Rise in Labor Costs Force Restaurants to Shift Toward More Pre-processed Ingredients

March 31, 2019

Forbes Article – 3/31/19

Fast casual salad chain restaurant Chop’t recently decided to stop chopping their salads and instead use pre-chopped ingredients. Many customers have become accustom to Chop’t and its namesake tradition of chopping the salad in plain view of the customer. The process creates a bit of restaurant theater and shows the customer that the ingredients are freshly prepared and customized to their liking. The new process will speed up service and reduces labor cost by taking the manual process out of the order. Customers who still wish to have their salad chopped will need to ask for the preparation.

Minimum wage increases are putting greater pressure on restaurants as they find difficulty passing on the costs through menu price increases. Consumers remain sensitive to prices for food away from home seeking value through deals and affordable combos. Many restaurants reduce their staffing in order to save some cost, but this results in lower levels of customer service and ultimately, customer satisfaction. Full-service restaurants reduce their front and back of house staff to levels where customers wait for a table is based on limited server and cook availability and not open, clean tables. In limited service fast food and fast casual, reducing staff means longer lines and many customers “look and leave”. This is where a consumer feels that the line is too long and decide to dine elsewhere. Increasing speed build greater throughput and moves more customers through peak lunch occasions.

Does the change to pre-chopped ingredients really change the taste and flavor of the salad? It’s not likely this change will affect the end-product. Most restaurants today purchase pre-processed ingredients to increase speed and reduce costs in the kitchen. While very few restaurants practice scratch or homemade meal preparation, the term scratch has evolved toward what is commonly known as “speed-scratch”. Speed-scratch is when a chef or cook prepares a restaurant meal using homemade recipes and ingredients but allows the use of some pre-processed ingredients. These ingredients can include marinated ingredients that require time and can be portioned, packaged and marinated by a supplier. Often vegetables are purchased in bulk already chopped or cut to specifications. In addition, sliced meat and cheese is often brought in through the back door while few restaurants today slice their own.

As I See It, many consumers will be put off by the recent change at Chop’t. Consumers who value the control and larger ingredient sizes will likely show their frustration by avoiding the restaurant for a short time. Consumer behavior is very repetitive, and consumers tend to be very forgiving, especially toward a restaurant that they know and trust. Longer term, loyal customers will return and accept the change and likely just ask for their salad to be chopped by staff. In the end, these changes will make for a faster service time and customers will appreciate getting in and out more quickly while less customers “look and leave”.

 


Papa John’s Extends Delivery Reach by Partnering with 3rd Party Delivery Service DoorDash

March 15, 2019

Forbes Blog

Papa John’s, the fourth largest US pizza chain restaurant, behind Domino’s, Pizza Hut and Little Caesar’s has partnered with 3rd party delivery service DoorDash. The partnership is expected to extend the reach of existing in-store direct delivery by leveraging a deeper reach into suburban and rural locations using the “dasher” network.  Consumers who were currently outside of delivery zones will now have greater opportunity to get the pizza delivered to their home, business or off-premise location.

With over 3,300 locations in the US, Papa John’s has continued to focus on quality ingredients, taste and flavor of their product. Sales at the pizza giant have been slipping and the brand is looking to rebound. Menu innovation has created some new appeal for customers and extending the delivery zones can provide greater ability for Papa John’s to steal share from other leading chain and independent pizza restaurants. Restaurant delivery in 2018 was estimated to be $45 billion, according to FoodserviceResults. Direct in-store delivery represented $32 billion while the remaining $13 billion was through 3rd party delivery providers.

FoodserviceResults/MonkeyMedia Off-Premise Insights Report

While many Americans have used 3rd party delivery services, a large portion of consumers have not used a 3rd party aggregator or delivery service. According to the Off-premise Insights Report, 41% of consumers surveyed indicated they haven’t used these new digital services. Although many consumers live in remote locations, can’t afford the service or lack the sophistication or desire to use digital ordering, the trend is positive in the use of delivery services beyond traditional direct delivery from the store. Among those surveyed, Grubhub, Uber Eats and DoorDash are among the most used 3rd party marketplaces.

