For more than 15 years, Denver-based restaurant consultant John Imbergamo has come up with a year-ahead trends-and-expectations list for the restaurant industry in the U.S. FOXBusiness.com asked him to share his insight as to what’s on the menu for 2010.
Look for menu price increases if the final version of the reform bill contains a federal mandate that employers provide employee health care. The labor-intensive restaurant industry has a well-deserved reputation for minimal employee benefits. Ordinarily, restaurants will insure management, and usually not the rest of the staff. Nearly 13 million restaurant staffers at the nation's 945,000 restaurants are waiting to see what happens.
In the meantime, the National Restaurant Association is urging its members to press for smaller changes in the bill that would make an employer mandate more palatable. As the bill currently reads, a full-time employee, who would be insured, is one who works 30 hours a week during the course of a month. The NRA would like to see a broader definition: 390 hours over a three-month period, to account for the vagaries of restaurant scheduling. They also would like to see a 90-day waiting period instituted before an employee would need to be insured, given the more transient nature of restaurant employment.
Razor-thin profit margins are expected to be further squeezed by deeper and deeper offers designed to attract the cash-poor consumer, as well as mitigate same-store-sales declines. Will the restaurateur’s unrelenting reliance on discounts, coupons and deals to drive sales prove to be a slippery slope as consumers balk when asked to eat at full price?
The Chicago-based restaurant research outfit, Technomic, reports that 40% of sales in the Mexican/quick-service category already are done on deals. Chains have taken to the airways and social media to promote specials, while independents use coupon Web sites like Groupon, which sends subscribers a daily e-mail filled with coupons.
Burger King franchisees have sued the parent company over their one-dollar double cheeseburger deal. Burger King and other franchisers are paid by franchisees based on sales, and are less concerned about profit at the unit level. So the parent company "pumps the gross," leaving individual franchisees to find a profit.
In the fine-dining category, restaurateurs typically don't like to discount, arguing that it cheapens the brand. Look for them to become more discount-vigorous during happy hour, which is easier for them to explain away. And across-the-board, look for increased creativity in 2010 deals as operators try to wean their customers off the coupon craze.
The Obama administration's vision of comprehensive immigration reform includes a possible "path to citizenship" for illegal immigrants already in the United States. The Bush administration envisioned the same thing, but couldn't convince Congress of it. The high rate of jobless has eased many of the staffing difficulties inherent in the restaurant business, but the NRA predicts a need for nearly 15 million employees by 2019 and sensible immigration reform might make it easier to find and verify legal applicants for those jobs.
"Restaurants aren't necessarily the employer of choice when the economy is robust," Imbergamo said. Corporate layoffs, particularly of people who once worked as a bartender or waitress, mean a bigger supply of potential employees.
Restaurants also look for immigration reform that will offer them a document verification system that works better than those in place.
'Localization Mantra' Here To Stay
The fine-dining segment especially has been under the gun from environmentally conscious customers to buy the raw food they prepare from local purveyors, almost at all cost. Look for that trend to begin filtering down to mid-scale and quick-service restaurants this year.
"I joke that if it's not grown in a flower pot in the middle of the table, it's not considered local," Imbergamo said. "But it's a perceived marketing edge that's probably gotten out of control."
It's become "the be-all and end-all" of some restaurant's advertising, with some even claiming that everything served has come from within a 100-mile radius, he said.
Sure, the food is fresher and the carbon footprint smaller when it's local. But the reason people buy from big purveyors, is that it shows up every day, and there's a consistency in supply, price and quality.
"When you start talking about local suppliers, some of these things get out of whack and way too expensive," Imbergamo said. "If you want asparagus on your menu all year-round you'd better plan on getting it from Mexico during the winter."
So far, Chipotle is the biggest chain to promote its organic beans, chicken and beef. But even they cannot keep all their locations supplied with it.
"We haven't yet seen this trend at Wendy's or McDonald's, but they are under pressure, especially KFC, to buy from more humane purveyors," Imbergamo said. "You gotta know they are working on it."
Finally, look for enterprising “gotcha” journalists rummaging through restaurant dumpsters to disprove counterfeit claims by overreaching chefs and PR firms, he added.
Less to Spend
Cash-poor, recession-weary customers are not spending nearly as much, when they go out to eat at all.
Sales in high-end steak houses are falling faster than predicted. Morton's has posted 26.1 percent declines this year, Ruth Chris down 23.4 percent and Capital Grill down 18 percent through the middle of the year.
Quick service ($5 receipt range) and mid-scale restaurants fare much better but don’t look for cheers as CFOs watch comparable sales slide in most segments.
"The check averages in the fine-dining segment are down because people aren't buying expensive wine, it's as simple as that," Imbergamo said. "The sweet spot used to be $75, but now it's closer to $45-$50. Look for far more restaurants to include more wines in that range."
Cheaper Cuts Of Meat
Say goodbye to foie gras, caviar and tenderloin and hello to cheaper cuts like short ribs, shoulder tenderloin and hanger steaks. The “What’s Hot” survey of American Culinary Federation chefs revealed that new/fabricated cuts of meat ranked as the No. 5 trend for 2009.
Shallower pockets and consumer demand for more value are mandating more creative menu engineering and an all-out effort to make more from less in the kitchen.
"Chefs are smart enough to know that in tough times, you put the tenderloin off to the side" Imbergamo said. "The easiest place to start cutting costs is with the protein, mostly beef. Pork and chicken are still inexpensive, and fresh tuna or salmon are not negotiable."
Strength In Numbers
It may seem as if there is a chain restaurant on every corner, but almost 70 percent of the nation’s restaurants are independently owned and operated. As such, they miss out on the economies of scale enjoyed by their chain-run brethren.
In response, the indies in many cities are forming marketing and group-buying coalitions to battle chains and promote their independence and “localness.”
In Denver, the two-year-old Denver Independent Network of Restaurants (DINR) raised nearly $50,000 by creating and merchandising a 52-card deck of $10 gift cards valid in its 50 member restaurants. In Chicago, a similar effort is called A la Card. Dine Original leverages their group strength, with chapters in several cities (Tucson Originals, Sarasota Originals), to get more volume discounts on raw food. Look for more of the same.
Everyone's a Critic
Restaurants are wary enough of full-time, generally well-informed critics from newspapers or magazines. Now, from AOL to Yelp to Zagat, would-be critics use smartphones and laptops with mobile apps to vent their occasionally vindictive spleens, with photos, on the unsuspecting public with little chance for operators to respond. Smart phones and mobile apps just speed up the process.
Restaurateurs are ramping up service levels in response to the wide-ranging citizen critics who permeate the Web and can do real damage, deserved or not, to a restaurant's reputation, with little or no recourse for the owner.
"Yu got the guy whose Manhattan wasn't made the way he wanted, sitting with an iphone and a bored wife, and he starts posting on the fly," Imbergamo said. "It's a real problem restaurants have to address, and there's a common undersanding that during difficult economic times, you have to work harder on service to preserve your current customer base."
Kid's Menus Get Better
Say goodbye to chicken nuggets and pizza on high-end and mid-scale restaurant kids’ menus. Nearly two-thirds of chefs surveyed for the National Restaurant Association's “What’s Hot” survey said gourmet childrens’ dishes are a top trend. Forty-five percent of adults surveyed say they would patronize quick-service restaurants more frequently if the restaurant offered expanded menu items and activities for children.