Evolving Trends in the Restaurant Industry Provide Actionable Guidance for Owners (published in August of 2010 in the SB News Press)

In last week’s column, I provided a spotlight on an innovative local company, Restaurant Revolution Technologies (RRT), showcasing their winning off-premise (online, call-in, mobile, and curb-side ordering) services package that helps restaurants more efficiently and profitably handle off-premise orders.  In today’s column, I will dig a little deeper into the developing trends within the restaurant industry that offer opportunities (and risks) for local restaurant operators.

In the current challenging economic environment, restaurants must look at all aspects of their business to streamline operations and maximize profitability.  Santa Barbara has the second highest restaurant density (second only to New York City)—restaurants to population.  Needless to say, it is a highly competitive local industry.  More importantly, it is a significant driver for our local economy and employment, so the health of the industry is of interest to us all.

There are some identifiable trends developing within the restaurant industry in the U.S. that offer some interesting and actionable insights for local restaurant owners.  The University of Nevada-Las Vegas released a key study in 2009 on the casual dining industry and about call-in ordering.  In this report, they made several key conclusions about the industry:

• 90% of all take-out transactions go poorly
• The performance for the industry overall for all take-out related orders and service is in the D+ to C- range
• Restaurants are leaving huge amounts of money on the table.  Poor sales and service cycle execution are leading to a large amount of unrealized take-out sales.
• A restaurant is a terrible location to place or take “to-go” orders.
• There is a huge, unavoidable, and costly difference between the way dine-in guests are treated in the restaurant and the way take-out guests are treated over the phone. 
• Because take-out orders are highly personal and highly customizable, 90% of all take-out volume is ordered over the phone.
• Restaurants don’t have the operational bandwidth to process take-out orders in a sales centric, brand enhancing, customer centric manner.
• Restaurants are not built to process take-out orders.
• Due to the spiky nature of take-out order volume, it doesn’t make economic or operational sense to have all of the people necessary on-hand to execute take-out operations effectively, cost efficiently, and in a way that appropriately represents the brand.

According to an article published in the Wisconsin State Journal, there has been a dramatic rise in take-out consumption and a decrease in home cooking.  The fact is that more and more people are required to work multiple jobs, or to work longer hours to make ends meet, or to get ahead.  This means they have even less time and energy to prepare meals.  As a consequence, they are more likely to want to purchase food from a restaurant, but do not necessarily want to incur the added expense of the tip, or to spend the additional time to get the kids in the car, get dressed up, wait for a table, wait for service, wait for food preparation, etc.  Also, people still desire the family connection and privacy of eating the evening meal in their own home.  The Wisconsin State Journal article states that; “"The number of dinners made at home from scratch continues to freefall. It dropped another 7 percent over the last two years, and now accounts for 32 percent of all evening meals in the U.S., according to the National Restaurant Association."

The National Restaurant News (2010) states that:

• Restaurant industry sales are $1.6 billion on a typical day
• The average household in the U.S.  spent $2,698 on eating out in 2008 (most recent data available)
• 40 percent of adults agree that purchasing meals from restaurants and take-out and delivery places makes them more productive in their day-to-day life
• 78 percent of adults say they would like to receive restaurant gift cards or certificates on gift occasions
• 52 percent of adults say they would be more likely to patronize a restaurant if it offered a customer loyalty and reward program
• Restaurants will provide more than 70 billion meal and snack occasions in 2010
• On a typical day in America in 2010, more than 130 million people will be food service patrons.
• 44% of adults say restaurants are an essential part of their lifestyles

Based on these statistics, it is clear that Americans like to have restaurants prepare their food!  Within these data, what we are seeing is that off-premise orders are growing at three times the pace of the industry as a whole.  Further, the trend is increasingly moving from dine-in to dine at home, where dine-in business is actually declining in some markets, possibly in Santa Barbara, and the off-premise (dine-in) side of the business is growing rapidly.  This fact has all kinds of interesting cultural and societal implications, but from a purely business standpoint, it means that restaurant operators need to sit up and take notice.  More to the point, they need to make dine-out business a major priority.

We see similar trends developing in other industries, such as the movie industry, where more and more, people prefer to rent movies, either on cable, or through Blockbuster or Netflix. 

A new report from Mintel, a global consumer product research firm, suggests that although value has become the mantra of many contemporary diners, convenience still resonates with the out-to-eat crowd, especially those under age 34.  Over half of younger adults rank a restaurant's proximity to their workplace as very important or important when selecting where to dine.   The ability to order online ahead of time is also essential to young, time-strapped consumers.   One complicating factor for online ordering (versus phone ordering) is customization—it is extremely difficult for restaurants to provide enough customization options online (on their websites).  This is especially important for those with children, who almost always want something different from what’s on the standard menu, making phone-in orders much more convenient and effective (assuming the person answering the phone at the restaurant gets the order right).

Other important restaurant facts that owners should consider are that recent statistical models show that restaurants that pay attention to food quality, appropriate cost, and attentive service have the greatest chance to increase guests' intent to return.  In turn, that intent to return is a chief driver of increased sales.  Also, a recent extensive survey of diners of various restaurants found that first and last impressions have the greatest impact on repeat-purchase intentions, followed by excellence in service and food quality.

The general conclusion of these studies is that higher levels of customer satisfaction lead to an increase in customers' repeat purchases and improved financial performance.  Customer experience can be more important than food quality when it comes to how much food product the guest will order, whether or not the guest will return to the restaurant, and how frequently the guest will return.

The factors that had the greatest influence on whether a guest would return are those at the core of restaurant operation, namely, delicious food, an appropriate cost, a cheerful greeting, and attentive service.  Failure on these attributes does not seem fatal but will certainly diminish the likelihood that a guest will return.  The key take-away from these study results is that the dine-in patron experience is far superior to the dine-out patron’s experience with the same restaurant.  Considering that the dine-out segment of the restaurant market is growing at three times the industry’s overall growth rate, this disparity must be rectified if restaurants want to stay in business.

According to the Food Institute Report (2007), take-out currently accounts for about 12% of business for restaurants in the casual dining segment, 90% of family and casual dining restaurants offer take-out, and 75% of high-end restaurants offer take-out service.  Also, some major chains, such as Outback Steakhouse and Appleby’s have achieved rapid growth in take-out service over the past several years.  

Full service restaurant operators surveyed by the National Restaurant Association in late 2008 said they found it more difficult to attract and retain customers than in the past. About half said they found it more challenging to attract new customers than two years before. About 25% said they had a harder time bringing back repeat customers in 2008 than two years before.  Nearly all full service restaurants offer take-out with nearly 20% of operators offering delivery service.  About 40% of family and casual dining restaurants and 33% of fine dining operators believe delivery will become more popular in the near future. (National Restaurant Association; 2008).

I know that was a lot of statistics, but the conclusion is clear—restaurant patrons are demanding off-premise service in increasing numbers, and they expect the level of service to be at least equal to what they get if they dine-in.  Restaurant owners must embrace off-premise patrons if they want to be competitive and if they want to survive.  Part of embracing this important market segment is providing an equivalent level of service to these customers (at least), and making sure that their food quality and presentation is equally as good as compared with dine-in customers.  On the positive side, for those operators who have not focused on this segment of their business to-date, off-premise business could be the diamond in the rough just waiting to be polished into profitability.  Another way to look at this is that, if you don’t put your best foot forward in the fastest growing segment of your business, which is the off-premise piece, you are shooting yourself in that foot!