As restaurateurs face key challenges, forecast lowered from 2019
A report by Pentallect, a top foodservice consulting firm, provided s 2020 restaurant sales forecast lower than the previous year. The firm projects sales in 2020 to grow about 3.0 percent. In this context, sales growth represents total sales, including comparable sales (same stores) and the effect of new stores. Pentallect cites adverse impacts that have been hampering the restaurant industry will continue into next year. These include economic factors, increased labor costs, real estate transformation, decline of once-leading foodservice providers, delivery’s dilutive effects on profit, and changing demographics.
According to Chicago-based Pentallect, economic concerns are weighing heavily on the consumer. Concern over trade, tariff, tax, and fiscal policies may lead to a downturn. The University of Michigan’s sentiment index rose to 93.2 in September after a depressing drop to 89.8 in August, according to Bloomberg. A third of respondents are concerned about tariffs. And as for inflation, consumer prices are expected to rise 2.8 percent vs. the 2.7 percent projected the prior month. Fewer respondents than before envisioned wages rising over the coming year.
The sum of these concerns will make it harder for restaurants to fill seats. This is one of the reasons Pentallect is forecasting 3.0 percent growth, mostly attributed to price increases, compared to the 3.5 percent they projected for 2019. Labor and turnover costs will hurt restaurants’ bottom lines, and the response will impact customers and sales in turn. Wage pressures loom large: they are “forcing operators and retailers to raise prices in a price-sensitive environment where affordability (of restaurant meals) is a growing problem for many consumers,” said the report.
Technology a vital tool: 2020 restaurant sales forecast
Pentallect notes that restaurants are turning to technology for answers. Robots, kiosk and self-service style systems are part of this trend. With time, more of these technologies should become more widely available.
Compared to independents, large restaurant chains have more influence and capital to invest. As an example, McDonald’s acquired conversational technology ordering company Apprente this year to spur natural ordering
via technology and build McTech Labs, a new division. Also, Chipotle turned to old-fashioned incentives and bonuses this year, paying out $700K in performance-linked retention bonuses.
Moreover, occupancy costs should continue to rise, as part of a national trend. According to a market outlook report by Lee Associates, asking retail rents have increased 2.2 percent this year to $17.20 per square foot (psf). Multi-faceted real estate services giant CBRE confirmed rents have been increasing on both a quarterly and annual basis. Urbanization adds to this dilemma, says Pentallect. Also, developers that aren’t innovating or are unable to rescue depleted suburban malls will contribute to a downward impact on traffic for nearby and tenant-restaurants.
Restaurant delivery is making headlines daily and is touted as a golden opportunity. However, not all restaurants can play well in the delivery game. It comes with high fees, typically 20 to 30 percent, so unless the majority of a restaurant’s delivery orders come from new customers, profits may take a hit. This profit dilution is a result of existing customers switching to third-party app ordering and the high fees that come with it.
Household, restaurant size, consumer influence changes landscape
Restaurateurs who make money in this milieu deploy a comprehensive strategy that addresses how to balance delivery with staying profitable. Many restaurant owners won’t fully contemplate or understand this until it’s too late. Satisfying customers in a delivery setting is not easy. Execution, including packaging (and associated costs) and customer satisfaction is key, Pentallect also notes that some restaurants may exit the third-party delivery game altogether in 2020.
A variety of restaurant operators count on large groups of diners to fill seats. This has been changing over the last few years. Millennials will be 40 percent of the consumer demographic next year, according to many reports. Through 2020, Millennials also represented about 80 percent of the growth of one- or two-person households, according to L.E.K. Consulting in its Executive Insights report (Volume XVIII, Issue 14). This represents a growth of these households of 77 percent since 1980.
In the Washington, D.C. market, for example, restaurateurs are responding by leveraging their small square-foot space, designing new spaces with takeout windows and separate space for delivery and pick-up. Fast casual 3.0, or polished fast casual, is a development blooming in the nation’s capital and addressing a change in the way consumers dine and restaurants can better utilize small restaurant layouts.
A variety of factors, according to Pentallect, figure into a highly-tempered 2020 restaurant sales forecast. Nevertheless, restaurants can respond through the use of technology and better operational practices. Amid tough competition and a softening global economy, restaurateurs can navigate ahead of the pack through these tools.
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