After the upheaval of the pandemic, the year drawing to a close might’ve felt like a ho-hum stretch, a time for just chugging along in the warmth of normalcy. But the business continued to evolve as these currents influenced its direction.
A downturn in downtowns
By June, the operator of the 1,900-room Hilton on San Francisco’s Union Square saw no reason to keep pretending business would return. Park Hotels & Resorts tossed lenders the front-door key and walked away, done in by a vicious cycle.
Office buildings emptied by COVID had failed to repopulate, giving vendors and other guests little reason to visit. With the drop in street traffic came a surge in crime, scaring leisure travelers away from a metropolis that depends on tourism. Trade groups opted to book their conventions elsewhere, aggravating the problems.
The Hilton and a second Park Hotels property weren’t the only local hospitality businesses to throw in the napkin. Westgate, a retail landlord of scale, walked away from a whole shopping mall.
There’s no official count of how many restaurants were part of the exit parade. Nor was there a tally of how many downtowns shared San Francisco’s fate. But anecdotal evidence suggests both numbers were alarmingly high.
A report out of Washington, D.C., for instance, held that eating places were shutting at a rate of one per week. Violent crime has become such a business wrecker that the city’s police department launched a program to match off-duty officers with restaurants that want extra protection during business hours.
Yet the inhospitable conditions there and elsewhere didn’t bring a rollback in rents, with operators lamenting the efforts of landlords to make up for what they lost during the pandemic.
All in all, downtowns ceased being the meccas they’d traditionally been for restaurants. Just ask Corner Bakery. Without as many office workers to feed, the Chicago-born concept filed for bankruptcy protection.
The old guard diversifies
When even McDonald’s tries an alternate growth concept, a drive-thru drinks venture called CosMc's, something must be up. Indeed, it was far from the only stalwart brand to embrace diversification in a year when the mother operation was still doing well. Clearly, big brands were considering how they’ll keep growing two steps down the road. Or two decades.
Chipotle, which hasn’t stunned the business with past concept launches, decided to try again with a new fast-casual bowls operation called Farmesa. There’s only a single brick-and-mortar restaurant, but the vehicle is there, the keys in it and the motor running.
Traditional family-dining brands seem to be feeling their age, so it’s less of a mystery why Denny’s would buy and shift development attention to Keke’s, its breakfast-and-lunch-only venture. Ditto for Cracker Barrel, which is expanding its upstart brand, Maple Street Biscuit Co., at a faster rate than the company’s namesake operation.
Golden Corral, meanwhile, is poking a serving spoon into the fast-casual market with the launch of a homey secondary concept called Homeward Kitchen.
Casual-dining brands have been swept up in the trend as well. Word has leaked out of P.F. Chang’s plan to launch a fast-casual concept called Pagoda. Applebee’s parent Dine Brands jumped into the fast-casual market near the start of the year with the acquisition of Fuzzy’s Taco. Darden Restaurants has a stable of strong established brands, but it decided to add another contender to the group with the addition of Ruth’s Chris. Texas Roadhouse, meanwhile, continues to grow its drive-thru fast-casual operation, Jaggers.
Too much tipping?
With labor costs climbing, restaurant customers were increasingly asked to share their hosts’ pain by leaving a gratuity in situations where it was once inconceivable to tip, like at the counter of a fast-food place. Technology made complying that much easier. Starbucks, for instance, tweaked its tech so patrons could tack a tip onto digital orders. Sonic, a drive-in concept, used new tech to do the same.
By the end of the year, consumers were being asked an average of five times a week to leave a tip, in other service businesses as well as in restaurants, according to the tech supplier Popmenu. Perhaps not surprisingly, more than half (53%) said they were sick of getting the pitch.
The dynamics ushered a new term into the vocabulary of savvy restaurateurs: Tipping fatigue.
A survey by Technomic found that 61% of consumers believed fast-food restaurants shouldn’t request tips. Yet, in a canvass by the casino news site PlayUSA, 53% of the surveyed adults said they felt pressured into leaving a tip when settling their bills via a digital screen.
Pundits even invented a phrase for it: Tip shaming.
Year of the service fee?
Another way operators tried to shift more of their rising expenses to guests was by levying service fees, or tacking a percentage of the tab onto the final check as a surcharge. After a rollback of the tip credit raised servers and bartenders’ wages by double digits in Washington, D.C., about 70% of local restaurants added a surcharge or were planning to do so, according to the Employment Policies Institute.
It wasn’t the only restaurant market to widely embrace service fees. California also proved a hotbed, with operators looking to offset the highest statewide minimum wage in the country and having no tip credit.
The proliferation prompted the Federal Trade Commission to include service charges in the “junk fees” it plans to regulate, with rules set to be issued in 2024.
Yet service fees are expected to continue proliferating in the New Year, particularly in Chicago, where the tip credit is being phased out, and Pennsylvania, which is facing a similar change in the way servers are compensated. Proposals to kill the tip credit have also been aired in Massachusetts and Connecticut, and are expected to be posed in Arizona and Ohio.
Nostalgia was 'in'
The spinoff concept that McDonald’s unveiled was named after a Ronald McDonald understudy who hadn’t appeared in the chain’s marketing for 21 years. The star call came for CosMc after fellow marketing bench-rider Grimace was similarly reactivated for a new McDonald’s shake. The latest advertising from the Golden Arches features the Hamburglar, who seemed to be in semi-retirement.
The resurrection of those figures was far from restaurant chains’ only reliance on nostalgia in their 2023 marketing efforts. Burger King brought back its “Have it your way” ad slogan, which hadn’t been heard since the King was just a prince. Sizzler aimed for instant rejuvenation with a new ad campaign that unabashedly calls to mind the Sizzler of old. Meanwhile, Steak and Ale and Marie Callendar’s opened restaurants for the first time since CosMc might’ve popped in for a meal.
The effort to play off fond memories was also evident in the limited-time offers that were spotlighted during the year. Chipotle, for instance, brought back its carne asada. Starbucks’ Pumpkin Spice Latte drew more orders than it ever had, according to executives there. Taco Bell once again used its Mexican Pizza and Nacho Fries as lures. And McDonald’s McRib continues to show up on the menu of selected stores, despite making a “farewell tour” roughly a year ago.
Eatertainment rebounds
Consumers proved this year that they enjoy more than merely eating and drinking when they dine outside their homes. Eatertainment, the mash-up of dining and active play, roared back, albeit in different forms. The soaring popularity of pickleball fueled the startup and expansion of places devoted to that highly social sport, while interest in less mainstream activities brought restaurant concepts specializing in such niche interests as cricket and curling.
Those ventures provided consumers hungering for experience with alternatives to throwing axes, playing bocce, tossing darts or putting into a clown’s mouth.
We termed it nothing less than a boom, from a segment that seemed on life support pre-pandemic.
This story is part of Restaurant Business’ look back at 2023. Click here to read our other year-end coverage.
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