Restaurants Adapt to Changing Consumer Trends (Supplier Version)
While few are expecting a Roaring Twenty-Twenties return to restaurants and bars — with the modern equivalent of flappers and bathtub gin — a...
<p style="font-size: 40px;color: white; font-weight: bold; "><nobr>Restaurants</nobr> Adapt to Changing Consumer Trends</p>
<p style="font-size: 22px; font-weight: bold">Diners have changed. Restaurants are changing with them.</p>
<p style="font-size: 42px;color: black; font-weight: bold; ">New <nobr>Expectations</nobr> for Dining Out</p>
<p style="font-size: 20px; color: black; font-weight: bold ">Diners seek convenience and control. Restaurants prepare for pent-up demand.</p>
After a year of dealing with on-and-off restrictions and up-and-down sales, restaurant operators have sliced and diced their balance sheets to make them profitable. Consumers are expressing a giant bubble of pent-up demand that bodes well for the topline when COVID-19 pandemic vaccines roll out in large numbers.
“The consumer is telling us more and more they want to get back inside the restaurant,” said Gene Lee, CEO of Orlando, Fla.-based Darden Restaurants Inc., which has 1,850 casual-dining brands that include Olive Garden, LongHorn Steakhouse, Cheddar’s Scratch Kitchen and others. “They are tired of eating restaurant food in their homes,” Lee said at a January conference. “They want to get back out and socialize with their friends.”
"The consumer is telling us more and more they want to get back inside the restaurant."
Gene Lee, CEO of Darden Restaurants Inc.
A National Restaurant Association’s recent survey of 1,000 U.S. adults found that pent-up demand was intense, with about 67% of consumers saying they were not eating on-premise as often as they would like.
“Baby Boomers really want to return to restaurants,” the survey found, “beating out Gen Z adults and Millennials when they say they aren’t eating on-premise at restaurants as often as they’d like.” Women, at 74%, were more likely than men, at 60%, in saying they wanted to dine in restaurants more often.
Lisa Miller of Dallas-based Lisa W. Miller & Associates, who has been working on a “Journey Back to Joy” research study since the pandemic was declared in March 2020, said consumers are emotionally connected to restaurants.
Restaurants still need to be focusing on the experiential aspects of why consumers love to come to the brand in the first place. I call it: ‘Leading with joy and then reassuring with safety,’” said Miller.
"Restaurants still need to be focusing on the experiential aspects of why consumers love to come to the brand in the first place. I call it: ‘Leading with joy and then reassuring with safety’.”
Lisa Miller of Dallas-based Lisa W. Miller & Associates
Restaurant operators will also need to retain ways to make dining out a joyful occasion, such as not paring menus too far down to remove items that consumers expect will make them happy, Miller said.
Shaking off stagnation
Mintel, the market analyst agency, expects the restaurant business to battle with stagnation for the remainder of this year. Mintel suggested that operators this year, at least, will need to make their meals so convenient that customers can’t resist them.
In a recent consumer research study, Mintel found more Americans said they were always on the lookout for things that make their lives easier (76%) than those who stuck to a budget (69%).
“Operators of all types, from fast casuals to fine-dining concepts, should consider making their meals hyper-accessible by adding drive-thru lanes and digitally enhanced curbside pickup options,” Mintel recommended.
The changed consumer
The pandemic’s impact on U.S. foodservice sales was deep and significant in 2020. The National Restaurant Association estimated the total food and beverage sales fell 23.8% between 2018, when it was $864.3 billion, to 2020, when it dropped to $659 billion. The association predicts that will rise 11% in 2021, to $731.5 billion, but still far below the 2019 peak.
Wyman Roberts, CEO and president of Dallas-based Brinker International Inc., parent to the Chili’s Grill & Bar and Maggiano’s Little Italy brands and the It’s Just Wings virtual brand, said in late January that restaurant consumers were “fundamentally changed” by the pandemic.
COVID-19 and its restrictions “fundamentally changed us as consumers,” he said. “We were forced to use technology to enjoy our favorite restaurants in new ways like third-party delivery, curbside takeout, QR code menus and mobile payment.”
That will change consumers forever, Roberts said. “Now that we’ve experienced greater convenience and control over our experience, we’re not likely to give it all back,” he said.
"Now that we’ve experienced greater convenience and control over our experience, we’re not likely to give it all back.”
Wyman Roberts, CEO and president of Brinker International Inc.
