Restaurant Industry Forecast with CEO of Firehouse Subs

It was a big week for restaurant industry professionals in Chicago. As usual, Foodable Network was on the ground floor talking to the greatest innovators in the foodservice sector. 

On Monday, we held the IO ChangeMakers live stream during the 2019 NRA show where we interviewed operators, chefs, and brand leaders "The Change Makers" to discuss the challenges and opportunities that are setting our industry up for success.

To kick off the event, we spoke with Don Fox, CEO of Firehouse Subs about what the future holds for the restaurant industry. 

Although there are countless headlines claiming that the restaurant industry is doomed, the industry's revenue has been on a steady incline over the last 10 years. The revenue in the past decade has increased from $379 billion to an estimated overall $863 billion in 2019 and this growth is being driven by millennials.

"They are just more inclined to add variety in their meal occasions. But I have seen reporting on an absence in brand loyalty in years past. The biggest brands are vulnerable to that. They are looking for a set of attributions and experiences that the largest brands can't provide. So that just pecks away at those large brands occasions," says Fox. 

Watch the video above to get a taste of this informative interview. 

Want to see the full video? It's available exclusively now for On-Demand members. Learn more about Foodable On-Demand now. 

Why Chains are Rolling out Virtual Kitchens

As restaurants ramp up off-premise business, the more orders kitchens have to accommodate for.

Starbucks and Chick-fil-A hire staff members specifically to handle mobile orders, but some brands are investing entirely in separate spaces strictly allocated for off-premise operations.

Chick-fil-A, Outback, Famous Dave's and Dog Haus are some of the chains using virtual kitchens as a solution to the influx of delivery sales. By prepping some of these orders off-site, it allows in-store kitchens to focus on in-store orders.

“Delivery is the hottest word out there in the food scene, and everyone needs to figure out how to adapt to it,” said Andre Verner, Dog Haus partner to “Restaurant Dive.”

According to Foodable Labs, over 30 percent of the U.S. Restaurant industry is using some form of on-demand third-party ordering solution.

But that number is still relatively low considering the number of consumers ordering delivery. Over 80 percent of consumers under the age of 35 are using on-demand food ordering apps about two times a week. Not to mention, as "Restaurant Dive" points out, according to Food On Demand, delivery sales are 75 percent higher than in-store sales. So there's a lot of potential in the off-premise market.

This is influencing established chains to jump on the virtual restaurant bandwagon.

"The Halal Guys and Canter’s Deli have spots at Kitchen United’s Pasadena, California, location. And Wetzel’s Pretzels, which partnered with Kitchen United in April, has already experienced growth in off-premise and in-store sales," writes "Restaurant Dive."

Want to learn more about these concepts? Listen to this recent episode of The Takeout, Delivery and Catering Show, where hosts explain the benefits of these virtual restaurants, also called ghost restaurants and how they are changing off-premise operations.

Ghost Kitchens, Abandoning Third-Party Delivery Partners and More Challenges Operators Will Face in 2019

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While there is a lot of discussion surrounding cannabis within the restaurant space in addition to new spotlights on fermentation, craft ‘tea bars’, farm-to-table (2.0,) breakfast day-parts, and plant-based food – there are also some ‘trends’ we should expect to see from the operations side as we celebrate the beginning of 2019.

Each individual venue, whether it is a restaurant, bar, cafe, food truck, or lounge etc. has their own distinct problems to solve, but the one constant among successful operators that we see today is their ability to adapt to change.

This means adapting to a change in consumer behavior, cost structure, supply chain dynamics, labor dynamics, and their hyper-local market & competition, to name a few.

Striving to manage the ‘unknown’ within these categories, however, can be quite scary for many new or seasoned, independent restaurateurs.

Operators must innovate to adapt efficiently to the ever-changing external & internal economic conditions – something that is incredibly important, and is arguably more important than ever, as we shift focus into this New Year.

Let’s have a look at the most critical changes operators should be adapting to:

Third-Party Delivery Pushback

There’s no question, delivery, and off-premise dining has disrupted and caused havoc on much of the restaurant industry over the past couple of years – and more so in 2018. The economic models and regulations surrounding third-party applications have recently come under scrutiny by consumers, restaurateurs, governments, and even the delivery drivers themselves.

