The restaurant industry appears to be gaining steam in 2018 after a tough two years as consumers, feeling better about their finances, start eating out more often.
That’s according to Joe Pawlak, the managing principal with Technomic, who provided attendees at the Restaurant Directions Conference in Nashville with a peek into the state of the industry thus far this year.
Pawlak noted that restaurant operators were more than twice as likely as last year to say that sales were better so far in 2018. “There is optimism in the industry from all segments,” Pawlak said.
“More people continue to come into restaurants overall,” he said. “They’re feeling good about the economy. They’re using their discretionary income at restaurants.”
To be sure, some restaurants will be doing better than others, and consumers continue to direct more of their spending at limited service concepts.
Technomic expects sales to grow 5.1% at limited service restaurants this year, including fast food chains and fast-casual concepts. Fast-casual restaurants, which have seen sales slow from their traditional double-digit rates recently, are expected to grow at an 8% rate.
Full-service restaurants, meanwhile, are expected to grow at a 3.3% rate, with fine dining restaurants leading the way.
One thing that should help: Lower taxes. Pawlak said that consumers are still adjusting to the lower taxes, but they should as the year goes on, which could provide a boost to industry sales over time.
Smaller is better
Pawlak noted that “small chains and independents” have been taking share in recent years, as consumers look for new experiences. Those concepts are taking business from full-service chains that have seen their sales and traffic weaken over the past 11 years.
“Consumers want unique experiences,” Pawlak said. “They want local. Small chains and independents are able to do that.”
He said that smaller chains, because they’re smaller, can more easily respond to changing consumer dynamics because they have fewer stores to manage.
“Smaller chains have a better ability to react to customer changes and feedback,” Pawlak said. “Big chains, if they make a packaging change or an operational change, it takes longer to filter through the system. Smaller chains have an easier time doing it because they have fewer units.”
The biggest challenge the industry is facing this year is labor.
Higher wages, due to intense competition for workers, is driving up the cost of labor.
How bad is it? It’s the tightest labor market since the late 1990s. “Going back to World War II, only five other periods have been this tight on labor,” Pawlak said. “It’s a real crisis mode for the foodservice industry and for restaurants in particular.”
The labor crisis is forcing restaurants to rethink many of their strategies. It could also force the use of more automation.
Pawlak pointed to a couple of examples, such as CafeX, a kiosk with a robot arm that will make coffee at prices “competitive with other chains.”
“Necessity is the mother of invention,” Pawlak said. “We’re dealing with very high labor costs. I think operators more and more are looking at that.”
Another challenge for the industry is rethinking locations—30% of the nation’s malls are expected to close over the next 10 years.
“What is typically around big shopping centers? Restaurants, and typically chain restaurants,” Pawlak said. “That’s going to have a big impact on the industry. Rethinking how we’re going to place units is something going on in many boardrooms today.”