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


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.