Contending with the forces of 2017 might be easier for restaurateurs if they remember what forces reshaped their business in 2016. Here's a look back at the brands, issues and upheavals that made news in the industry last year.
The burrito chain was arguably the Newsmaker of the Year in 2015, grabbing the spotlight with a string of humiliating setbacks stemming from serial food-safety problems. The low moments included the forced closing of a Seattle unit for health reasons just hours after founder Steve Ells declared on the Today show that Chipotle was the safest place in the industry to eat.
How could it match that stir in 2016?
The fast-casual brand gave it a valiant try, repeatedly snagging favorable and unfavorable attention from the industry and the public alike. It drew considerable positive interest for closing all 2,000 or so stores for four hours as an operational reset. Even more of a head turner was the giveaway that accompanied the shutdown. The closed stores sported a number that patrons could call for a free burrito. A horde took advantage of the offer. Indeed, the deal went viral.
It also scored attention with Chiptopia, a limited-time loyalty program intended to draw more visits from customers who were gradually starting to visit the chain again. The rewards were generous, and the industry noted how Chipotle had used a common marketing tactic in an unusual way to address a problem.
But then there were the legal problems, starting in January with a federal subpoena about a food-safety incident that had slipped past months earlier without notice. That was followed by the indictment of marketing chief Mark Crumpacker for allegedly buying cocaine from a high-profile New York City dealer. The drugs had nothing to do with Chipotle or Crumpacker’s execution of his job, but virtually every news story noted the connection.
But what really made a splash in the industry was the severity of Chipotle’s financial meltdown. Same-store sales dropped by almost a third, and it’s yet to recover. As we learned during industry events, the situation was a chilling and much-heeded reminder to the industry of how much damage a food-safety crisis can wreak.
Outsiders would have thought the industry was suddenly overrun by cyborgs. The success of highly automated concepts like Eatsa and Zume and the continuing replacement of human order-takers with self-service kiosks stoked fears (and sometimes hopes) that restaurant employees will soon lose their jobs to an army of R2-D2s.
Additional topspin came from high-profile demonstrations of delivery robots and drones, even though the impracticality of widespread adoption was clearly evident from the experiments.
The places where human analogs made true gains were in social media and voice-activated home aides like Amazon’s Echo and Google’s Home. Chatbots’ deepening artificial intelligence prompted adoption by a host of chains as an alternative way for customers to place orders.
One of the big stories of 2015, the experimentation with ways of eliminating server tips, morphed into a matter almost as monumental in 2016: The replacement of gratuities with alternative server compensation models didn’t work. Or at least not for almost every adopter who wasn’t named Danny Meyer.
Joe’s Crab Shack, the first sizeable chain to raise menu prices and pay servers from the higher revenues, dropped its experiment after customers balked at the jump in their tabs. It didn’t matter that they were laying out almost the same amounts when the checks and the tips they left were viewed as the total charge for a meal.
Customers of Gabe Shulman’s Fedora restaurant in New York City were sometimes paying less for favorite items than they had before the place dropped tipping. But they couldn’t find peace with paying about 20% more for a favorite dish, even if they no longer left 22% tip on top of the lower former charge.
Meanwhile, Danny Meyer replaced tipping with Hospitality Included pricing at more of his restaurants, having apparently cracked the code.
Overtime pay rules
Seldom has a single regulatory change posed such a wallop to restaurants’ P&Ls. The Labor Department’s decree of new rules determining who’s entitled to overtime pay, a move triggered in part by assertions of abuse in the restaurant industry, sent a chill through the business. Doubling the income an employer had to pay a salaried employee to avoid overtime charges was expected to divert a monumental sum from the industry’s collective bottom line.
And that was only part of the problem. The Department gave employers more time than expected to adapt to the new rules, but it didn’t seem enough for restaurateurs, some of whom told us within weeks of enactment that they’d not yet drafted a plan. The matter was just too complicated and impactful to resolve on the fly, they explained.
Fortunately, relief came in two doses. First, Donald Trump surprised much of the country with his election win. Immediately, the industry started wondering if the businessman-turned-ultimate-chief-executive would rescind the new rules under his promise to overturn governmental “overreach.” But he wouldn’t be inaugurated until Jan. 20, long after the new rules went into effect on Dec. 1. Should an employer count on a reversal of the rules, or should he or she go ahead and change hours or income packages?
Then, about a week before the Dec. 1 start date, a federal judge temporarily enjoined Labor from adopting the rules, saying the agency had overstepped its mandate.
The industry got a reprieve, but it was also dealt a dilemma: Would the delay on enactment stay in place until Trump could squash the rules, or would it be lifted beforehand, meaning they’d have to scramble to meet the requirements?
The mysterious customer disappearance
After a decent first quarter, restaurateurs rubbed their eyes come spring and wondered where all the customers had gone. For reasons that have yet to be completely explained, traffic fell abruptly for all but those operations that counted on delivery for the bulk of their business, like the pizza chains.
CEOs of big public companies shrugged and admitted to investors they weren’t sure why patrons were staying home. One of the leading theories held that consumers were shaken by the extraordinarily shrill presidential election and hoarding their money to weather an uncertain future. More than a few savants noted that prices were falling in supermarkets but often climbing in restaurants because of the channels’ different labor needs. And some said it was Economics 101: Restaurant supply was merely outstripping demand.
The industry struggled to rebound, or at least grasp what dynamics were at play. Their analysis often led to an increase in efforts to land off-premise business, with help from third-party deliverers and remote-ordering technology.
A $15 minimum wage, once the unthinkable for employers, became a looming reality this year for restaurants in New York, California and a few other jurisdictions. The climb to that threshold will take years, as will escalations to the only slightly more moderate pay levels that were recalibrated by ballot in areas like Washington. But even modest hikes include a provision to index the minimum to the rate of inflation, meaning increases could be automatic in years to come.
Minimum-wage hikes are a familiar challenge for restaurateurs. This year brought a new though little noticed concern: Efforts to hamstring restaurants and other employers in setting schedules. Unions have adopted secure scheduling, or committing to staffing levels at least 14 days in advance, as a new cause, and they’re pushing it hard.
Successes in New York City or Oregon, just two of the areas where secure scheduling is under consideration, could keep labor advocates among the big newsmakers of 2017.