While delivery and off-premise dining as a revenue channel shows no signs of slowing down – expect independent restaurant operators to change focus and develop their own strategy (online ordering + delivery) to effectively control costs and improve profitability (no more 20-30% commissions) while protecting their brand (through better quality control and customer service) and keeping that invaluable consumer data in-house.

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The Rise of Ghost Kitchens

While independent operators are adjusting to the change in delivery logistics and off-premise dining – they also need to keep in mind another ‘disruptor’ that is starting to emerge. It is what’s referred to as the "ghost kitchen."

These ‘restaurants’ (we use that term loosely) are delivery only and have no typical restaurant venue; where guests can walk in, sit at a table or even pick-up their own takeaway order.

What’s the business model? Their food is only accessible online or through a mobile app, and is exclusive via home delivery.

Thanks to the data that has been made available now to tech giants such as Amazon and the leading third-party delivery platforms (UberEats, Foodora, Skip the Dishes etc.) – expect to see more of these ghost kitchens serving unique dishes with flexible menu options that they know guests will be eager to buy and pay more for due to its level of convenience.

Smaller Foot Prints

Coinciding with the increase in delivery, off-premise dining, and on-demand consumers, expect to see both traditional restaurant start-ups and even already established brands looking to operate out of a smaller footprint.

To maximize a small space that will also drive a high-profit percentage per square foot, restaurateurs need to truly understand their concept inside and out. Operators need to create a variety of financial scenarios and menu choices (and sizes) and determine the absolute minimum needed to execute the concept in terms of space and financial projections.

Smaller spaces utilize minimal expenses in rent, staffing, and other fixed costs - however, smaller spaces often bring in a smaller portion of customers in relation to its size. This is where the right balance in menu prices, menu options, productivity, and the understanding of one’s concept, demographics, and potential flow of traffic throughout its dayparts, is crucial; whether dine-in, take-out and/or delivery.

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Tablet Hell

How many restaurants are operating with the view of a cockpit at its point-of-sale? It seems every data provider, mobile ordering system, and POS solution provider needs to have their own tablet or screen, creating a nightmare for both front-line staff and management alike.

To ease operations as we roll into 2019 – expect to see further partnerships and all-in-one solution providers to hit the scene, consolidating all of the technology into one, easy-to-use platform.

As we know, communication is fundamentally important in the restaurant space, so it only makes sense that operators should be looking to combine their accounting, inventory, sales reports, labor management, vendor management, online ordering, catering, and delivery logistic communications into one database.

Every operation has a different way of doing business with different uses for data. That being said, while having consumer & restaurant data might seem like the goal, finding ways to turn analytics into actionable items for a restaurant should actually be the mindset; something that needs to be a focus in 2019 to remain scalable, sustainable, profitable, memorable, and consistent!

Labor Consolidation

With smaller spaces in addition to the ongoing changes in how we operate today, and not to mention the always increasing wage structure within the industry – it only makes sense for operators to consolidate their labor. This doesn’t mean burning out employees or giving them more tasks then they can handle. It means finding ways to maximize efficiencies.

As you can see so far, smaller is becoming better. With the increase of open concept kitchens in the smaller foot-print restaurants, why can’t cooks cross-over to be service staff when the meal is ready? Why can’t mixologists and bartenders help out in the kitchen and also close out food orders?

Expect to see more of a blended FOH & BOH operations or a ‘one-house’ approach in cross-training to control labor costs, lower turnover, and maximize efficiency.

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With all of this said, are dine-in restaurants or your neighborhood pub a thing of the past? Not necessarily, if the operators create differentiation and memorable experiences while they focus on their own branding.

Restaurants today have to compete with supermarkets, food halls, food trucks, meal kits, ghost kitchens, and other third-party applications. The time is now for operators to innovate and adapt to the ever-changing external & internal conditions of this cut-throat industry.

It is possible to be profitable with a strategic mix of dine-in, take-out, delivery, and catering revenue channels if they’re in fact - open to change!