Restaurants poised for growth
June 26, 2015
by Monica Watrous
Chipotle Mexican Grill has adopted its successful formula for new cuisines with the opening of ShopHouse Southeast Asian Kitchen.
CHICAGO — It is a good year for restaurants. Consumer confidence is rising, and the pace of industry growth has accelerated.
“We think it will be the best year since the recession,” said Joe Pawlak, senior vice president of Technomic Inc., Chicago.
While operators may feel the squeeze of labor expenses, regulatory issues and commodity inflation, the industry is poised for growth going forward, Pawlak said.
Last year, the total industry grew 3.8 percent to achieve sales of $466 billion. The industry is forecast to grow 5.3 percent in 2015.
Furthermore, restaurant cumulative growth is expected to surpass peak levels in 2007 by 2017.
Pawlak spoke to restaurant operators attending Technomic’s Restaurants Trends & Directions Conference on June 24 in Chicago. His presentation included five insights around the present and future of food service.
“We’re very optimistic,” Pawlak told operators, “and you should be as well.”
Consumers are more optimistic but …
Lower gas prices and higher employment levels have resulted in a much-needed boost for the restaurant industry.
“Price-conscious doesn’t mean they’re holding back dollars, but they do want to make sure they are getting value for their dollars,” Pawlak said.
Consumers are willing to pay more for food they perceive as fresh, wholesome and natural.
“Consumers today don’t view healthy as being low-calorie or low-fat,” he said. “They want all-natural, no antibiotics, preservatives or additives. That’s the definition of healthy today.”
Diverging incomes and lifestyles are major issues
Changing consumer behaviors and expectations are reshaping the industry. Restaurant segments continue to blur and develop, as evident by the advent of “QSR-plus.”
“They may have a slightly higher check average than QSR players (and) they act a lot like fast-casual in terms of menu focus,” Pawlak said.
Including such concepts as Chick-fil-A, Potbelly Sandwich Shop and Culver’s, the QSR-plus segment grew 9.2 percent last year, Pawlak said.
The QSR-plus segment, which includes Chick-Fil-A, grew 9.2% last year.
On the full-service side, a “polished casual dining” segment has emerged, with higher price points and a more elevated experience than that of traditional casual-dining and family style restaurants. Examples include Maggiano’s Little Italy, Brio Tuscan Grille and Seasons 52.
Across the industry, consumers expect modern convenience, engaging service and menu innovation.
“Everyone thinks they’re a foodie, and if they think they’re a foodie, they’re a foodie,” Pawlak said.
Ingredient transparency has also become a top-of-mind issue for restaurant customers.
“Many food service operators are putting forward initiatives to take out ingredients consumers don’t want in their food,” Pawlak said. “Obviously there are supply chain issues and food integrity issues, but the industry is starting to take note in a big way.”
Fast-casual will continue to grow
The fast-casual segment continues to be a major growth engine for the restaurant industry. Over the next five years, fast-casual restaurants are forecast to represent 38 percent of limited-service dollar growth, Pawlak said.
Build-your-own concepts are the sweet spot for this segment, accounting for 22.5 percent of the fast-casual market and growing at a rate of 22.3 percent, while non-build-your-own fast-casual concepts grew 10.7 percent last year.
Regulatory issues will weigh heavily
Restaurant operators face mounting pressures, from wage increases and healthcare expenses to worker shortages and complying with new federal regulations.
Additionally, higher input costs are weighing on bottom lines.
“We may see short-term declines, but overall we expect to see a longer-term trend toward higher prices in commodities,” Pawlak said.
Yet more operators are optimistic about profit growth. Forty-one per cent of operators surveyed by Technomic expect to generate higher earnings, up from a mere 9 percent in 2009.
Yum! Brands recently experimented with a new spin on its KFC brand called KFC Eleven, a fast-casual concept with an upmarket menu.
Growth opportunities abound
Restaurants are employing various tactics to capitalize on growing trends. Denny’s, for one, has reinvented its brand with the introduction of The Den, a millennial-oriented fast-casual concept on college campuses.
Other chains are broadening into other categories. Chipotle Mexican Grill, for example, has adopted its successful formula for new cuisines with the opening of ShopHouse Southeast Asian Kitchen and Pizzeria Locale. Yum! Brands recently experimented with a new spin on its KFC brand called KFC Eleven, a fast-casual concept with an upmarket menu. Although the restaurant was open for less than two years, executives garnered insights around menu innovation, the service model, kitchen and asset design that may be applied to KFC’s operations.
“Just because they opened and closed it doesn’t mean it wasn’t successful,” Pawlak said.