By Fred Puech, Vice President of Pricing Analytics and Restaurant Expert at Pricing Solutions
The Pricing Solutions team was privileged to attend the 2019 National Restaurant Association Show in Chicago, IL. Now in its centennial year, the event draws thousands of people annually, and with good reason. If you’re looking for insight into the restaurant industry’s current and anticipated trends, then this is the place to be. From technology and innovation to customer service initiatives, it was inspiring and exciting to see the new ideas, concepts and offers that create huge ripples across the industry.
Real Margin Problems
The restaurant industry is growing by three to four percent per year, but when compared to historical data we can see that restaurants are having difficulty growing transactions, which translates to real margin problems. Our team can’t stress enough that pricing remains central to the industry. Correctly pricing menu items is essential, especially when facing real margin problems.
There are Always Winners and Losers
It’s true that some chains are growing rapidly, but the majority are not. A&W’s success is a good example of the importance of correctly identifying and capitalizing on industry trends. As the first national burger restaurant to serve plant-based proteins, A&W recognized the rapid pace of growth amongst plant-based foods and capitalized on this trend with their Beyond Meat products.
Although plant-based foods were a frequent topic of discussion at the NRA show, our team was surprised that pricing considerations for plant-based foods weren’t thoroughly examined.
In addition to plant-based foods, chicken, Mexican food, and coffee were areas that continued to gain momentum. Pizza and burger chains, on the other hand, are struggling as delivery apps create disruption within the industry’s delivery systems. As delivery apps continue to grow at a rapid clip, they create opportunities for restaurants new to delivery while causing difficulties for traditional delivery chains (like pizza) who are now experiencing competitive pressures.
Technology is Driving Change
It’s no surprise that new technologies like app-based delivery are changing things up. In this case, delivery apps are creating a new pricing challenge for all restaurants as they’re forced to determine how they’ll accommodate the new cost of delivery. We saw that some owners are choosing to add on to the bill, passing the additional cost on to customers while others are eating a component of the cost in order to capture incremental revenue.
The development of ordering apps may be last year’s trend, but it’s becoming apparent that restaurants that don’t have one are already falling behind. An interesting stat that came up at the show is that orders that come in through an app are on average substantially larger than those that don’t.
Looking towards future tech trends it is apparent that customer service technology is going to be a game changer for the restaurant industry. From touch pad ordering (which improves efficiency and inventory management) to self-service kiosks (where customers can conveniently use a code to pick up their orders), expect technology to continue to shake up the service industry.
Technology is Impacting the Labour Market in Surprising Ways
While one might expect that these new and upcoming technologies will displace workers, we were surprised to learn that there is actually a labor shortage in the industry, which has an average turnover rate of 154 percent. In other words, most restaurants aren’t retaining employees for even one year.
As new delivery apps create competition to fill jobs, the labor challenge makes a case, once again, for a sound pricing strategy. When restaurants correctly price their menu items, they’re able to afford to pay employees well and retain those employees, reducing the considerable expense that goes along with constantly hiring and training staff.
Ratings Equate to Pricing Power
While it’s not a new concept, ratings were a note-worthy topic at the NRA show. Numerous ratings companies were on hand and armed with impressive stats. One study, for example, found that 68 percent of executives believe ratings drove and increased their pricing power (the ability to increase prices).
Premiumization is Improving Revenue
Granted it’s our daily focus, but we were surprised by how little attention was given to pricing discussions at the show. While there was a lot about guest experiences and how to drive more traffic, we found the level of price sophistication surprisingly low. With that in mind, one area where pricing did come into play was with the idea of premiumization. Offering premium prices for premium products was discussed as a sound strategy to improve revenue.
While time will tell which of these trends will be most significant to restaurants and vendors within the food services industry, our team remains convinced that companies who implement a sound pricing strategy will continue to land on their feet. Interested in harnessing the power of pricing to improve your restaurant chain’s bottom line? Contact us today to connect with one of our pricing specialists.
