Restaurant historians aren’t likely to devote a separate chapter to the developments of 2015, though the year was a watershed in many respects.
The currents were subtle, more of the evolutionary than revolutionary sort, yet nonetheless profound. Operations, for instance, were deflected into new directions by technology, the continuing rise of fast casual and concerns about the sustainability of tipping.
Fears from the past, like the influx of private-equity money, became comforts of the present as operators adjusted to new realities. And Obamacare seemed far less ominous than such emerging threats as union activism and the decidedly pro-labor sympathies of the National Labor Relations Board.
If there was an overriding theme, it might have been a redefinition of relationships. Customers adjusted to dealing with a smart phone instead of human order takers, while refranchising tipped the balance of power toward franchisees. Indeed, the government decided that franchisees and franchisors are truly partners today—at least in regard to employment.
Taxi drivers became delivery guys, and consumers reclassified favorite dine-out spots as new possibilities for ordering in.
And criticism was raised about the ability of longtime suppliers to meet demands for quicker change.
Here’s a look at some of the currents that reshaped the business in 2015.
Connecting with consumers became a far different activity in 2015, with screen-to-screen rivaling face-to-face as a primary mode of interaction. Smartphones became as much of a channel for interaction as drive-thru microphones have long been, and the infiltration of touch-screen ordering by guests cut give and take between staff and guests.
But instead of separating restaurateur and customer, technology provided more of an opportunity to connect. Social media kept the “conversation” going outside the restaurant, and technology’s ability to handle seemingly countless variables brought a level of customization and accommodation not seen beforehand. Operators started dabbling in what was dubbed one-to-one marketing, customizing their offers and deals through the impersonal capabilities of digital.
Instead of being seen as a barrier between customer and restaurant, technology was embraced as a new sort of glue.
2. Filling orders instead of seats
One of the most powerful effects of technology was the steroid shot it gave takeout and delivery. Third-party order-processing services and the diversification of people and freight haulers into delivery (think Uber and Amazon) allowed every brand from Dunkin’ Donuts to McDonald’s, Taco Bell, Panera Bread, Starbucks and Olive Garden to try delivery. At the same time, the ability to place an order and cut the line via a few touches to an app presented customers in a hurry with a new way to use restaurants.
The upshot was an opportunity to bolster throughput during peak times, when a long line and packed dining room might scare away additional customers. But the spike in orders also pushed peak volumes beyond the capacity kitchens were built to handle. Some operators dubbed the phenomenon “throttling.”
3. Unions make big strides
The best selling voodoo doll of the year might have been the one for Richard Griffin, the counsel for the National Labor Relations Board and the chief advocate for holding franchisors responsible for franchisees’ employment practices. Unions daunted by the prospect of unionizing chains franchisee by franchisee could now set their crosshairs on one McCompany. Plus, from a public relations standpoint, it’s much easier and acceptable to target Big Mac than to pester Mom and McPop.
But that wasn’t the only shin kick the NLRB delivered. It also pushed through “quickie” elections, shortening the time for companies to prepare for a union election to as little as two weeks, and issued stringent new rules for employee handbooks.
Meanwhile, the unions found ample sympathy among politicians and the public for the concept of a living wage, an hourly minimum high enough for someone in an entry-level job to support a family. That means paying at least $15 an hour, which is where the wages of Los Angeles and the New York state are now headed.
4. Tipping over?
The complications of abiding by federal, state and local laws added topspin to a revolt by restaurateurs against tipping, but the real factor was a growing discrepancy in restaurant workers’ pay. Danny Meyer revealed that one of his restaurants, North End Grill, had more culinary-school graduates working in the dining room than in the kitchen. Front-of-the-house wages were just too enticing when compared with the hourly pay kitchen staffers were earning. Prospective hires didn’t want back-of-the-house jobs, and the disparity with front-of-the-house pay heightened friction within the staff.