FoodserviceResults/MonkeyMedia Off-Premise Insights Report

For many restaurants, 3rd party delivery takes control away from the restaurant operator. Once the food order is handed off to the delivery person, they have to put faith in the driver to get the order delivered quickly. Food has to arrive with the proper temperatures maintained so heating and cooling bags are often necessary. But most importantly, the driver should represent the brand which means good, friendly customer interaction, appropriate appearance and respect for the neighborhood safety while driving. When issues arise through 3rd party delivery, the restaurant operator typically gets the blame.

FoodserviceResults/MonkeyMedia Off-Premise Insights Report

As I see it, the convenience of 3rd party delivery providers will continue to see high growth at the expense of traditional take-out and dine-in restaurant occasions. Consumer continue to value their time and prefer the quality of restaurant meals compared to cooking at home. American culture has changed with the continued improvement and affordability of new technology. Binge watching Netflix or Hulu using enormous high-definition televisions and the ease of mobile device ordering has become a common behavior for many consumers, especially Millennials and GenZ age groups. Delivery is expected to continue to grow at double digit rates while in-store dining occasions will remain flat over the next 5 years. Expect to see more restaurant brands leveraging 3rd party delivery partners and more Americans jumping on board to dash their way to better income.


Consumer Options for Same-Day Adult Beverage Delivery Grows as Instacart Expands Coverage

March 14, 2019

Forbes Post

Demand for delivery convenience is being met with increased supply as alcohol delivery through Instacart now reaches 40 million households. As many consumers purchase beer, wine and spirits, the availability of delivery will encourage consumers to increase spending and attract new users to the online shopping model. The delivery model will create competitive pressure on traditional brick and mortar independent convenience and liquor stores, likely causing some of these stores to close over time or adopt a similar order and delivery system.

What are the factors that will drive usage for alcohol delivery? Most US consumers continue to manage daily time pressures, sacrificing leisure time with errands and household activities. Delivery reduces the pressure and often improves consumer lifestyle as many don’t like to shop. Adult beverages including beer, wine and spirits can be cumbersome and heavy. In addition, the opportunity to break glass containers and ruin the contents can create unnecessary risk. Direct-to-door delivery gives customers back valuable time which can be spent relaxing and enjoying other leisure activities.

Purchasing adult beverages through Instacart also provides some other benefits. Searching and finding specific brands and comparison price shopping can be very easy through an online app compared with wandering the isles of a store and trying to make sense of which products are good alternatives and present strong value. Adding mixers and snacks to an order can benefit specific social occasion preparation and can be planned well in advance of events. The 30-45 minutes a person gains from the convenience can often justify the delivery costs.

For consumers who don’t own a car or truck, delivery can be a huge factor in deciding to try and use delivery. Hand carrying bags and using traditional two wheel pull behind carts can become a thing of the past. Handicapped and persons with disabilities can get their items with greater ease and avoid inconveniencing friends and family who are asked to pick up items for them.

As I See It, the availability and expansion of digital ordering and delivery systems continues to become the norm for younger consumers. Growing up using these conveniences will build frequency and loyalty to this behavior. As many Boomer and GenX consumers consider the cost to be a barrier, the use by younger consumers will create social pressure to get on board with the new trend and give services like Instacart a try. Expect more availability, competitive apps and delivery slowly cannibalizing trips to the supermarket as consumers learn to plan their purchases and become more routine and less impulsive.


Rewards Programs Can Boost Restaurant Sales as Chipotle and Venmo Team Up

March 12, 2019

https://www.forbes.com/preview/sites/darrentristano/gifd45ijd/

Chipotle Mexican Grill continues to invest in digital sales and a national points-based loyalty program designed to encourage greater frequency and connection between the brand and their customers. Recently teaming up with Venmo, the digital wallet company and depositing surprise dollar amounts ranging from $1-$500 in fan accounts through March 15. Chipotle hopes to create engagement with consumers to strengthen the connection and build new connections with lapsed or non-customers. It’s expected that 25,000 fans per day will receive the rewards.

What’s in it for the consumer? Rewards translate into free stuff. According to FoodserviceResults recent Off-premise Insights Report, only 50 percent of consumers participate in restaurant loyalty programs. Building loyalty program participation allows restaurant brands to digitally market to their customer base, reminding them to consider their restaurant. Marketing is often focused at specific times during the day when consumers are hungry and are looking for a place to eat. In fact, the Off-premise Insights Report’s consumer survey identified 68 percent of consumers decision to dine-out are based on impulse and not planned. Consumer dining behavior can be very spontaneous and often is based on top of mind thought. These decisions are impacted by social media images, billboards, radio and television advertising. The ability to market directly to a consumer’s mobile device or computer can be a very powerful tool.

