New York, NY (RestaurantNews.com) Even though restaurant chains seem to have been enjoying some positive macroeconomic tailwinds of late—from lower food-commodity prices to dramatically lower gasoline prices that have freed up funds for dining out—the industry today faces an array of formidable challenges. These include ensuring food safety in the wake of such incidents as Chipotle’s high-profile E. coli outbreak, addressing what could be the “severest labor crisis” the industry has ever faced, and trying to figure out which technology bets today are worth the investment and which will be made obsolete by next year’s smartphone. Those and many other industry issues are addressed in a new study, including an in-depth consumer survey, released today by AlixPartners, the global business-advisory firm.
The firm’s annual North American outlook finds that while the restaurant and foodservice industry posted strong results in 2015, the months ahead are likely to be challenging and even turbulent. The industry is striving to meet the conflicting demands of evermore health-conscious diners who are now also worried about food safety; battles to control or off-set labor costs in an environment of escalating pressure from many fronts to raise wage rates; and ponders how much to invest in such things as ordering, payment and loyalty technologies in an effort to, among other things, fend off rising competition from non-traditional players such as convenience stores and explore new industry channels such as delivery.
“Issues such as ensuring food safety throughout broader supply chains, offsetting rising labor rates, and determining which technology investments are prudent and which are likely to become obsolete overnight present formidable challenges for the industry,” said Adam Werner, managing director at AlixPartners and co-head of the firm’s restaurant, foodservice and hospitality practice. “The most successful operators will be those who tie near-term actions to a sound, analytical long-term strategy, and who along the way practice strategic restraint, carefully picking their spots and always looking for ways to do more with less.”
Fresh Ingredients, Food Safety, Supply Chains
The AlixPartners survey finds that diners’ interest in selecting meals they see as contributing to their health and wellness continues to shift from just counting calories to looking for fresh and local ingredients in what they order. In fact, 45% of those surveyed cite “fresh and local ingredients” as their No. 1 consideration when buying a “healthy” meal, the highest percentage among 12 choices offered in the survey, with respondents able to choose more than one. By comparison, 41% of respondents say “low-calorie options.”
However, this very same demand for fresh, local ingredients is, of course, seen by many as being at the core of the various food-safety outbreaks in the past year, presenting a big challenge for chains well beyond those affected to date. A message to that effect rings through loud and clear in the survey, as 28% of those polled say they would “never” eat at a chain affected by a food-safety outbreak—regardless of the geographic location of the outbreak. And 62% of respondents say they would wait until the overall chain was declared safe again or eat at unaffected locations.
This sentiment also sends a strong message about the importance of operators getting and maintaining tight control of food-supply chains in an era when changing consumer tastes are at the same time making those chains more diffuse than ever before. Likewise, it raises issues about competition among chains for the highly-desired ingredients that are available but in potentially limited quantities, from cage-free eggs to “sustainable” proteins.
“Today’s seemingly insatiable demand for health and wellness is putting all-new demands on supply chains, including creating all-new links in those chains,” said Eric Dzwonczyk, managing director at AlixPartners and co-head of the firm’s restaurant, foodservice and hospitality practice. “To keep those chains from breaking down will take an attention to detail like never before in this industry.”
Higher Wages Supported
Interestingly, the AlixPartners survey finds the dining public quite sympathetic to foodservice workers’ calls for higher wages. In fact, 50% of those polled say restaurant workers should receive higher wages, with another 24% “indifferent” on the topic. Meanwhile, of those supporting higher wages, almost half (48%) say the national minimum wage should be raised to $10 to $12.99 an hour, which would represent a jump of 38% to 79% from today’s $7.25-an-hour national minimum rate. Also of interest, 70% of respondents say they are actually willing to pay more for their meals to help workers receive higher wages.
These sentiments, notes the report, mirror mounting pressure from governmental bodies and interest groups, both regional and national, to raise wages. With this in mind, the report suggests that companies consider proactively raising wages—but, importantly, at the same time figuring out how to offset the increase in costs. It suggests that such strategies could help inhibit higher employee turnover while gaining favor in the eyes of the public, while also noting ways in which the financial hit might be mitigated, from innovative scheduling techniques to select menu-price increases to pinpoint internal cost cuts.
“Between the growing push for higher wages, continuing high employee-turnover rates and diners demanding ever-more complex menus delivered by a relatively unskilled workforce, the industry is facing perhaps its severest labor crisis ever,” said Kurt Schnaubelt, managing director at AlixPartners and co-head of the firm’s restaurant, foodservice and hospitality practice. “To win in this environment will take bold actions, but ones supported by thorough analysis and relentless execution.”
Time to Slow Down on Technology?
Though seemingly everyone today loves technology, the AlixPartners report suggests that restaurants may be moving too fast and spreading themselves too thin technologically—and thereby wasting money in some cases and squandering opportunities in others. Among diners polled, only about 10% of respondents say that more consumer-facing technology should be among the top-three priorities facing restaurants in the year ahead. Meanwhile, 14 other things—from lower prices to more discounting promotions—were cited as higher-priority items. This sentiment, notes the report, in many cases runs counter to big investments made by operators of late in various technologies.
For instance, while “digital menus” (such as those with animation, social-media capabilities, etc.) and “online ordering” each received a top-priority rating in the survey—each picked as a top-three priority, out of seven choices offered, by 54%—those results were far ahead of the interest in “mobile payments” and “tabletop tablets and/or kiosks”—features that respondents listed at only 32% and 38%, respectively. The study goes on to note that while digital diner-loyalty programs also scored well in the survey (a 52% response rate), only 14% of respondents say loyalty programs are very or extremely influential in their choice of a restaurant.
“What we’re hearing from the consumer plus seeing the field calls into question whether all of today’s investments in consumer technology, including digital loyalty programs, are well-placed bets,” said Eric Dzwonczyk, managing director at AlixPartners and co-head of the firm’s restaurant, foodservice and hospitality practice. “Some technologies are already superfluous, given the fast pace of smartphone innovations; some are going obsoleted almost as soon as they’re installed; and for many technologies, there just simply a limited a finite market of a limited size. It would behoove companies not to get too far out in front of their skis in this area.”
Among other topical findings in the AlixPartners study:
The report concludes by noting that industry players should be taking a hard look at their budgets right now, keeping in mind potential emerging costs related to such things as food safety and rising wages on top of the costs of always-shifting consumer-facing priorities. It also suggests applying a regional lens where possible to such things labor-cost mitigation and technology investment, in order to achieve the highest returns possible.
About the Study
The AlixPartners study, Tall Orders: Higher Wages and Menu Changes, included a survey taken in January of 1,016 adults over age 18 from all major regions across the U.S.
AlixPartners is a leading global business-advisory firm of results-oriented professionals who specialize in creating value and restoring performance. We thrive on our ability to make a difference in high-impact situations and to deliver sustainable, bottom-line results. The firm’s expertise covers a wide range of businesses and industries whether they are healthy, challenged or distressed. Since 1981, we have taken a unique, small-team, action-oriented approach to helping corporate boards and management, law firms, investment banks and investors to respond to crucial business issues. For more information, visit www.alixpartners.com.