J. Walker Smith, executive chairman, The Futures Co., describes what he calls the “Kinship Economy,” a post-recession marketplace dominated by “process” (how people are treated) over “product” (what they purchase). “Consumers are resilient and buying and shopping are as important to them as ever,” he says. But, he adds, they are coping with a smaller economy (fewer jobs, less money to spend) and ongoing volatility (financial, political, weather, etc.), which creates enormous anxiety. “Consumers spending less because they are broke and scared, not because materialism and aspiration is less important to them. They simply don’t have as much money and they are paralyzed by what’s going on around them.” There is opportunity, he says, however, getting the consumer dollars that are still available will take nurturing consumers who are now focusing on relationships and conduct.

“Prior to the recession, we all shared the ambition to trade up,” Walker continues. “Now consumers must either trade down or trade off – prioritizing what’s most important to them.” And, increasingly, he says, that’s “the treatment, not the treats. Relationships, interactions, are disproportionally important now. How you treat people outweighs what you sell them – which is the opposite of the trading-up era, when people would take whatever you did to them just to get the good stuff. Consumers are saying, ‘I want to be treated well, and that’s where value lies for me.’” The importance of customer service and relationships isn’t new to the hospitality industry, but Walker cautions that, “All businesses have to begin with high service and then go beyond improving the kind of service they already offer to finding new ways to deliver fresh value. Go beyond transactions with customers; don’t just fix problems. Be of service, even if it’s out of your specific category, such as hotels that make airline reservations for guests.”

Walker uses “kinship” as a metaphor for this new consumer sensibility and as a guiding principle for businesses. He says that consumers have turned the tables, “It’s not about consumers aligning themselves with brands; it’s now about brands being invited into ‘family’ circles.’ Relationships matter more, but the relationships that matter most are family. Your family knows you intimately, and businesses must be transparent for consumers to reciprocate with similar intimacy and they must be flexible and sacrifice their own interests – much as you would for family. Don’t just think in terms of customer loyalty, think about the wellbeing of family members. In this economy, ask yourself: ‘Is this something you would do to your mother?’ If it is, it’s a good idea with growth potential. If it’s not, it’s something that’s going to get you kicked out of the household.”

Hudson Riehle, senior vp, research & knowledge group, the National Restaurant Association predicts, “As we look at 2012, the operating environment for restaurants will be similar to 2011, which was the best since 2008 – we expect modest growth to continue this year. That said, there are still a host of challenges.” Chief among those challenges will be food price inflation. “Certainly, food price inflation was a factor in 2011, when we saw the highest overall increases in three decades, an average of 8%. Year-to-date in October 2011, we reported increases, such as 26% for flour, 19% for coffee, 18% for butter, 15% for beef, and 13% for pork. These are basic core commodities that impact all restaurants.” He adds that depending on menu theme, some restaurants could be impacted more than others, but that the overall rate of food cost increases will moderate this year. Another key indicator, employment growth, remains weak although better, he says. “At the current pace of jobs growth, it will be 2014 at the earliest before we’re back to pre-recession levels. The reason we focus on employment growth as an indicator of restaurant sales is that when employment grows, so does the demand for convenience. And the vast majority of growth in the industry comes from convenience-related, off-premises sales. In fact, if operators aren’t tapping into off-premise, they are leaving money on the table.” Hudson also encourages operators to increase points of access for customers, including mobile channels, which, he says, can be a long-term growth opportunity for the industry. “Our research last fall found that nearly 60% of American adults say they would be likely to visit a food truck if their favorite restaurant offered one, up from 47% the previous year. Mobile foodservice can be a good way to extend an existing restaurant brand beyond the four walls of an establishment.”