Source: FoodserviceResults Off-premise Insights Report

What do consumers look for in loyalty rewards? Some reward programs offer features and benefits like access to secret menu items, exclusive marketing promotions, skip the line benefits and access to new products. Although younger consumers appreciate these perks, only 5 to 11 percent of consumers indicated that these benefits drive loyalty participation according to the report. Preferred perks included free food, discounts and coupons driving participation with 82 to 89 percent of consumers surveyed (based on a survey of 1,500 consumers). Freebies continue to be the relevant driver for consumer loyalty.

Source: FoodserviceResults Off-premise Insights Report

Restaurant brands like Chipotle have much to gain by rewarding their customers with incentives. First, this engagement forces customers to sign up with the brand, providing information and access to the consumer. The data can be mined for consumer intelligence in how, when and where consumers use the restaurants. Access can build marketing touch points which drive impulse decisions and keep the brand top of mind and relevant to customers. Second, rewards build traffic and frequency to Chipotle restaurants. As creatures of habit, US Consumers often get accustom to certain behavior which can be repeated. These occasions can include work lunch, social meetings with friends, dinner with family or significant others. This investment builds sales, often with volumes above the reward amount resulting in sales growth. Lastly, brand direct perk programs encourage consumers to purchase directly from the brand through their mobile app. Costly third-party delivery programs don’t always provide the perks, driving more consumers to order directly from the restaurant. Direct purchase can be more profitable for restaurants as they don’t have the typical 30 percent surcharge.

As I see it, restaurants will continue to invest in digital strategy and perks programs that are simple and easy to use. Relationships with younger consumers who actively use Venmo and other applications or mobile wallets can allow smooth access to rewards. Today, 50 percent of consumers use restaurant loyalty programs and engagement and participation continues to increase. Investments in programs will continue to benefit customer usage as rewards continue to move from nice to have to must have for many consumers.


Expected Labor Cost Increases Continue to Drive Grocery Stores Toward Automation

January 18, 2019

Forbes Contributor Article

Western Beef Supermarket recently accelerated their plans to continue integrating Toshiba Self Checkout Systems at 5 of their locations in New York. These systems are designed to improve the customer experience by reducing wait times. As a benefit to Western Beef, the shift to automated check outs will reduce staff and help the supermarket keep costs down despite rising minimum wage hikes. Many of the store’s personnel will be reassigned to support customers and improve customer service satisfaction.

While nearly half of the supermarket’s customers have used the automated checkout, the system can be appealing to consumers who prefer to avoid the human interaction and go at their own pace. Younger consumers who are tech savvy and prefer to manage a process on their own will prefer the option which allows them to have greater control over the experience.

While the advantages for the store are reduced labor cost, there are some challenges facing this transition. First, the opportunity for point-of-sale impulse purchases is reduced. Sales of items like candy bars, magazines and beverages which are strategically positioned near the cash register will suffer as space around automated checkouts are limited. Frustration with scan and price errors, item lookups and staff overrides can also be a negative experience without someone on hand to solve the problem. Lastly, loss prevention will need to be better managed as some consumers may inadvertently miss scanning an item or deliberately place more expensive items into their bag without scanning the UPC.

As I See It, the consumer experience has shifted dramatically toward screen-based ordering. Amazon has made online ordering and delivery a breeze. UberEats, Door Dash and Grubhub have made online restaurant ordering simple and convenient. Netflix and Hulu have created a stay-at-home experience more enjoyable with a vast variety of on-demand entertainment. With more younger consumers opting to leverage mobile devices to order everyday items, the routine will push them to experiment and likely enjoy the automated checkout systems. I would expect to see continued adoption of technology and automation in the food and foodservice industry as it catches up to other sectors of business in becoming less labor intensive.

 


Walmart, Latest US Company to Look for Robotic Automation to Reduce Labor Costs in Foodservice

December 13, 2018

Forbes Blog

Flippy, the burger-flipping robot that debuted at Caliburger is auditioning for a new position at Walmart Delis. Rising wages and low unemployment have forced restaurant and retailers to look for cost savings and efficiency in what has always been a labor intensive hospitality industry. Low availability of experienced culinary staff has created a new challenge with high-tech robotics building solutions.

