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Top trends in the restaurant industry to watch in 2019

Restaurants that respond to consumers’ changing tastes will thrive

INSIGHT ARTICLE  | 

The economy will remain strong into 2019 and overall spending on food away from home is expected to continue to rise. That said, industry-wide same store sales will likely remain flat and same store traffic counts will continue to decline, as new unit growth continues to outpace unit closings. Competition will remain fierce as the industry is simply overbuilt. Emerging brands that connect with consumers and respond to changing tastes and preferences will thrive, while undifferentiated mature brands will continue to close units and struggle to survive. 

Changing consumer preferences

Consumer preferences will continue to evolve, driving a deeper divide between those seeking convenience and those chasing a memorable dining experience. Delivery is expected to continue to grow across all segments of the industry, but particularly in those segments already focused on convenience.   As delivery becomes a more significant percentage of unit sales, operators will need to adjust operating models in the back of the house to accommodate higher volume during peak hours and in the front of the house to streamline the pickup of take-out and delivery orders. Larger operators will likely evaluate their ability to take delivery in house to more effectively manage added costs of delivery, while all operators try to find the appropriate balance of automation and personal engagement with their guests.

Labor shortages

Labor will continue to be the greatest challenge across the industry. Historically low unemployment together with continued new unit growth will further stress the system. Although there will continue to be significant unit closings as mature brands retrench, younger on-trend brands will grow at a faster rate taking much of the vacant real estate and the employees made available by consolidation. Operators will continue to invest in technology to alleviate the stress created by the labor shortage. High performing mobile apps, in store kiosks and tablet-toting wait staff will become far more prevalent and more automated kitchens, particularly in the QSR and the fast casual spaces will become the norm, rather than the exception. 

Real estate

Real estate cost is likely to moderate over time, as landlords begin to feel the pain caused by retail and restaurant bankruptcies. While retail isn’t going away, retail footprints are definitely shrinking as online purchases continue to grow at a faster rate than overall retail spending and many restaurant segments continue to modify their operating models toward smaller boxes to adjust to changing the mix of on-premise and off-premise diners. Class A space will be in high demand and hold value, but secondary space is expected to become more affordable which could provide significant opportunities for concepts that have a heavy mix of take-out and delivery customers.                   

Mergers and acquisitions uptick

Despite the headwinds, mergers and acquisitions activity will likely remain strong. Several new funds have large amounts of cash that need to be deployed, which should continue to drive activity. Expect most activity at the ends of the spectrum. On-trend high-performing assets will be in high demand and yield frothy multiples, while other investors bargain hunt struggling brands they think they can revive. Moderately performing or slightly underperforming assets are unlikely to get much attention in the current market

Brand risk

In this hypercompetitive environment, companies will need to protect their brands more than ever. Food safety and cybersecurity are significant risks operators will need to address for the foreseeable  future.

Advances in technology will improve traceability and help identify sources of contamination in the food supply. However, restaurant brands will continue to bear the brunt of the reputational risk when a food-borne illness is linked to one of their locations. Sourcing from reliable purveyors and continual in-store training will be critical managing the risk, particularly with high employee turnover rates that are not expected to improve.  

Online hackers will continue to look past payment card information to more extensive data maintained in loyalty program databases. As restaurateurs seek to collect more information to better connect with their guests, they’ll need to also increase their efforts to protect that information and ensure they have protocols in place to monitor databases and well-developed response plans ready if they suspect a breach has occurred or a food safety issue arises.    

Overall, 2019 will be a good year for the restaurant industry, but there will also be more casualties.  Although there have always been closings, they typically occurred in down economic cycles. Operators adjusted during the lows and rode the highs of each cycle. Those who are struggling today are not victims of a sluggish economy. Rather, they are facing structural change of an evolving industry that is responding to changes in society and individuals’ lifestyles. To prosper in this environment, operators need to connect with their guests/customers, be agile and nimble and execute consistently, all in possibly the most competitive environment the restaurant industry has ever seen.


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