The restaurant industry’s annual Woodstock in Chicago once again provided strong clues as to how the business is changing. Here are handful that caught our attention.
1. P&L land erosion.
Occupancy costs, though never an incidental, are becoming a major wallop. Russ Bendel, CEO of The Habit, says the increase in rents and land costs is particularly stinging in the fast-casual segment, a fast-growth sector where players seem to share the same site criteria. Prices are being bid up accordingly, he suggested.
Bendel revealed that a typical Habit fast-casual burger unit costs about $740,000. Occupancy costs for the Focus Brands restaurants under the supervision of Group President Paul Damico usually run around 9 percent of sales. A McAlister’s Deli usually pays around 7 percent, said President Carin Stutz.
2. Vocabulary update.
A new buzzword could be heard during the show’s education sessions: Gender-neutral, which seems to be marketing-speak for “not putting off women.” Bendel says his team at The Habit strives to make the concept “a female-friendly place to have a burger,” traditionally a product aimed at young blue-collar men. About 45 percent of sales currently come from women, he said.
Meanwhile, our in-house mixologist, whose day job is overseeing the design of Restaurant Business, was struck by how many products showcased in the show’s alcoholic-beverage pavilion were intended to woo female drinkers.
3. Foodie as fussy employee.
Rare is the restaurateur who doesn’t lament the knowledge a typical consumer wields today about food, a side effect of popular phenomena like The Food Network, Top Chef and untold other cooking shows. It exerts a constant pressure on even mainstream places to stay top-of-game.
Now that self-anointed expertise is increasingly vexing restaurateurs as employers. Operators acknowledged with a wince during the show that millennials don’t turn off the I-know-food attitude when they put on the uniform of a fast-food restaurant and step behind the counter. Just like consumers, the crewmembers bring preconceived expectations about what should they should find in the kitchen, given what they’ve seen on Emeril or Rachel’s show. And they’re not afraid to air those views.
4. Small is better.
The whole show seemed to have been hit with a shrink ray, with a spotlight on bite-sized foods, mini beer glasses (offered from servers’ trays at a big awards banquet as if the brew samplings were appetizers) and Lilliputian dishware. Nowhere was that lean toward the little more evident than in equipment booths. Some grills looked more like scaled-down models than the real thing. A few could have been tucked into attendees’ luggage and lugged home right then. Pieces small enough to fit on a countertop seemed particularly prevalent.
5. Millennials continue to vex.
At an education session on expanding through franchising, the aspiring franchisors packing the room were asked if they employed millennials. Almost everyone raised a hand. They were then asked how many understood millennials. Three hands went up. Candace Klein, who described herself as a millennial, acknowledged that she hired them only because they are the major component of today’s labor pool. Klein is chief strategy officer of Dealstruck, a financier of fledgling restaurant chains.
6. Video applications are coming.
About 90 percent of that generation uses smartphones to find jobs, according to research from Snagajob, the online job board. But only 2 percent complete a job application through a handheld, said CEO Peter Harrison. He said the mounting preference within the millennial generation is for video applications, or what he alternately called “video selfies” and “micro-videos,” or short pieces captured on a smartphone. “That’s something the future will bring,” agreed Molly Melman, director of training for multi-concept operator Lettuce Entertain You Enterprises and a millennial herself.
7. Private-equity investors are feeling competition…
The number of funds chasing choice deals has risen, putting prospective restaurant partners in a good position, said Kevin Burke, managing partner of the fund Trinity Capital and the moderator of a session during the show on private-equity financing. They’re not only being courted more aggressively, but are getting “kinder and gentler” treatment from related service providers, like lawyers and financial-performance evaluators, Burke said.
8. …And specializing.
Other speakers noted that PE firms are specializing to claim a niche. The Alliance Consumer Growth fund, for instance, does not invest in older brands, preferring almost exclusively upstart brands with ample expansion opportunities. Roark Capital has pumped considerable money into old-guard concepts like Carl’s Jr. and Arby’s, to great success, noted Principal Geoff Hill.
“I think what you’re hearing is that there are a lot of investment strategies, a lot of different investment plans,” said Alliance’s Josh Goldin.
9. Conditions are improving.
Any speaker who addressed macro-economic conditions forecast better times ahead in the near-future for restaurants. Many cited the positive impact of depressed gas prices, which leave more money in consumers’ pockets for dining out. The National Restaurant Association’s resident sage, Hudson Riehle, was bullish on tourism for this summer, in part for that reason. He also noted the positive effects of smartphones and other gizmos on pent-up demand. “The good news is that consumers want to spend in restaurants, and the need to motivate that propensity is helped somewhat by technology,” he concluded.