Goodbye (and Goodnight) from the 2023 Restaurant Show

Thank you to everyone who attended
DMA’s 2nd Annual Party at the Post Office!

What a great way to kick off this year’s National Restaurant Show week! Thanks to the nearly 70 operator brands represented at the event…and, of course, DMA’s Member distributors who support those Superior Operator Partners every day.

If you’d like to see the photo gallery from the party, please follow DMA on LinkedIn for more details. We hope to see you on the rooftop next year!


Report: Gen Z Embracing Restaurants' New Tech, Experiential Offerings

Restaurants are picking up the pace regarding innovation for their offerings.

After an era of low-contact transactions due to coronavirus fears, an increasing number of consumers prefer the tech-based service restaurants are now offering. The National Restaurant Association's latest state of the industry report found that many restaurant owners are embracing changes to their services to incorporate more digital interactions.

Younger consumers clearly embrace such innovation.

Of Gen Z and Millennials, approximately 70% say they prefer today's mobile pick-up orders and food deliveries. Meanwhile, only 44% of Baby Boomers say they're more likely to order delivery from a restaurant today than they were prior to 2020, according to the National Restaurant Association.

Younger Demos Welcome Array of Restaurant Offerings

It's not just new technology young consumers are more open-minded about, results showed that they're also more interested in purchasing things like chef's table-experiences, restaurant meal-kits and retail products, and restaurant merchandise.

Ultimately these kinds of changes are here to stay with more restaurants embracing digital systems for taking orders and handling transactions. While companies invest in these newer systems, it's important to ensure the transition process happens smoothly for the sake of the employees and the customers.

"Some systems may require ‘training' of consumers, needing signage or perhaps an employee to explain how these systems work, but ultimately, the experience will remain largely the same," Maria Hossain, employment lawyer and restaurant industry expert, told The Food Institute.

Ideal Examples

Virginia-based franchise Ynot Italian Restaurants has introduced a digital ordering system with iPads placed at every table. Founder and president Tony DiSilvestro says that the iPads not only allow for real-time pricing adjustments to help with operational costs, but also for flexible font sizes on the menu which can be helpful to older customers.

The Ynot chain has also seen success adopting Apple Pay as an option.

"This technology has allowed us to market our brand and products in unique ways, such as showcasing videos of our suppliers and the production process of our food and wine," DiSilvestro said. Food Institute Focus

How QSRs Can Cope with Post-Pandemic Pressures

Restaurant owners are scrambling to improve their bottom lines amid pandemic hangover, inflation, and labor challenges, with half predicting 2023 will be less profitable than prior years. This is especially true of the quick service sector.

The National Restaurant Association calculated in August restaurants were operating on a roughly pre-tax profit margin of 5%, with food and labor costs accounting for a third of expenses; utilities, maintenance, and other costs ate up 29% more. Eighty-five percent of restaurant operators said their eaters were less profitable than in 2019.

But those numbers are likely to change significantly this year as inflation hammers ingredient and utility prices, people look for more lucrative employment, and consumers find they have fewer discretionary dollars to spend on restaurant prepared meals.

"It's no secret that the pandemic forced consumers to rethink how and when they ate out at a quick-service restaurant," Michael Jaszczyk, CEO of GK Americas, told The Food Institute. "[A] recent survey from the National Restaurant Association [indicated] 50% of restaurant operators believe their business will be less profitable in 2023 than in years prior. This statistic is alarming, and it emphasizes the importance of innovation within QSRs to bolster steady relationships with consumers."

The NRA survey found 93% of QSR operations called food costs a significant challenge. Almost 90% said they already have increased menu prices and 59% said they had changed their offerings. When it comes to labor costs, 87% said it's a problem, and 48% noted it had forced them to reduce their hours of operation. Almost 40% said they had shelved expansion plans.

"A majority of both full-service operators (63%) and limited-service operators (61%) say their restaurant does not have enough employees to meet customer demand," NRA said.

QSRs are increasingly turning to innovations like dynamic pricing and greater use of technology.

"QSRs can rely on customer data to determine pain points in the customer experience and find new ways to improve ordering, fulfillment and checkout," Jaszczyk said. "This can enhance the value the consumer sees in visiting the restaurant, which can improve long-term relationships, regardless of economic conditions."

He said dynamic pricing can be used in restaurants in the same way it is used in grocery stores.

"This [artificial intelligence]-based strategy can be used to offset inflation and rising costs of key ingredients like eggs, which are now 70% more expensive than this time last year. With dynamic pricing, foods with shorter shelf lives nearing their expiry date can automatically become cheaper, strengthening profits, and helping consumers get more for their money," he said. Food Institute Focus

Summer Preview '23: Inflation Alters Vacation Plans

Inflation is lingering like an in-law overstaying their welcome. As a result, consumers are demanding deals as they make vacation plans for summer 2023.

