Foodservice is in transition. Technology is enabling new processes, categories are blurring to steal share, and customers are demanding more. Due to the disruptive nature of these transitions, it is becoming vital that traditional chain restaurant businesses act quickly to remain relevant; those that do not accept and embrace the change are facing declining market share.
Successful businesses are capitalizing on restructuring their models around customer need shifts. Unmet needs such as more convenience, enhanced experiences, and affordable, “better” ingredients (i.e., healthier, responsibly-sourced, higher quality) are driving innovation and providing a means for growth. These needs manifest into new formats and products, and if not fulfilled by existing businesses, start-ups are stepping in.
Because of these needs, three main trends are occurring that can either threaten existing restaurants or offer new opportunities. First, businesses are merging technology with foodservice to offer seamless, highly convenient service, and retailers are developing convenient one-stop shop services as they expand their food offerings. Second, formats are blurring and using a best-of-both-worlds approach to meet multiple needs. And third, restaurants are offering unique, immersive, and entertaining experiences to differentiate themselves and meet customer demand for the new and different.
Many start-ups and existing businesses are recognizing the value that technology can play in improving efficiency to cut business costs, as well as offer a more convenient customer experience. Mobile apps such as JustEat and GrubHub, for instance, allow customers to order delivery food from many local restaurants, while businesses such as Sprig offer delivery of their own food through digital ordering without physical restaurant locations. Other subscription delivery models, such as Chef’s Plate or Blue Apron deliver curated recipes and ingredients for a meal that the customer can prepare at home, which can steal share from both foodservice and grocery categories. In addition, traditional restaurants are integrating technology into their processes to offer more convenience, such as using a mobile phone app to order ahead, reserve a table, or pay at the table.
Category and Format Blurring
The blurring of categories is also emerging. Many categories are facing stagnant growth, and they are crossing their traditional boundaries in an attempt to reactivate sales. These efforts are evident as grocers increase their ready-made meal offerings, retailers introduce their own in-store restaurants, and convenience stores enhance their food selection.
In addition to less separation in categories, new restaurant formats are stealing share from traditional restaurant leaders as the foodservice industry experiments with hybrid approaches. Hybrid formats offer a best-of-both-worlds approach that has been very successful in recent years. Fast casual, for example, offers higher quality ingredients and a better experience with a price between QSR and Casual. Furthermore, another term that is being used for hybrid QSR formats with enhanced design or improved products is “QSR Plus,” which reflects the trend towards offering a more comfortable and enjoyable experience in traditional fast food restaurants.
Food as Entertainment
As more customers, especially the Millennial demographic, see eating out as a form of entertainment and look for new and different options, restaurants are adapting their experience. According to Business Insider, “Buffalo Wild Wings is the fastest-growing restaurant chain in the U.S., and the company is thriving where casual-dining competitors like Red Lobster, Olive Garden, and Applebee’s have struggled. While many chains focus on the food and the menu, Buffalo Wild Wings invests in the customer experience.” With numerous televisions, trivia games on tablets, samples of new sauces, and staff guest captains responsible for changing tv channels to ensure that everyone is having a good time, the restaurant chain prioritizes fun and entertainment. Other restaurants, such as O.Noir, where customers can dine in complete darkness, are offering a unique food entertainment experience that is immersive.
New formats are also emerging. Pubs are becoming “brewpubs” that meet demand for unique craft beer by offering their own selection brewed on the premises. Food trucks are taking foodservice to the street, and interesting pop-up dining events are generating buzz. Eventbrite reports that these “pop-up dining events attract guests who are willing and eager to pay more for a unique dining experience [and are] craving connection to their food, the chef, and each other.”
So, how should chain restaurants react to these disruptive forces? One option is to join them. Businesses can attract customers by centering their offering on the customer needs of convenience, and affordable, high quality, and ethical ingredients, or by entertaining customers with unique, immersive, and sensory experiences. These goals can be accomplished by looking to technology, creating hybrid concepts, or prioritizing food entertainment. It is important that transformations are focused, however, and do not try to do too much, in order to have a clear value proposition, and build on existing strengths. By balancing innovation and focus, restaurant chains can successfully navigate this time of foodservice transition and capitalize on unmet customer needs.
How is your foodservice business working to meet these customer needs? Which do you think are temporary trends and which are lasting changes? Let us know in the comments below and subscribe to receive the latest Shikatani Lacroix insights in your inbox.