James O’Reilly, CEO of the 61-unit Miami-based Smokey Bones, said, “Dining in restaurants is one of the most missed and eagerly anticipated activities among all things that consumers have had to sacrifice during the pandemic.”
While Smokey Bones has a virtual brand with The Wing Experience, O’Reilly said his company anticipates far-ranging changes in the consumer experience.
“In a post-vaccine world, we expect to see: No. 1, a permanent shift to higher levels of off-premise requiring investments in packaging, technology and asset evolution to maximize this experience,” he said. “And No. 2, better dine-in experiences, which for many guests will become more of a special occasion than they were pre-COVID.”
The changing model
Independent operators anticipate further changes in consumer behavior as the pandemic eases.
Robert Hall, CEO of Dallas-based Refined Hospitality Concepts, said his company has opened three locations of Primo’s MX, a casual-dining Mexican concept, during the past year, with two additional locations announced in North Texas. The company also launched Sfereco, a meatball and pizza concept, during the pandemic, and it has two additional locations with more in the works.
"Adaptability and awareness will lead smart operators to a very successful decade.”
Robert Hall, CEO of Refined Hospitality Concepts
“We’ve been able to revise our business model to adapt to the lower capacity limitations currently facing our industry,” Hall said. “By creating a lower cost structure with lower inventory requirements, we’ve been able to more aggressively grow. While reduced capacity in restaurants has slowed the trajectory for restaurant growth, using those limitations in the business plans for new outlets allows for planned, slower growth. With new locations, we’re not trying to find shifts for a full restaurant, because we’re only hiring new staff to accommodate the numbers currently allowed by law.”
Because of pandemic restrictions, Refined Hospitality has changed its openings to phased-in schedules.
“Like many restaurant operators, we’re using the opportunity to offer ghost kitchen options to more fully utilize our spaces. However, that strategy requires a very tactical look at area maps,” Hall said. “We’re literally working on growth models in North Texas built around creating concentric service circles so that we can maximize the number of households available to serve.”
Hall said he expects to see several trends for the remainder of this decade.
“Smaller footprint stores will be the trend,” he said. “Virtual concepts and ghost kitchens will continue to support revenue models. The traditional large chain model will evolve and change.”
For the rest of the ‘20s, Hall said he’s seeing an evolution toward healthier and more environmentally friendly expectations from diners.
“The use of vegetable proteins is becoming more mainstream and in demand,” he said. “Becoming decadent and playful with these products while maintaining a focus on a healthier lifestyle and environmentally conscious evolution will be critical for long-term success.”
Hall said he expects steakhouses to offer items like cauliflower steaks and eggplant steaks prominently, “not just buried in the menu.”
“We’re excited to be a part of the changing dining landscape,” he said, “and believe that adaptability and awareness will lead smart operators to a very successful decade.”
<p style="font-size: 42px;color: white; font-weight: bold; ">Delivery Dominance in a Post-COVID World</p>
<p style="font-size: 20px; color: white; font-weight: bold; ">Customers relied on food delivery during the pandemic. Those habits are not likely to change much.</p>
Before March 2020, certain demographics — Millennials and Gen Z — were more likely to swipe and scroll through their third-party delivery apps on their phone, while other demographics were more likely to prefer dining in person or picking up the phone to place a takeout order every once in a while. But the arrival of the COVID-19 pandemic became the great off-premise equalizer.
Now, 53% of adults say purchasing takeout or delivery food is “essential to the way they live,” and 68% of customers say they are more likely to purchase takeout or delivery food than they were before the pandemic, according to data from the National Restaurant Association’s State of the Industry report released in January.
And restaurants are responding to that demand: 46% of family-dining and fine-dining restaurants said they added delivery options between March and December, along with 44% of casual-dining and fast-casual restaurants.
“Consumers are more receptive to how they pay for restaurant meals now, in terms of technology.”
Hudson Riehle, senior vice president of the National Restaurant Association
“Consumers are more receptive to how they pay for restaurant meals now, in terms of technology,” said Hudson Riehle, the association’s senior vice president, research and knowledge group. “For operators, the ability to execute off-premise definitely has the tenacity to continue forward.”
But not all off-premise options are created equal. According to Datassential, drive-thru and takeout or curbside pickup has been the top off-premise restaurant experience for consumers during the pandemic, with 62% of surveyed consumers using the drive-thru for meals eaten at home, and 46% using takeout.