Judging by recent research, consumers plan to hit the road in droves this summer and cookouts could be less frequent and elaborate as in the past. Consider the following recent findings:

A Bankrate survey revealed that, among the 37% of American adults unlikely to take a vacation this year, most of that group – 58% — indicated they simply can't afford to. That's 10 percentage points more than in 2022 (Gen Xers were the most likely demographic to say they couldn't afford a summer vacation this year, at 69%).

That same survey showed that 26% of respondents who are taking at least one vacation this year are planning to drive rather than fly to cut costs.

"There's a cumulative toll to both inflation and the higher interest rates that are meant to combat it," Bankrate analyst Ted Rossman said in a statement, adding:

"Prices were rising much faster last year at this time, but fewer travelers were adjusting their plans."

Vibenomics recently gauged sentiment among more than 1,000 shoppers as Memorial Day – the unofficial start to summer – nears. The findings revealed 74% of shoppers plan to search for sales in the days ahead.

As inflation persists this summer, businesses can nevertheless win customers by taking a few careful steps.

Promotions Heat Up

SpotOn's advisory council said a few rather simple measures can help businesses like restaurants capitalize on summer crowds. Their tips are applicable to various industry segments, too.

The council reminded business operators to appeal to day-time crowds with seasonal and social media friendly offerings (like colorful menu items, for example). The experienced business leaders also noted that it's imperative to add new offerings with the changing season, such as the latest in healthier-for-you beverages.

JB Balingit, owner of The Hideout Kitchen, said businesses must carefully consider their pricing strategy in the current climate.

"Don't be too greedy with your pricing strategy – we can't price ourselves out of repeat business," Balingit warned.

Road Trips on the Rise

With the uptick in road trips on the horizon this summer – as indicated by Bankrate – businesses like convenience stores must take a few specific measures to meet customer needs.

Michael Jaszczyk, CEO of GK Americas, said C-stores can improve the customer experience through innovative technologies by enabling mobile payments, investing in loyalty programs, and combining fuel and in-store offerings.

"Families making a pit stop for fuel will also be looking for refreshments and foods that don't require any extra preparation," Jaszczyk noted. "Retailers must have a unified POS." Food Institute Focus

Store News:

  • Caribou Coffee is adding 300 locations. Part of Panera Breads' wider portfolio, the Minnesota-based coffee chain has over 700 locations worldwide. Full Story
  • The Wendy's Co. is automating its drive-through service with an AI-powered chatbot. The chatbot, powered by natural-language software powered by Google, will be rolled out in June at a company-owned restaurant in Columbus, Ohio, reported The Wall Street Journal (May 9). Full Story
  • Meanwhile, Wendy's announced a partnership with Conagra Brands to bring its beloved chili into kitchens across the country. Starting this summer, local retailers, grocers, and select online retailers will roll out cans of Wendy's Chili with Beans for $4.99, reported Good Morning America (April 27). Full Story
  • Pizza Hut is adding sirloin Cheesesteak as a menu option for its pizza and handheld Melts for a limited time. Full Story
  • Taco Bell wants more sustainable beef. The taco chain is partnering with the National Fish and Wildlife Foundation and Cargill to support ranchers' regenerative farming initiatives, reported Restaurant Business (May 2). Full Story
  • Shake Shack's new Veggie Shack burger uses mushrooms, sweet potato, carrots, and grains. It's not 100% vegan but it does appeal to consumers who desire less-processed meat alternatives. Full Story
  • The owner of Olive Garden, Darden Restaurants, will buy Ruth's Chris Steak House for over $700 million. The all-cash transaction represents a 34% premium and should be completed in June, reported The Wall Street Journal (May 3). Full Story
  • Chipotle CEO Brian Niccol said California's business environment is slowing the company's ambitions for growth in the state. While California is a hub for technology innovation and industry, some business leaders have expressed frustration with its regulatory burdens and high taxes, reported Bloomberg (May 4). Full Story
  • Papa Johns wants to help its franchisees open more locations with construction services as its unit economics warrants faster development. The company has increased its average unit volumes by a third to nearly $1.2 million and added 40 restaurants in the past three years (May 4), reported Restaurant Business. Full Story
  • Popeyes hopes to improve its operations by renovating its kitchens. The chicken chain is looking to international operators for inspiration after its chicken sandwich sales spurred the strongest quarter for any publicly traded restaurant chain in history in 2019, with 38% same-store growth, reported Restaurant Business (May 4). Full Story
  • Sweetgreen's robotic Infinite Kitchen is open. The fully automated makeline is faster, more accurate, and could cut labor costs in half. Restaurant Business reported the Kitchen debuted on Wednesday in Illinois and is an adaptation of the Spyce technology the company acquired in 2021 to design a "frictionless experience" for more exact portions, reported Restaurant Business (May 10). Full Story


Food Waste: Investment in Upcycled Food Gaining Steam

The process of upcycling food – finding new, higher-value uses for items that would otherwise go to waste – appears to boast untapped potential for businesses these days.