Consumers today are very interested in high-tech solutions that remind us of sci-fi story lines. The wow-factor is very appealing to human interest and social media stories can spread like wildfire, fueling interest and patronage in foodservice. The integration of robotics in foodservice is still very early in the adoption cycle and can be cost prohibitive for most retailers but industry leaders are testing solutions for today and for the future.

Notwithstanding the cost of maintenance, robots show up for work every day without complaint. They don’t get sick and are less likely to make mistakes. Creating a process where ingredients, recipes, cooking methods and ultimately consistency create strong customer satisfaction is the goal. It’s important for consumers to have products that meet their expectations day-to-day and store-to-store.

With support in the kitchen, human staff can be more focused on managing customer service and attentiveness. Lines become shorter and wait times are reduced. Taking tedious tasks out of the operations reduces burn out and creates less turnover for companies.

As I see it, we are just at the beginning of a journey to develop, innovate and integrate robotic technology into the labor intensive hospitality and restaurant industry. Today’s consumer will get used to ordering food from an app just like we book airfare and hotel accommodations. This new tech will fuel the need for tech-savvy careers for programmers, analysts and technology maintenance with fewer jobs for entry level deli and restaurant operations. With more investment and focus, expect to see more robotics coming to a restaurant or deli near you.


The 3 Fastest Growing Private Full-Service Restaurants: What’s Their Secret?

April 19, 2018
BLACK BEAR DINER, BAR LOUIE, AND FIRST WATCH ARE THRIVING AMID A DIFFICULT INDUSTRY ENVIRONMENT. HERE’S HOW.
By Gary M. SternApril 2018Chain Restaurants  Link to article

In the Barclays Capital 2017 industry report on the fastest growing 200 private restaurant chains in the U.S., most of the top 20 consisted of quick-service eateries except for three: First Watch, Black Bear Diner, and Bar Louie. First Watch, which ranked fifth, generated $231 million in revenue in 2017, Black Bear Diner, rated 13th, had $201 million, and Bar Louie was 17th with $275 million.

But what are these three full-service restaurants doing to boost revenue? How are they appealing to customers? Breaking the mold? Developing a distinctive niche?

The quick-service eateries have thrived because they nab smaller spaces at cheaper rents and appeal to a greater number of customers based on “convenience and price,” says Darren Tristano, CEO at CHD Expert, a Chicago-based specialist in the foodservice and hospitality industries. Fewer customers are spending time dining at sit-down restaurants, preferring delivery and take-out.

Millennials would rather dine on the run, often racing home to eat their food while staring at their 55-inch TVs and watching Netflix, Tristano says. Hence, fast casuals have the upper hand because customers can get in and out of dining in 35 minutes rather than spend an hour at most full-service eateries.

First Watch, Black Bear Diner, and Bar Louie have differentiated themselves from their rivals, Tristano says. There isn’t as much distinction for some consumers among the most recognizable casual-dining icons. But First Watch’s superior breakfast, Black Bear Diner’s distinctive West Coast ambiance and menu, and Bar Louie’s unique cocktails establish competitive niches, distinguishing them.

And that competitive edge and defined menu and ambiance have given their clientele a reason to keep coming back for more.

“First Watch does breakfast well compared to Denny’s and IHOP and does a good job of servicing an older customer who appreciates its menu,” Tristano says.

Black Bear Diners, located mostly on the West Coast but in the process of a major expansion currently, possess a clear-cut design with timber and bears, and have been winning over clients with their pie shops, coffee shop menu, hospitality, and moderate prices. And signature cocktails and alcohol, with food as a secondary draw, are luring clients to Bar Louie.

“The target market for these three chains is the lower to middle-income group, often older consumers, baby boomers, and families,” Tristano says. He adds that Black Bear Diner has struck a chord reaching consumers with its kids’ meals. Bar Louie has been attracting its fair share of millennials.

“People don’t want to be told how much you can eat. We give them plenty. I don’t measure out the home fries we serve.” — Bruce Dean, Black Bear Diner CEO.

Black Bear Diner CEO and co-founder Bruce Dean is quite explicit about what has fueled its growth to 109 restaurants in nine states, with plans to add 25 more in 2018. “We have great homemade food and offer a great value proposition,” he says from the company’s Redding, California, headquarters. Dean says its large portions attract a steady clientele; many of whom leave with leftovers.