After a few operators here and there tried replacing tips with direct server compensation, Meyer decided to take the plunge and switch each of his restaurants to all-inclusive pricing. His model—raising prices selectively so the whole tab rises about 20 percent, and then distributing the money in a graduated scale to all staffers—is being closely watched. If it works, he unwittingly put a match to a fuse.
5. Farewell, franchisor-run restaurants
Refranchising, or selling company-run restaurants to new or current franchisees, has been used selectively for decades as a way of freeing capital and giving a franchisor’s shareholders more cash. This year, it became a standard operating procedure, if not the operational standard.
McDonald’s assured stockowners that it will eventually sell all but 5 percent of the chain to licensed operators. TGI Friday’s said it completed a plan to sell all 175 corporate stores to franchisees ahead of schedule. Jack in the Box reduced its holdings to 18 percent of stores, from a level of 28 percent five years earlier.
The divestitures free up money and spread risk, but they run contrary to the assurances franchisor once could give franchisees that they were all in the same business; something that hurt the licensees’ profits would hurt the corporation’s, too.
Now, no matter how craftily the home office might spin its communications, that in-it-together message just doesn’t ring true. Franchisors are paid on sales, not profits, so costs could become an increasing source of friction.
6. The year of the egg
The chicken-or-egg debate was likely eclipsed this year by handicapping of the egg’s impact on the business—for better and for worse.
A destruction of hens in the Midwest by avian flu triggered a severe shortage of eggs. Liquid eggs tripled in price in some markets, and a few operators had to shorten their breakfast hours or rejigger menus because of the tight supplies.
Yet breakfast was the daypart of growth for the business. Just ask McDonald’s. It rolled all-day breakfast to yikes from some franchisees but hurrahs by customers. The availability of Egg McMuffins and other selected items throughout the day had a powerful impact on sales and traffic, according to initial assessments.
Similarly, Starbucks unabashedly declared its breakfast enhancements to be powerful sales drivers.
7. Barbecue: the bacon of 2015?
It was a very, very bad year for pigs, but near nirvana for fans of barbecue. They could hardly fling a sauce bottle without hitting a new entrant in the market, from chef-hatched ventures (Michael Symon’s Mabel) to the newest restaurant (and prototype) from fast-casual entrepreneurs like Dickey’s.
To tide them over between trips to a whole-hog BBQ joint, they could get a taste of pulled pork from any of the major chains, from Burger King (the Extra Long Pulled Pork Sandwich) to Wendy’s (Pulled Pork Cheese Fries) and McDonald’s (the McRib, which a study found to be the best-known limited-time item in the industry).
And add a slew of ethnic variations, including Korean and Mongolian.
If there was a spike in napkin sales this year, this was why.
8. Supplier slights
Plug into the industry grapevine and you’ll get an earful about suppliers, and this time the complaints have nothing to do with price. Indeed, some of the disgruntled operators say they’d eagerly pay more if they could get what they wanted, but that’s not possible with some vendors because of scale limitations. The processors are unable to retool quickly enough or produce the small-batched, narrowly focused supplies that operators need to satisfy key facets of their customer base.
The problem, restaurateurs say, is the splintering of consumer tastes and how rapidly they change. They grouse that operators have learned to become more agile and quicker to adapt, but the supply community has lagged behind, pointing to the logistical realities of large-scale manufacturing.
9. Humbled giants
One of the year’s undercurrents was a shift in consumers’ chain loyalties. Given the size and might of McDonald’s, the chain’s loss of dominance was almost a social phenomenon, as known and discussed as Adelle’s return to the charts.
Subway’s sales problems might have been less familiar to observers outside the industry, but its connection to the Jared Fogle scandal became small talk of the times.
Even Chipotle had its crown knocked off. If only it hadn’t boasted so publicly about being the safest place in the industry to eat—before a whole new food-safety crisis erupted, and patrons continued to claim they’d been sickened by the fast-casual darling’s food.
Can those limping giants regain their stature?