"We've seen a huge growth in consumer awareness [of upcycling] and we're seeing a lot of traction in the natural grocery channel in particular," said Angie Crone, CEO of the Upcycled Food Association (UFA). "We're seeing 21% year-over-year growth for products with the upcycled certification – I think we'll continue to see the retailer adoption really drive and create more markets for this."

That was a common sentiment during an April 27 upcycling-related webinar hosted by The Food Institute. The event's panel – which included investment experts Paul Mariani and Eric Markin of Mesirow Investment Banking, in addition to Crone – noted that the upcycled food industry is projected to surpass $80 billion within a decade. In addition to helping address the world's sizable food waste issue, UFA sees ample opportunity for the trend to create economic value for companies.

Crone said the UFA, which offers third-party certification for upcycled foods, has observed a significant increase in private investment in the upcycled category in recent years, with much of that investment going into early-stage companies, mostly CPG brands, and ingredient producers.

Mariani, Mesirow Investment Banking managing director, said he's "very bullish" on the upcycled food sector. "What excites us most about upcycling, frankly, is how it transcends the entire value chain," he said. It's "a high-growth trend that has gained tons of momentum."

Popular Upcycled Products

Companies are increasingly producing upcycled products from cocoa (70% of a cocoa pod typically goes to waste), bananas, brewers' spent grain, and nutrient-packed avocado seeds. Additionally, shelf-stable jams and jellies are two historically popular upcycled product categories.

Brands like Misfits Market and Imperfect Foods that offer upcycled items appeal to today's often environmentally conscious consumer. According to a 2021 Hartman Group study, 70% of consumers are more likely to buy products once they're aware that the items are upcycle certified.

Additionally, Mariani noted, selling upcycled food offers an economically viable way for companies to "rather neatly" achieve their ESG initiatives.

"I think the reality is corporate ESG initiatives will continue to gain prominence ... which, in our view, extends the runway for recycling," said Mariani.

History Repeating?

In America – where roughly 10% of the population is food insecure – roughly $150 billion worth of meals is wasted annually. Staggering statistics like that have helped the upcycling movement gain both support and momentum.

It can be a home run investment for food companies, even though, as Markin noted, "we're still in the early innings of upcycling in a formal sense."

"Upcycling, it resembles what we saw a decade ago with the natural organic and clean-label products (which) eventually became huge mainstream markets," said Markin, Mesirow Investment Banking director. "When we look at upcycling we think it could evolve similarly." Food Institute Focus


Restaurant Sales Weakest in March Since Last Summer

Despite a 3.2% lift in same-store sales, restaurants experienced their weakest month of growth in March since last summer, according to GuestFM by Black Box Intelligence. Comparable traffic was down 2.6% during the period.

The agency noted the best performing region was the Mid-Atlantic while Texas took a hit as the worst performing. Italian cuisine was seen as a highlight as bar & grill concepts struggled. Family dining had a strong month while fine dining took a backseat. Full Story

Selected Results:

  • Domino's Pizza Inc. warned of a slowdown in its delivery business as consumers opt to cook at home instead of ordering out. The company reported same-store sales rose 3.6% in the first quarter, reported Reuters (April 27). Full Story
  • Restaurants Brands International beat Wall Street earnings estimates, fueled by Tim Hortons' and Burger King's strong sales. Both brands reported double-digit same-store sales; Burger King's same-store sales rose 8.7%, reported CNBC (May 2). Full Story
  • Yum Brands missed its earnings estimate despite KFC and Pizza Hut's recovery and growth in China. Same-store sales increased 8% in the first quarter as KFC, Taco Bell, and Pizza Hut outperformed expectations, though shares of the company dropped more than 2% in premarket trading, reported CNBC (May 3). Full Story
  • Starbucks Corp. reported a 12% same-store sales increase for its North American stores as global same-store sales increased 7%. The company reported same-store sales rose 3% in China after the country relaxed its COVID-19 policies, reported Reuters (May 2). Full Story
  • Sweetgreen reported losses in the first quarter of this year but not as much as expected. The salad chain hopes to be profitable by 2024 as traffic increased 2% and same-store sales rose 5%, reported CNBC (May 4). Full Story

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