I just returned from one of the top two or three restaurant conferences in the industry. There were over 3,000 attendees and it seemed like a lot of deals were being made. We had a booth at the conference, which is a first for our restaurant niche, and we got a chance to meet some really great people and some outstanding restaurant operators. The industry is at a great point right now with more and more consumers eating out than in the past. It seems like everyone is pretty confident that this will continue through at least the next year, and the future of restaurants looks bright.
The two big topics that seemed to be the recurring themes were how to recruit and retain employees while dealing with the increase in minimum wage and the growth of third-party delivery services.
As far as recruiting and retaining employees, there were discussions about focusing on culture and having a team that aligns with the core beliefs of the organization. One company had hired a “head of people service” to help in hiring individuals that match the culture of the organization. Turnover costs restaurants a lot of money, so if there is a culture that employees like then this can help with keeping turnover low and lower labor costs. In addition to hiring individuals that match the culture of the organization, operators also spoke about engaging their employees in conversations to find out what was important to them and would keep them around. Some examples of employee interests they noted were a 401(k) plan, better insurance, and tuition reimbursement. While these benefits do cost money, the operators have found that the amounts saved on lower turnover costs outweigh the cost of the benefits they’ve added.
From a labor cost standpoint and the increase in the minimum wage, restaurants are looking at their processes and trying to figure out how to make things easier to do. This may involve reducing the number of menu items making food prep easier and quicker, re-thinking how a plate is prepared or restaurant automation. One operator that changed how a plate was being prepared would look at what customers were throwing in the garbage. You get an indication of what foods people are not eating and may not want on their plate. This operator had around 30 locations and by eliminating putting a pickle on the plate they saved $250,000 a year. If a customer asked for a pickle, they would give one to them but a lot of pickles just ended up in the garbage. This same approach can be made with bread given to people that order salads. Restaurant automation, that will be coming to the industry soon, includes robots in the kitchen to make fries to artificial intelligence being used to take customer orders in drive thru’s in the form of an Alexa voice-activated system. There were also discussions where facial recognition and/or license plate recognition technology is being developed to remember customers’ orders so when they either drive through a drive-thru or step foot into a restaurant their order is automatically created based on their past orders.
Third-party delivery services are here to stay and will continue to grow. The third-party delivery service industry is a $30 billion industry and will grow to $50-$60 billion over the next few years. Cloud kitchens and ghost kitchens are being developed and made much larger and with heavy investor backing. This will enable multiple restaurants to share a kitchen that will be designed for only third-party delivery. Restaurants need to do research to ensure they are designing their third-party delivery platform to ensure a profit is being made. Some restaurants saw small profits being made with third-party delivery services while others who have done their due diligence have designed to ensure they are generating a nice profit.
On the finance side, there were some discussions by various bankers that there is some pulling back on financing by maybe 10%. The number of restaurants has grown considerably over the past few years due to the access of capital resulting in what they feel is an excess supply of restaurants. As a result, customer visits are down while the average check amount has increased resulting in minimal same-store sales growth from year to year. With a bit of pullback in financing, the banks are hoping that the consumer demand for restaurants will grow and catch up with the supply of restaurants.
Brian Campbell, CPA, Partner