Despite the jump in popularity during the pandemic, delivery comes in third: with 41% of customers ordering delivery directly from the restaurant and 34% using a third-party app for delivery.
Though Datassential’s research showed drive-thru and takeout as the more popular options among consumers, don’t discount the growth of delivery app literacy, Datassential’s group manager Mark Brandau said.
“The growth in delivery has been pretty consistent: it’s one of those things that once people try it, they tend to stick with it,” Brandau said. “There might have been some ebbs and flows over the summer with outdoor dining, but delivery is a steady option because we always end up back home. If I need to feed my family I don’t want to have to go back out.”
"The growth in delivery has been pretty consistent: It’s one of those things that once people try it, they tend to stick with it."
Mark Brandau, group manager at Datassential
During the pandemic, traditional sit-down dining categories like casual- and family-dining saw their off-premise sales grow significantly, with 69% of family-dining and 70% of casual-dining restaurants reporting off-premise as a larger portion of their sales during the pandemic, according to the National Restaurant Association report.
Cracker Barrel Old Country Store saw their off-premise business start to accelerate before March 2020 and the pandemic just sped that process up. By the October-ended first quarter of fiscal 2021, their off-premise sales were up by more than 100% from the year prior, though they said customers seemed to favor pickup and curbside orders over delivery. Still, the family-dining chain does not discount the growing popularity of delivery during the pandemic.
Community and connections
But is the demand for off-premise options (and smaller push for delivery) a temporary trend that will snap back as soon as customers are able to safely return to restaurants?
The National Restaurant Association has reported on the phenomenon of pent-up demand for on-premise dining. According to their State of the Industry report, 84% of customers said in April that they’re not eating in restaurants as often as they’d like. And although that number diminished over time, the pent-up demand for on-premises dining reached 67% by December.
"When people go to restaurants, they tend to be more satisfied with their experience"
Victor Fernandez, vice president of Black Box Intelligence
The question remains whether consumers will continue to demand digital convenience or whether they will be putting more value on the experience of eating out. Datassential’s Brandau said the answer is likely both:
“Home and work have been our only places for so long, that we just want a third place back,” Brandau said. “I think the demand for dining out will come back, and in terms of using these convenient options, it will depend on what the customer needs occasion by occasion. Soon, your average restaurant will be better prepared to handle those different consumer need states than they were before and during the pandemic.”
Keeping the customer satisfied
The other major consideration when customers balance cravings for delivery versus in-store dining will be quality of experience.
According to September 2020 data from Datassential, customers reported a mixed experience with food delivery, with 73% saying delivery is too expensive once you factor in fees and tips, and only 59% said they would continue using delivery apps in the future after the pandemic ends.
Research from data and insights company Black Box Intelligence came to similar conclusions: As of December, consumer sentiment of food obtained from limited-service brands through delivery were 23% more negative than positive.
“When people go to restaurants, they tend to be more satisfied with their experience,” said Victor Fernandez, vice president of Black Box Intelligence. “The compounded problems with takeout are if the order is not right, takes too long, etc. and you don’t know who the responsible party is [the restaurant or delivery service]. So that means we have a higher adoption rate but with lower guest sentiment.”
<p style="font-size: 42px;color: white; font-weight: bold; ">Restaurant Design Revisited</p>
<p style="font-size: 20px; color: white; font-weight: bold ">Drive-thrus, walk-up windows and less seating. How the off-premise boom is changing <nobr>restaurant design.</nobr></p>
Chains and independents alike are incorporating pickup windows and adding drive-thru lanes, including lanes dedicated to orders placed on mobile apps. Chain operators are also designing stores that can be tailored to meet the demands of consumers at individual locations, including some that have no indoor seating at all.
New restaurant designs
Several of the largest quick-service and fast-casual companies have unveiled new prototypes in recent months that encourage digital ordering and customer pickup, and the trend has even extended into the casual-dining space. Applebee’s Neighborhood Grill + Bar recently unveiled plans for its first drive-thru lane, which is being added to a franchised restaurant in Texarkana, Texas.
“Off-premise demand has been increasing for over a decade, with significant acceleration in the past nine months, and we anticipate continued growth in the channel,” Scott Gladstone, vice president of strategy and development at Applebee’s, told Nation’s Restaurant News.
"Off-premise demand has been increasing for over a decade, with significant acceleration in the past nine months, and we anticipate continued growth in the channel."
