While restaurant and brand owners are benefiting from lower commodity prices and increasing consumer spending, fast food workers remain poorly paid, highlights a new report. The majority of US consumers agrees that wages are too low, and many say that they are willing to pay more to compensate workers. Other key trends for the restaurant sector in the US include growing appetite for healthy food, safety in value chains and on the work floor and the need to embrace technology.
The US restaurant and foodservice industry posted strong results in 2015, following economic conditions in favour of the industry. 2016 is again lining up to be a positive year for the industry, although a number of internal demands and risks may require increased investment as well as a change of course. A new study by AlixPartners, titled ‘Tall Orders: Higher Wages and Menu Changes’, considers the changing expectations of consumers about, among others, wages and technology.
The US food service and restaurant industry is enjoying a number of positive tail-winds, as the US economy has continued to grow, while improved employment levels and disposable income are pushing up consumer sentiment. Further, food commodity prices have dropped 15% lower than in 2014, with particularly pork, beef and wheat prices seeing drops, while oil prices have plummeted improving household finances and deflating the price of dependent products and services.
Restaurants that have survived recent years of bust and boom, are set to enjoy a further positive fundamental, with consumer spend per month on restaurants continuing to rise, now up to almost $160 after the 2009 dip of around $120, while the number of restaurants per 1,000 people has decreased slightly to less than two – suggesting, according to the firm, a positive supply/demand situation for the industry.
While there are a number of positive economic effects boosting the potential profitability of companies, a number of consumer priorities may be of concern to the industry, not merely in terms of what are seen as high priority issues, but also those which are considered low priority.
In the survey, examining what consumers believe should be the top priorities for restaurants to focus on, lower prices came in as the number one issue, followed by a focus on food safety and improving the healthy options available on the menu. Additional areas that respondents thought should be priorities, include improving the quality of ingredients and improving the pay of workers. The areas of least concern were cited to be the introduction of more consumer technology and improving kids’ menus.
When it comes to lowering prices, around 36% cite it as important within the ‘fine dining’ segment, while lowering the cost of ‘casual dining’ and ‘fast dining’ are seen as important for 30% of respondents. The focus on food safety is particularly perceived as important for 'C-stores' and ‘fast casual’ offerings, while a focus on healthy menus is seen as an issue affecting particularly the ‘fast food’ segment. Improvements to the quality of ingredients and improving wages are also both seen as important for the fast food sector; by almost 30% and around 20% of respondents, respectively.
The wage issue
The report highlights that the continued low wages of many of the employees that restaurants rely on, are seen as an issue for consumers. The employees themselves and their representatives have been calling for increases to wages. Many workers within the industry cannot earn enough, even when they could get full time work at a restaurant, to make ends meet. 50% of consumers agree with the movements calling for higher wages, while 27% do not; around 24% is indifferent.
The research also found that 70% of restaurant goers that believe workers ought to be paid more, are willing to pay more for meals, while 13% would not. The culture of tipping in the US remains a mainstay among those surveyed, with 65% of respondents preferring to continue to control how much they tip staff.
“Between the growing push for higher wages, continuing high employee-turnover rates and diners demanding ever-more complex menus delivered by a relatively unskilled workforce, the industry is facing perhaps its severest labor crisis ever,” says Kurt Schnaubelt, Managing Director at AlixPartners and co-head of the firm’s restaurant, foodservice and hospitality practice. “To win in this environment will take bold actions, but ones supported by thorough analysis and relentless execution.”
While much has been said of a drive towards technology to improve a range of metrics, from customer engagement to cost, the survey, surprisingly, found that many US customers do not see technology at stores as a priority; only about 10% of consumers said more-customer-facing restaurant technology should be a top three 2016. Investment in technology to meet expected consumer trends, as well as seek out savings, saw an increase in 2015: more and more chains rolled out new mobility platforms, digital loyalty technology, and table top tablet or kiosk technology.
While investment has been on the rise, the consulting firm notes that an amount of care needs to be taken about investment channels and types of technology, as the consumer technology trends continue to evolve rapidly. Sometimes these trends buck the hype in technology, as for instance, receiving discounts by mail or by e-mail, was seen as important by 26% in each, while mobile delivery and online delivery seem less important, with 15% and 13% response rates, respectively. Moreover, almost 60% of respondents said they prefer ordering from a person rather than from a tablet or kiosk, and only 22% said using such technology led to an unplanned purchase. Two areas that did score well with consumers in the technology segment, are digital loyalty programmes and tablets as a means to settle the bill. However, the former remains a ‘wait-and-see’ issue in terms of whether technology increases loyalty programme participation, and the latter, according to the consultancy, requires more care – with the rapid development of smartphone platforms and applications, investing in specific in-house technologies to provide payment services might be made redundant before it has a chance to make a return on investment.
“What we’re hearing from the consumer plus seeing in the field calls into question whether all of today’s investments in consumer technology, including digital loyalty programs, are well-placed bets,” says Eric Dzwonczyk, Managing Director at AlixPartners and co-head of the firm’s restaurant, foodservice and hospitality practice. “Some technologies are already superfluous, given the fast pace of smartphone innovations; some are going obsoleted almost as soon as they’re installed; and for many technologies, there is just simply a limited a finite market of a limited size. It would behoove companies not to get too far out in front of their skis in this area.”