind for you?