Scott Gladstone, vice president of strategy and development at Applebee’s
He said the local Applebee’s operator, Apple Arkansas, had identified the market as having strong potential for off-premise dining, given the trends it had been seeing in its operating area. Likewise, other operators are preparing to respond with different store designs based on the consumer needs in each market and the variables of each individual location.
Louisville, Ky.-based KFC, for example, in November unveiled two next-generation prototype stores that could each serve different types of locations. One format would have no dining room, while the other would have a small dining room and an outdoor seating area, along with more options for contactless pickup of digital orders.
DRIVE-THRU DEBUT Applebee's Neighborhood Grill + Bar recently unveiled plans for its first drive-thru lane, which is being added to a franchised restaurant in Texarkana, Texas.
Nashville, Tenn.-based Captain D’s, meanwhile, is developing an Express design, offering no seating, with plans to open in the Atlanta area by mid-year. The design has a drive-thru window on one side for orders and payment, and a window on the opposite side for customer pickup. There are walk-up windows as well.
Other restaurant chains introducing new designs include Schlotzsky’s, which is also planning two new prototypes — Design 1800 and Design 1000, named for their respective square footages — both of which will debut later this year. Design 1000, which will not have a dining room, will have a dedicated two-sided drive-thru lane or a walk-up window for to-go order pickup on the other side of the building. The second lane in the drive-thru on the passenger side can also be used for curbside pickup.
Others planning takeout-centric prototypes include Chipotle, Burger King, Taco Bell, Sweetgreen, Burger Fi, El Pollo Loco and La Madeleine, with more announced almost every week. Checkers & Rally’s, long a leader in the drive-thru segment, also recently said it was testing stores with dedicated drive-thru lanes to handle digital orders. And Pokéworks is getting ready to test a prototype store with a “Cruise-Thru” lane that will only fulfill orders placed ahead through the mobile app or for delivery. It is also building dedicated pickup counters into all new stores, said Peter Yang, chief development officer and co-founder of the fast-casual chain.
"In some weird way, COVID gave us this [remodeling] opportunity."
Karen LuKanic, owner of Zorba's
Independents pivot to survive
Independent restaurants around the country have also been adding takeout windows that have proven to be a lifeline for some operators.
In Denver, Zorba’s, a diner that closed temporarily at the start of the pandemic last year, executed a remodel that includes a takeout window facing the outdoor patio seating area. The restaurant had already been considering adding a window to create a ghost kitchen supporting dinner delivery — it currently offers dine-in service only for breakfast and lunch — and it accelerated the plan after the pandemic hit.
DRIVING DIGITAL SALES Checkers & Rally's, long known as leaders in the drive-thru segment, are now testing dedicated lanes for digital order pickup.
“In some weird way, COVID gave us this opportunity,” said Karen LuKanic, owner of the restaurant, which is located in a pedestrian friendly neighborhood that attracts traffic to the window from the street.
The restaurant had been generating about 10% of its sales for off-premise consumption before the pandemic, but that share has since increased to 50%.
“It was our savior,” LuKanic said of the window, adding that she was fully committed keeping it in operation after the pandemic. “This has permanently changed our business model.”
Zorba’s has had success driving foot traffic to the window by displaying paper menus in a box in front of the restaurant, she said. The point-of-sale register is also just inside the window, making walk-up orders easy to manage. The location of the window just a few steps off the street also facilitates third-party delivery orders, LuKanic said.
In Detroit, acclaimed sandwich shop Mudgie’s also added a window for takeout, while converting its bar into a staging area for off-premises dining. The restaurant has been closed for indoor dining since the start of the pandemic, said owner Greg Mudge, out of concern for the safety of his employees and customers, but the window has generated a strong off-premise business.
“It is the heart of the restaurant now,” he said. “Until we are able to reopen and operate in a safe manner, the window will stay.”
In Los Angeles, All Day Baby, an eclectic, Southern-influenced casual bakery-cafe that opened just a few months before the pandemic hit, has been doing a brisk business through its so-called Biscuit Window.
The restaurant encourages ordering ahead, but also accepts walk-up orders and fulfills third-party delivery. The window was originally used to offer specials on baked goods on different days — Donut Window day, Cinnamon Bun day, for example — but has since become an all-purpose takeout destination in the heart of the trendy Silver Lake neighborhood.
A NEW LOOK Sweetgreen said in December that it would add its first drive-thru at a restaurant in Colorado.
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