Not surprisingly, Hudson reports that operators say their biggest challenges remain the economy (30%) and food costs (17%). Interestingly, the number of those citing the economy as their top challenge is down over the past year, while those citing food costs is sharply up. Another key component, as always, is labor costs. “When you look at average gross sales per fulltime restaurant employee, it’s very low compared to other industries. Because the restaurant industry is so labor intensive, any improvements in this number can be meaningful.” As tools, Hudson points to technologies in the front and back of the house – such as reservation systems, kiosk/hand-held ordering, meal preparation video streams in the kitchen – that can improve productivity and increase efficiencies, win/wins for both operators and consumers. “Savvy restaurant operators know they have to be vigilant about food and labor expenses – which account for two-thirds of total costs. But they must also work hard to boost sales. Over the long term, it’s difficult to simply cut costs to ensure viability. There really is no substitute for growing sales.”

Hudson reports that the December consumer confidence numbers were definitely an improvement, but that consumers are by no means confident. What’s meaningful for the restaurant industry is that pent-up demand is still elevated. “Over 40% of consumers say they are not using restaurants as much as they would like. Demographically, we see that the proportion of females in this category is moving up relative to males, so operators will likely direct more marketing efforts to that constituency,” he predicts. “Consumers are looking for a nudge to patronize restaurants, so this is an environment where restaurants need to remain top of mind – operators can’t take their eyes off that ball.” To that end, Hudson says social media is an essential tool.

Providing value is still also essential to attract consumers. “Consumers definitely remain price sensitive,” he continues, “but that doesn’t mean that they won’t pay for quality. What is does mean is that operators have to deliver consistently and do everything they can to maintain the price/value equation. Consumers are very quick to vote with their feet if that’s not the case.” While the cost of doing business and the challenge of luring customers looms large, Hudson is optimistic about operators’ drive and ability to do so. “Restaurant owners are entrepreneurial by nature and, like most Americans, they aren’t good at being depressed long term. They still have that spark.”

Michael Whiteman, president, Baum + Whiteman, sees 2012 as a “world on the plate” period. “Consumers are open, and chefs – notably the younger guard in independent restaurants – are experimenting. Independents can’t compete with the resources of chains in terms of discounts, pricing, etc., but they are more nimble with ingredients and can be adventuresome to differentiate themselves from their more staid competitors,” he says. Overall, Michael says chefs are exerting increasing influence. “There’s lots of excitement happening in restaurant food, particularly at the lower end of the market, where food is cheap and the economic risk is low … for both buyers and sellers.”

Michael sees a move away from traditional comfort food, towards which Americans gravitated when the recession hit, to “discomfort food.” “People are bored with gastronomic nostalgia. They want new taste thrills and culinary invention, so chefs are putting things into comfort food as never before.” Among the examples he cites are headcheese on hamburgers, tongue tacos, multi-cultural sushi, and Korean fried chicken. “It works at both ends – consumers are tired of eating traditional comfort food and can try something new with something familiar and restaurants can keep things interesting at the same time as controlling prices. And there’s the notion of gilding the hamburger for people who would otherwise order a steak. You might get more people to order a hamburger if you put oxtails on it – which you can sell as an expensive hamburger, but not as much as a steak.” That said, he does caution about a “burger bubble.” “Burgers are straining to be different and when things get too baroque, the end is nigh.”

He highlights sandwiches as the most effective vehicles for mix-and-match innovation. “The great innovations we see are taking place are in the sandwich world – and the wilder, the better.” He says chefs will take it a step further by piling ingredients on things other than bread. “Arepas, for example. Flattened tostones. Bao. Waffles. Rice cakes. Mexican tortas and cemitas.”

The ingredient of the year? “Kimchi, which is part of the Korean wave that has entered the American culinary lexicon.” He predicts, “Peruvian is the next cuisine” and that “smart chefs will explore the world of ‘Japanese snacky things’” and serve up Japanese craft beers. It’s all part what he calls a “global Mixmaster” approach. “We’ll see cooking at a crossroads, where flavors collide and clash on purpose. Everything is out there to be stolen from, and pretty much anything goes.”

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