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Study: Fear of future invades restaurant leadership offices

May 18, 2017

Fear is invading the offices of restaurant brand leadership across the industry, according to a recent study from L.E.K. Consulting. A combination of increasing food and labor costs, as well as amped-up competition from groceries and online food sellers offering ready-to-eat items, are all working together to squeeze margins and viability, according to a news release about the study.

The consulting company surveyed 230 restaurant and foodservice operators who are either responsible for, or directly involved in purchasing for their brands to gauge the current state of contentment or consternation among these leaders. They found that leaders are worried about threats to the continuation of a decade of restaurant industry sales growth — growth that has even outpaced that of the retail industry as a whole.

Although restaurant revenues exceeded retail for the first time in 2015, and more than three-quarters of foodservice professionals expect growth to increase over the next three years compared to the last three years, there is a lot of fear in the ranks that the proverbial "other shoe" is about to drop. 

"Despite overall optimism, foodservice professionals do recognize they will have to respond to cost and competitive pressures if growth is to continue," L.E.K. Consulting Food and Beverage Practice Managing Director Manny Picciola.

The study found that most leaders also planned to fight promises of industry-wide doom by creating updated menu offerings, working on more beneficial supplier relationship and adding digital services, like online ordering. The main concerns revealed through the survey, include: 

• 40 percent of food service leaders cited higher food and 38 percent identified higher labor costs as "most significant barriers to growth" over the next three years. 
• 23 percent said increasing competition is also a major threat.
• More than 80 percent of restaurant leaders see prepared foods at groceries as a threat to their business over the next three years, particularly since restaurant food costs grew 2.7 percent in 2016, while grocers and other ready-to-eat retailers saw deflated prices, leaving restaurateurs at a competitive disadvantage. 
• More than 50 percent of restaurateurs saw online groceries, meal providers and online meal ordering services as a business threat over the next three years, especially contenders like Amazon Fresh and Grubhub/Seamless.

But these are restaurateurs and competition lights a fire under them. That's perhaps why the study also found many leaders in the planning or early implementation stages of strategies to fight the competition, in the following ways:

• 44 percent of restaurant leaders plan to use more healthful ingredients as a way to boost revenue.
• 36 percent said their brand's use of locally sourced ingredients is another great way to increase sales. 
• Most saw about a 10 percent increase in online orders by 2020.
• 25 percent of leaders planned to enhance delivery services for their brands. 
• 44 percent of restaurant leaders who buy pre-prepared foods say it saves labor costs. 
• 38 percent say buying pre-prepared foods is actually cheaper.
• One-third of respondents said Donald Trump's election will positively affect their businesses, through possible lower taxes and fewer regulations.

Photo: iStock