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Emerging Brands

7 ways the restaurant market is changing—for better and worse

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Independents and small regional chains are outfoxing the restaurant industry’s lumbering big brands, agreed speakers at a first-time conference for emerging restaurant powerhouses. But upstarts and the old guard alike are about to confront challenges that will test operations of all sizes and ages, from a plague on malls to a spike in gas prices, according to presenters at Restaurant Directions in Nashville.

Attendees of the event, presented by Restaurant Business parent Winsight, were provided with a preview of the near-term challenges. Here’s some of what they heard, and why restaurants of all types should pay attention.

1. ‘What’s ‘casual dining?’

The number of consumers who’ve never been to a casual restaurant has jumped 4 percentage points, observed Donna Hood Crecca, a principal of Technomic, the research firm whose data served as a foundation for the conference. “Where are they going? They’re going to limited service,” she said.

2. Full-service chains’ big ouch

That’s not the end of the challenge for large full-service chains, continued Crecca, who noted that traffic at table-service restaurants—primarily casual operations—dropped 5% in 2017. “Independent operators and smaller chains are growing faster,” she noted. “We do expect that trend to continue.”

Why? “They can be very nimble, very responsive,” she explained. “They can be proactive. They can fail fast and go in a different direction.”

“The big reason is that consumers want something different,” added Joe Pawlak, managing principal of Technomic. He noted that smaller operations not only offer an alternative to familiar brands but can also recalibrate constantly because there are fewer outlets to change.

3. But good news amid the bad

Yet the picture has brightened for all operations as of late, Pawlak and Crecca agreed. Restaurant traffic was up 3.6% in April, Technomic found, and Crecca suggested that the upturn could be the start of a trend. Overall, Technomic forecasts a 4.3% gain for 2018, with menu inflation accounting for roughly 2.5 points of the increase.

4. The salve of off-premise

The bright spot for every operation is takeout and delivery, speakers agreed. Crecca pegged overall sales of off-premise, including proceeds from drive-thru transactions, at $225 billion, and the tally is growing rapidly.  Other Technomic data show that sales of just the three big third-party delivery services--Uber, DoorDash and PostMates--now total $22.8 billion, which would place them Number 8 on a ranking of restaurant chains by food and beverage sales.

“Delivery and off-premise dining is a game-changer,”Crecca said. “It has implications for every restaurant operator.”

5. The promise of alcohol delivery

Growth could be supercharged, she indicated, by the just-emerging trend of restaurants delivering alcoholic beverages as well as food. “Sixty-five percent of consumers say if their favorite restaurant can deliver both food and alcohol, they’d order from that restaurant more often,” she noted.

An even higher percentage want their food and adult beverages to come from the same place, a convergence that means they wouldn’t have to wait for their drinks or their food if one delivery arrives before the other. Consumers would also appreciate paying one delivery fee, instead of getting hit with one charge for the food and a second for the beer or wine.

6. A cause for concern: gas prices

“Gas prices are starting to inch up,” said Crecca. “In some markets, prices are above $3 (a gallon). There’s talk about hitting $4 by the end of the summer.

“Once you hit $3.50, consumers start changing their behaviors,” she noted, suggesting that there could be some belt-tightening as the public adjusts.

7. Mall meltdown

Pawlak cited a research forecast that 30% of all the shopping malls in the United States will close over the next 10 years. “This has big implication on location, this has a big impact on our industry,” he said. “Rethinking where we place units is something that’s going on in many boardrooms today.”

Restaurant Directions is being presented through Wednesday at the Gaylord Opryland Resort & Convention Center. Stay tuned for further updates.

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