1. Barack Obama
Placards at the front of the torch-and-pitchfork mob outside the White House may be railing against the costs and administrative burdens of Obamacare. But pull back the camera shot, and you’ll see signs of a broader protest—one that shines light on a tide of workforce policies floated by President Obama and his administration.
“This administration certainly has had a disruptive effect on the way the restaurant business has operated,” says Scott DeFife, executive vice president of policy and government affairs at the National Restaurant Association. “Changes are going to have to be made, especially in the area of labor and workforce policy.” The policies he references go beyond the Affordable Care Act and have the potential to wreak as much, if not more, havoc on the industry.
“The administration agrees with us on lowering the cost of doing business with swipe fees, ending problematic patent trolls and the need for comprehensive immigration reform,” says DeFife. The president’s support is appreciated, but it’s also meaningless, because none of these matters are arising for real consideration in Congress. Moreover, “to the average restaurant operator, those things pale in comparison to the negative effect Obamacare has on the way the business operates,” DeFife says.
But eyes are starting to open to other emerging threats. “There is a lot of nervous energy about what the National Labor Relations Board and Department of Labor could do on issues related to franchising and overtime regulations,” says DeFife. What’s at stake:
Overtime. At the direction of the president, the DOL is mulling over changes that could allow millions of additional employees, including managers and other salaried personnel, to qualify for overtime. It would be the first significant update to overtime rules in a decade, and any changes would require a lengthy rollout process. Although it’s a long way off, “if they draw really hard lines, that could be a significant disruption in the operations of [restaurants],” DeFife says.
Franchises. The recent confirmation of David Weil, Obama’s pick to head the DOL’s wage and hour division, has the International Franchise Association and others nervous. Weil, a former professor, previously argued for holding franchisors accountable for labor violations on the part of its franchisees.
At the same time, the NLRB, in a case involving McDonald’s, has signaled that it could rule in a way that would make franchisors responsible for the workforce practices of their franchisees, reversing decades of law on the relationship, the NRA warns. “If it is as bad as some people fear, you’re talking about a more significant long-term change to the business of restaurants than even health care,” says DeFife.
2. The hyperfussy customer
If it weren’t for the rising wave of vegetarians, vegans, gluten-free people and other food avoiders—tens of millions at last count—a concept like ModMarket might not exist. Total transparency has been the Denver-based fast casual’s ethos since its launch in 2009. “Nothing is processed,” says Anthony Pigliacampo, co-founder and co-CEO. That “clean-food” approach has been validated by “a huge increase in special dietary requests year over year,” he says.
With consumers getting choosier about the foods they eat, the chain has become even more vigilant as it has grown to eight locations. Menu descriptions include all the vitals (calories, sodium, protein, carbs, fat and fiber), down to “non-GMO oil in the dressing.” Everything can now be prepared gluten-free and back-of-house systems color code every ingredient for accurate customization. “With the new technology, a guest can order something as specific as half gluten-free pizza with vegan cheese,” says Pigliacampo.
- 51 percent of consumers say customization is highly important to creating good value
- 11 percent of consumers follow a gluten-free diet but 23 percent say a gluten-free lifestyle is good for everyone
- 7.3 million Americans are vegetarians (3.2 percent of the U.S. population); of this number, 0.5 percent, or approximately 1 million people, are vegan
- 54% percent of consumers say local is a menu descriptor that signals high quality
- PALEO - Google’s most-searched diet of 2013
- 33 percent of consumers report that they intentionally avoid genetically modified ingredients, up from 15 percent in 2007
- 64 percent of consumers say it is important to eat healthy; “local,” “sustainable” and “fresh” are now the buzzwords on
Sources: Technomic, NPD Group, Packaged Facts, Vegetarian Times study conducted by Harris Interactive, Innova Market Insights, National Restaurant Association
3. Private equity firms
Entrepreneurs in ketchup-stained aprons may have built the restaurant industry, but today much of it is run by financial specialists in suits, a corporate name ending in “Capital” or “Partners” on their business cards. At least 36 major chains are now owned and managed by P.E. firms. The number changes often as the investment consortiums buy and sell concepts the way a car collector manages his garage: buy it, buff it, sell if you can get a good price. Then buy another.