Menu items such as Bigfoot Chicken Fried Steak and Eggs with Corned Beef Hash leave customers satisfied. “People don’t want to be told how much you can eat. We give them plenty. I don’t measure out the home fries we serve,” Dean says.

But Black Bear Diner also offers smaller portions and egg white healthy breakfasts for those so inclined. “Not everybody wants to eat like me,” Dean says, referring to his 6-foot-4-inch and 250-pound physique.

Unlike other chains that specialize in breakfast and lunch and close early, Black Bear extends to dinner. “We serve a lot of comfort food, like meatloaf that mom used to make,” Dean says.

Dean has built a family culture among its employees. “We have some of the lowest turnover in the industry,” he says, alluding to the fact that training new employees is time-consuming and costly.

Its décor attracts a loyal clientele as well. “People enjoy our carved bears and black bear theme,” which fits for a restaurant chain located mostly out West. Dean, however, says that it’s expanding to Oklahoma City and Houston, and expects the brown bears will resonate there as well.

Dean says that full-service restaurants encounter strong competition from fast casual and fast-service competitors. “Time is of the essence for most folks. People don’t want to sit and wait,” he says. He and his staff often focus on how Black Bear can expedite the experience, except maybe on Sunday afternoons after church or football when families want to linger and chat.

Though it’s a chain, every menu at each Black Bear Diner is different. “We want to make it a neighborhood community restaurant, where we emphasize hospitality.  Each menu is tailored to the community,” Dean says.

Helping to finance Black Bear’s expansion is an investment in 2016 from PWP Growth Equity, a $600 million private equity fund managed by Perella Weinberg Partners, a middle-market fund.

FIRST WATCH
First Watch offers a strong value proposition to with its on-trend food options.

At the 249 First Watch restaurants located in 22 states, the secret is its consistency, says Chris Tomasso, its University Park, Florida-based president. It was named First Watch when it debuted in 1983, a nautical term, meaning first shift of the day or breakfast.

Tomasso says that the brand specializes in making everything fresh. “We don’t have deep fryers, heat lamps or microwaves. We make our granola in house, pancakes fresh and quinoa bowls fresh,” he says.

He says that First Watch has tapped the growth in breakfast and brunch, the two fastest growing segments in the restaurant industry.

Appealing to its target audience, First Watch also offers a strong value proposition. Its average entrée costs $8, making it appealing to a wide swath of diners. Its clientele consists of families with kids, business people who come for power lunches, millennials and senior citizens and “everything in between,” Tomasso says.

First Watch is open weekdays for breakfast and lunch and weekends for brunch and closes each daily at 2:30 p.m.  That early closing time enables its employees to have dinner with their families nightly, and how many full-service restaurant chains can make that claim, Tomasso asks?

Its clientele gravitates to ordering farm-stand breakfast tacos, lemon ricotta pancakes, French toast, or chickichangas, which are made with whipped eggs and natural chicken, and not deep-fried. It also has a thriving lunch trade, replete with sandwiches, soups, and salads.

First Watch is doing so well that it plans on opening about 50 locations in 2018, a nearly 20 percent growth rate. It received funding from a new partner Advent International, a private equity firm. “They help us with our long-term strategy,” Tomasso says.

BAR LOUIE
Bar Louie is all about atmosphere and ambiance, and yes, a whole lot of handcrafted cocktails.

At Bar Louie, which launched in Chicago in 1990, the secret is in the atmosphere and ambiance, says CEO Tom Fricke. He described it as a series of “neighborhood bars, offering a unique and fun place for local friends and neighbors to gather and enjoy handcrafted cocktails, local beers and wines, food from scratch, awesome music, and great service.” For example, guests can partake of 35 handcrafted cocktails including signature martinis, margaritas, and sangrias feature fresh fruit and hand-squeezed juices.

Food consists mostly of bar fare, including sliders, nachos, flatbreads, sandwiches, available until 2 a.m.

An affiliate of the private equity firm Sun Capital acquired it in 2010 and has zeroed in on growth. It has nearly tripled Bar Louie from 45 units into 132 units. Fricke says Sun Capital focused on “systems and technology, innovation and menu upgrades.”

Fricke lauds the bartenders and staff at Bar Louie as helping generate repeat business. “They take every guest that walks through the door as if they were walking through their own front door,” he says.

These three chains, Tristano says, have thrived due to establishing a strong niche and via “good leadership, strong financials and operational performance and [establishing a] well-capitalized business.”