Trends to Watch 2014

Hudson Riehle, Senior VP, Research & Knowledge Group, National Restaurant Association, predicts that the OPERATING ENVIRONMENT FOR RESTAURANTS in 2014 will continue on the same positive – but modest – growth path. “Overall, we’re certainly not looking at a rebound to prosperity, but things are headed in the right direction. Last year was the fourth consecutive year of growth for the restaurant industry, although modest. Moving into 2014, economic indicators such as real domestic product, real disposable income, and employment growth remain positive.” Employment growth – which Hudson says shows signs of being somewhat higher in 2014 – is especially key for the industry because even a small uptick in employment translates into a greater ability for consumers to spend in restaurants.

Another important element in spending decisions is consumer confidence, which – while still “sub-optimal,” Hudson cautions – is up compared to several years ago. “Operators will need to continue to nudge consumers into decisions to patronize their restaurants.” And they will do so in a robust competitive environment. “If you look at the number of units – points of access for customers – they continue to grow, and the economic environment of the last few years has created a battle for market share. One of the more important developments in 2014 and beyond is how operators view competition, which, over the last couple of decades, has been defined as other operators in a specific trading area. But it’s important to look at competition in terms of consumer spending in other categories – not just other restaurants.” To be truly competitive, Hudson advises, operators must look at consumer spending more holistically and take into consideration that over half is on housing and transportation. “Only 13% of consumer spending is on food and it has gradually been edging downward; consumers have been increasingly spending more in other areas.” To respond, Hudson counsels restaurateurs to take a cue from the grocery store industry, which, he notes, has been much more proactive about being relevant to consumers’ spending needs other than food – providing discounts on gas based on grocery purchases, for example. “I think we’ll see more restaurant operators link spending in their establishments to other areas which otherwise would provide competition for that spending.” For example, Hudson says hypothetically he could see restaurants linking guest spending to discounts on transportation, or on utilities, apparel, and entertainment. “This could provide nudges to patronize restaurants on various occasions. Restaurateurs are only limited by their imaginations and by how they can align with different businesses.”

Restaurants could also draw some inspiration from the airline and hotel industries, Hudson continues. “Another area we’ll see develop in 2014 and in coming years is ‘yield management’ – making frequent adjustments in pricing in response to market factors such as demand, competition, or inventory. Technology now potentially gives operators the ability to change menu prices depending on the time of day, day of the week, inventory levels, etc. For example, QSRs used to have printed menu boards – now digital screens allow them to change prices quickly. Four out of five consumers say that if a restaurant offered off-peak pricing, it would incent them to use foodservice solutions more; with the adoption of tablet menus in tableservice, it’s not hard to imagine a scenario that would allow operators to selectively price items. And many already tweet special offers or menu items for a specific day and time. Overall, it’s a new frontier for the restaurant industry, but if you look at airlines and hotels, for example, consumers think nothing about sitting next to someone on a plane or being in a hotel with those who have paid a different price. It doesn’t mean that every operator will go down this road, but for some it will make sense to test and implement pricing variations.” Overall Hudson says that while technology isn’t a panacea, it’s a valuable tool in operators’ tool belts. “Certainly the timing of the evolution of technologies that enable these kind of programs is fortuitous for the restaurant industry in 2014 and beyond.”

Michael Whiteman, President, Baum + Whiteman, sees a growing appetite for luxury in RESTAURANT CONCEPTS and MENUS. In spite of a sluggish overall economy, but buoyed by Wall Street, Michael notes, “A lot of people are throwing around wads of money.” As a result, he observes a shift in influence. “In my opinion, a couple of years ago most of the movement in the restaurant world was ‘trickle up,’ in part from renegades – pushing combinations, clashing ethnicities, making disparate flavors work together. These were the people running food trucks, opening hip joints, and their influence was pushing into the upper reaches of fine dining.” Now, he concludes, “There’s enough money sloshing around that luxury – in the form of things like costly tasting menus, chicken priced like steak, upscale food halls, spare-no-expense tabletop, and technology-enabled custom environments – is thriving and trickling down in lots of different ways.” For example, Michael cites a proliferation of upscale tasting-only menus but says that we’ll see their influence in less elite settings with more tasting menu options added to a la carte menus. Another example is the elite tier of restaurants creating opportunities for the second tier. “The more the top restaurants charge these days, the more people want to be there. But when they can’t get in, the second tier restaurants gain in popularity.” And he says that price de-sensitivity by some also now means it’s possible for many to charge a lot of money for once humble chicken. “You can pay $70 for chicken in a fancy restaurant or $70 for chicken in a warehouse,” albeit an exclusive warehouse. And why has chicken gone haute? “Because chicken is something that can be glorified. Plus a lot of restaurateurs have convinced people they have found ‘the way’ to prepare chicken, but it’s a lot of mythology – the difference between a chicken with a small c and and big C is marginal.”

In a move to appeal to consumers who are willing to spend, enter upscale “food halls,” as a replacement for or in addition to food courts, especially in shopping centers eager to attract new consumers, keep existing ones, and encourage them to linger. According to Michael, the best will combine on-premise manufacturing, dining, takeaway, and retail, and will feature “artisan” food by local name-brand restaurants. “Three, four, five upscale restaurants plus some at the lower end becomes a real restaurant destination. There are a lot of people who will go to a food hall who wouldn’t go to a food court, and it’s something you can’t experience online. So if a landlord has to recycle the space that was once Borders Books, he or she will fill it full of food. It’s all part of a larger trend of restaurants, with high sales per square foot and repeat customers, becoming ‘anchors’ – not just in shopping malls and department stores, but in hotels, airports, and museums.” Michael sees another trickle-down path – from restaurants in Saks, Macy’s, or Nordstrom to the likes of cafes/bars/juiceries/yogurt counters in bike shops.

Luxury is also extending into the neurosensory arena. “Food is not enough at the high end. Restaurants are enhancing the dining experience by fiddling with our senses, redefining ‘eatertainment’.” Michael uses terms like “psychotasting” and “sensory integration,” referring to a growing trend of restaurants playing to senses we don’t normally use when eating. It could be meals in the dark or in silence; a multi-act, multi-course banquet/opera; music and visuals cued to courses; tactile tableware; diffusers controlling temperature, humidity, and aromas. “The places doing this experience game are generally small, accommodating 10-15-20 diners willing to dump a lot of money. It’s the equivalent of whitewater rafting with your own guide, or climbing Mt. Everest with your own Sherpa – part bragging rights and part the experience itself.”

Speaking of money, Michael says the smart money is placing bets on better-for-you dining. “It’s a niche market that’s rolling into the mainstream, from salad restaurants (many of which have evolved from being hippie joints) to high-priced vegetable tasting menus as part of upscale menus – with fast feeders sure to follow if they can figure out how to make healthy fit their formats.” More than one factor propels this momentum, he adds: “the gluten-rejecters, Paleo people, diabetics, weight-challenged, vegetarians, vegans, and two decades of nudging by nutritionists, ‘food nazis,’ and perhaps the First Lady.” He predicts we’ll see more “plant-based ‘faux food’ with waiter service” and more restaurants appealing to some consumers’ newfound protein obsessions. “Winners will be those restaurants that can appeal to people who don’t want to eat processed food and who want evidence they are eating food that’s good for them.”