Saturday, March 26, 2016

Are Chain Restaurants in a Self-Made Quagmire?

For many years, Foodservice Solutions® team shared the viewpoint that the consumer is changing faster than the food industry's ability adapt as regular reader of this blog know.  Wage inflation is here. More inflation is on the way over the next several years according to most economic experts.  The Federal Reserve Bank is intentionally keeping interest rates low to help drive growth, avoid deflation, and the ‘Fed’  is doing all it can to drive inflation. 

Reality check: There are very few executives in the food retail segment who understand the undercurrents of both the economy and continued restaurant customer migration. Consumers continue to struggle, re-adapt, and migrate from one food channel to another.  That migration continues to eat away the restaurant industries year over year customer count base, eat away at top line growth, and eat away bottom line profits for chain restaurants. 
Continued Discontinuity

In fact since 2009 restaurant executives blamed declining year over year customer counts on the economic turmoil, brand malaise, industry quagmire, and weather has been to blame.  If one were to listen to earnings conference calls conducted by many major restaurant chains. However others are evolving fast. 

Grocery store prepared food departments along with C-stores selling fresh food have been growing at double digits the past five years. C-stores and grocery stores have an advantage over restaurants they have built-in “basket size” advantage creating a platform for new product testing as well as a cushion absorb both product and wage inflation. 

Combine that with the seemingly unlimited Mix & Match product bundling advantage grocery stores and c-stores have you can understand why they are today and will be in better position in the future to keep prices low and yet meet employees demand for higher wages, better medical benefits and sick leave according to our Grocerant Guru®.  In fact grocery prices have dropped 7% last year while restaurant menu prices are up 2.7%.   Customers continue to have a heightened since of price awarnerss.

Simply put:  consumers are not eating any less today. They are in fact eating somewhere else. The restaurant industry overall has been stagnating since even before the recession, according to Harry Balzer of NPD Group. In 2000, the average American ate out 215 times. Last year, that number shrank to 192, according to NPD data.

Millennial Discovery

Today’s consumers are actively looking for answers to their problems, solutions for their issues, products that save time, while offering healthy choices, in new non-traditional fresh food outlets, and doing so via personalized applications that allow customization, differentiation, and individualization. 

Grocery stores and convenience stores have evolved their business model and garnered new customers selling fresh prepared restaurant quality Ready-2-Eat and Heat-N-Eat food while the restaurant business model has in large part stagnated.

Most chain restaurant leaders justify and rationalize why they are not adapting to the consumers shifting preferences quicker by blaming missteps on a slow global recovery or the weather. Isn’t the anomaly good weather in January and February?  January and February still arrive in WINTER, don’t they?  Restaurants need to re-evaluate relationships with employees while they look at their existing business model.

Millennials have helped drive a new era of “transparency”.  That transparency may become the platform to help drive change with C-level executives at restaurant chains.  In an era of increased transparency it might appear hypocritical when executives tout the value of its employees while lobbing simultaneously for a lower minimum wage and fewer benefits.  That business model just might prove costly when courting both employees and customers.  

Real Numbers Trump Earnings Call Spin

The time to take the undercurrents of food industry change seriously has arrived.  Continued justification for bad weather during the winter months is an excuse / joke that has been accepted just too long.  Consumers are not eating any less today.  They are in fact eating fresh prepared food from somewhere else and those outlets are hiring trained restaurant employees.  It’s time for the restaurant industry to evolve according to our Grocerant Guru®.
If your restaurant chain still selling the same food in the same way it did in 1980, 1990, or 2000 I bet you have had flat or declining total customer counts the past five years.   Has your brand lost customer relevance?  Do you need outside-eyes for inside profits?  What will drive more consumers in the door; robot cashiers or robot CEO’s?   It just maybe we have some of both today.

When a chain grocery store, convenience store or restaurant brand is not distinguishable, memorable, or connected emotionally with consumers today, that is when you know your brand is more yesterday than tomorrow.  Is your brand growing?  If not then in today’s reality check it is dying. 

Success does leave clues.   specializes in outsourced business development. We can help you identify, quantify and qualify additional food retail segment opportunities or product ideation or placement opportunity.  Foodservice Solutions of Tacoma WA is the global leader in the Grocerant niche since 1991 Contact:

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