Thoughts About Our New Normal

I attended three different restaurant conferences over the last 6 months to network again and gain insights into the new digital post-covid world that is challenging our industry today.?I come at this from a different perspective than most having spent the better part of 40 years on the frontlines of international markets, of which only 3 years were spent in the USA as a Divisional Vice President of Pizza Hut in the 1990’s.??I am known for being very direct and my comments are no different below but I do have a deep sense of humility that I may be wrong in some of my conclusions.?My crystal ball is as cloudy as the next guy but I present some thoughts here for your consideration.

Tech, Tech Everywhere but Which Ones to Drink? – Large chains have the resources to pick and choose the tech that fits their needs and, in many cases, build their own tech stack. For the smaller independent operator groups the choices are overwhelming and overlapping (so many similar order/pay/delivery platforms) in terms of what they provide. ?Be very leery about their claims I find that much of the tech out there does not do what it says it does or does some parts well and other parts poorly. By all means just take the plunge and try a few platforms till you find something that works but Caveat Emptor!?

Massive tech consolidation is coming!?Too much money is flooding the space and most of these restaurant tech providers are burning cash at high rates. I would expect more than half of them to merge or go out of business in the next few years. Like the Dot Com Bubble in the late 1990’s the survivors will be the ones that have enough cash today to weather the storm and cut their burn rates. ?

Super Apps are coming! -?I am not smart enough to predict who will be the Super App winners in the USA but I am sure they are coming soon. Just look at Asia to see where the trends are going – Gojek (Indonesia), Grab (Southeast Asia), Wechat ecosystem (China) are just a few. There is App fatigue everywhere so it is far easier for any consumer to buy what they want on one App tied to their bank account. Merchants love it also because their processing fees are reduced by more than 50%.?Food delivery, hair salon appointments, travel bookings, banking, ride sharing – all on one App with a rewards program! What’s not to like for the consumer?

Delivery is a crappy business! –Nobody around the world really makes any money delivering food.?They make the total business profitable through their Super App ecosystem – advertising, payments, referral fees, etc.?The USA is far behind but will catch up soon as one or more groups get in this space and fight it out – Apple, Google, Amazon – any guesses? ?It’s the ecosystem stupid!

Who Needs Virtual Brands? -?I have very mixed feeling about virtual brands.?If you are a small independent operator and you need a virtual brand(s) for some incremental sales then I question your whole business model. What are you doing wrong currently to have such low sales in the first place? It might be better just to exit the space and find another line of work. If you are a large chain like Brinker or Outback then it makes sense to me for them to test virtual brands that they own and control to drive more traffic but this is also a sign telling me that they are not optimizing their existing business. Outback Steakhouse operated for dinner only in the 1990’s and had AUV’s exceeding US$3 Million. Now they do both lunch, dinner and virtual brands and have roughly the same annual top line as 20+ years ago!?Will breakfast be next?

Now compare Outback to Texas Roadhouse.?They have no virtual brands, do lunch on weekends only and have AUV’s almost 2x Outback. What is the difference between the two companies? Texas Roadhouse has a founder mentality, great price/value, strong operations culture and is food quality obsessed.?These are pretty much the secrets of success to most great restaurant groups. Never forget it!

Are ghost kitchens a workable business model? – well yes & no! I believe they can work well for legacy concepts with high brand awareness that already have established channels. Not so well for smaller brands. Getting traction on third party delivery apps takes money. With the shift to a search advertising model, it will be less and less affordable to gain any credible presence there. Also, let’s be honest – the execution in general is poor!?

Final point – I have visited many of these ghost kitchens personally and cannot understand how the staff can tolerate preparing food all day in small hot rooms with small or no windows. Not the best environment to encourage worker retention! This is a model designed by a property guy or an accountant but certainly not by an operations team.

It’s all about the food!?- everybody at these conferences is saying this but it is very hard to believe they really mean it.?I have tried many of these virtual brands ordered through third party apps and for the most part both the food & execution sucks! ?If the food really wins out in the end then most of these brands deserve an early grave!?Where is Dr. Kevorkian when I need him!

Automation will only grow! – developed economies globally have huge labor shortages and low birth rates so the demand for automation can only grow.?This is the holy grail for those restaurant groups who can find it and incorporate it into their operating models.?Forget about trying to build more digital platform apps and focus on getting labor out of the stores doing repetitive tasks!?A big shout out to groups like Miso Robotics!

Hospitality is still at the core of the restaurant industry! – This is still a people business despite rising automation and digitalization. ??The customer experience and expectations will be different for QSR vs. FSR.?Perhaps the industry will truly stratify into two distinct segments - logistics manufacturing points (fast fuel) and a true restaurant experience (slow food). You need to decide which part of the industry you want to play in. The QSR groups that will truly stand out will be the ones that incorporate automation & digital platforms with customer friendly teams. Certainly, groups like Chick-Fil-A, Chipotle, Raising Cane’s, & In-N-Out Burger are figuring it out faster than the rest. It is no secret that each of them runs direct owned stores and still have for the most part a founder’s culture.

The beloved full service restaurant groups in each city are focused on providing great food with intensive service at each table and using the necessary tech to support their operations. Many of them should not be doing any delivery or takeaway if their restaurants are full each night with happy diners who return without loyalty points. They are focused on giving one great evening performance per day and sometimes an additional matinee on the weekends.?These are the restaurant groups with superior financial performance but are not designed by a Financial Comptroller.?They are less about sweating the asset each day and more about providing a great environment for their teams to thrive.?

I have said my piece for now and hope it stimulates some thinking.?All comments are welcome and appreciated!