In recent months, the Portillo family accepted overtures from Berkshire Partners to buy Portillo’s restaurants for a reported $1 billion. A few weeks earlier, the Carlson family made a similar decision for TGI Fridays, accepting a joint bid from Sentinel Capital Partners and TriArtisan Capital Partners for $800 million. Darden struck a $2.1 billion deal to sell 45-year-old founding brand Red Lobster to Golden Gate Capital, owner of California Pizza Kitchen.
Returning a big payback to investors in what’s typically a five-year window means being more aggressive than even public-stock owners are prone to be if the brand is prospering. Since the days founder Bill Darden was in control, Red Lobster usually owned its sites; Golden Gate already has arranged a sale-leaseback deal to turn the dirt under most units into cash. Similarly, Red Lobster never franchised; some watchers expect that policy to change pronto.
Proponents say the P.E. tide is making the industry a more professional business. Detractors say it’s cutting at one of the trade’s unique characteristics. All agree that it signals change.
As the 15th largest consumer economy in the world, with its spending power only expected to increase, this megamarket could change the restaurant business the way baby boomers once did. Operators need to retool for this group that has its own bicultural habits and preferences.
Source: NPD, Census, Global Insights and Nielsen
Today, 58 percent of adults have smartphones, Pew Research Center reports; for those ages 18 to 29, it’s 83 percent. App or no app, smartphones have rewired the restaurant transaction. Let us count the ways:
1. Always open
It’s become a 24/7 job to monitor what’s being said about your brand online. Jeff Jenkins, Taco Bell’s senior digital and mobile leader, uses the “sunroom” approach, prepping his team to respond around the clock to any conversation—good or bad—and put out fires when needed.
2. House rules
Diners yacking away can mar the experience for others or slow service if too distracted to order. But it’s hard to deny the free buzz generated by the 29 million who post restaurant photos online. Bouley in New York City flat out prohibits phone use. Starbucks all but encourages it, adding tabletop chargers. In the middle is Bucato in Los Angeles, with designated in-house cellphone zones.
With security top of mind for consumers and Apple hinting at its own pending mobile-payment strategy, e-wallets are almost sure to become more widespread. Of current converts, 40 percent are using mobile as their primary form of payment, Nielsen finds.
6. The evolving driver
Quick, name a suburban restaurant that doesn’t have parking. The industry wouldn’t exist in its current form if it weren’t for the automobile, an enabler of the highest order for dining out. But that symbiotic relationship may be changing as consumers alter their transportation habits and preferences. It’s a disruption that gives restaurateurs …
1. Young people are significantly less likely to drive. Only 43 percent of people under age 20 in 2010 had a driver’s license, as opposed to 52 percent a decade earlier, according to the most current data from the U.S. Energy Information Administration. They’re not going to use a drive-thru if they’re on foot.
2. Drivers are spending less time behind the wheel. The average number of miles driven by Americans fell 9 percent from 2004 to 2012, the University of Michigan says. And use of trains and buses is up; the number of passengers on public transportation rose 1 percent to 10.3 billion in 2013.
4. There were twice as many plug-in electric cars on the road in May as a year ago, per the Electric Drive Transportation Association, with sales growth outpacing conventional cars by 6 to 1. Soon, a convenient location may be one falling within the range of a charge.
5. Restaurants already are among 8,222 locations where the EDTA says electric cars can recharge. Only one, an Applebee’s franchise in Kansas, is known to be part of the high-tech refueling network being fostered by Tesla, one of the big electric-car brands (left). Selected operators could become clean service stations for Tesla drivers who want to fuel up two ways.
6. While car sales have slipped, membership in ride-share services such as Zipcar and Car2Go is soaring. Participation should hit 12 million worldwide by 2020, roughly a five-fold increase from the 2.3 million who were registered last year, according to Navigant Research. The opportunity is for more restaurants to lend parking slots in their lots for car pickup.
7. Drive-thrus already are being stripped of their order-placement function and recast as places to retrieve what’s been ordered remotely via smartphone. And as curbside delivery has proved, there’s no reason a drive-thru has to be built merely for the pickup function.
7. Climate change
“Due to the effects of climate change … food prices are likely to go up somewhere in the wide range of 3 percent to 84 percent by 2050.”
—The United Nations Intergovernmental Panel on Climate Change Fifth Assessment Report, released in April
With practically every new concept clamoring to be “the next Chipotle,” the fast-casual pioneer remains the one to watch and emulate—even after 21 years. One analyst recently hailed it as “the best business model created in the restaurant industry to date.” Whether originating or perfecting, here’s how Chipotle’s model is an inspiration to the industry (plus some of its own influences).
Click to enlarge
9. The younger consumer
You just got your arms around millennials, arguably the most-researched generation in history. Now along comes Gen Z, loosely defined as those born after 1993, greater in number and with the spending power to cause an aftershock in the industry. In addition to influencing family purchases, these young consumers already have an average monthly allowance of nearly $70, says New York City marketing firm Sparks & Honey, translating to $44 billion a year. And the teens among them spend a majority of that on food and beverages. Together, Gen Z and millennials make up half of the population, so we took a side-by-side look to help you get better acquainted.
|Instagram and self-destruct apps such as Snapchat, Secret and Whisper|
Favorite social sites
|Facebook and Twitter|
|More than half (54 percent) place high importance on fast service from LSRs|
Speed of service
|Two-fifths (40 percent) place high importance on speedy service from LSRs—less than Gen X (41 percent) and baby boomers (43 percent)|
|Gen Z is all about “snack media,” communicating in bite sizes. They process information quickly, but it’s also a challenge to keep their attention|
|Millennials have a notoriously high bullshit meter, favoring cause marketing and advertising that is straight and to the point|
|Gen Z multitasks across five screens daily, spending 41 percent of their nonschool time on computers and mobile devices, versus 22 percent two years ago|
|Millennials, once known as the most tech-savvy lot, use an average of two screens at a time|
|35 percent of Gen Zers are more likely to visit restaurants that make an effort to be sustainable|
|36 percent are swayed by a restaurant’s sustainable operations—versus 29 percent of the general public|
|Both Gen Z and millennials value the ability to place orders online and to use apps and websites to do it; 42 percent of Gen Z would use a system that registers their “favorites”|
|41 percent of millennials would use a system that registers their favorites, compared to just 34 percent of Gen X and 21 percent of boomers|
10. The fat kid
Business considerations no longer trump all when crafting menus. For that bitter reality, the industry can curse any number of parties: moms, school principals, the First Lady, even Nintendo’s mustachioed Mario. But its only option is to bow without complaint to the force behind it:
Consumer preferences might still be driving R&D if it weren’t for the fat kid.
It’s because of the underactive, overconsuming youngster that chains are downplaying french fries and soda, their top moneymakers, and pushing healthy options, often with resistance. Portion sizes are being cut, mascots are getting pink slips and marketers are altering pitches. After all, activists remind the industry, everyone must do their part. Or else.
So far, it’s working. About eight in 100 kids ages 2 to 5 were found by the Centers for Disease Control and Prevention to be obese in 2011 and 2012, down from 14 in 100 kids eight years earlier. Still, one in five youngsters ages 12 to 19 was found in 2011 and 2012 to be obese. Restaurants say demand for healthful choices is growing. But that is not the only factor for a profound shift.
Members help make our journalism possible. Become a Restaurant Business member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.