The fast-casual sector, much like other areas of the hospitality industry, has been faced with multiple challenges in recent years. Recovery from the recession, minimum wage rises, increasing ground rent and changing consumer preferences and behaviors have forced operators to rethink not just their digital strategies but also their operations, especially around fulfilment. We take a deeper dive into the challenges of the fast-casual sector and how digital innovation can help not just minimize their impact, but proactively drive success.
Move over baby boomers, make way for the Millennials
Millennials are the largest generational cohort in history boasting a membership of 79.8million and are expected to have the greatest spending power by 2020. They’re also a bit of a conundrum. Traditional marketing approaches don’t seem to be effective on this group that has proven to have wildly differing needs and purchasing patterns. And although some research confirms their wealth and spending power, there’s also evidence to suggest they’re a demographic of extremes.
Millennials (23-38 in 2019) as well as a portion of the older iGen (7-22 in 2019), more than any other generation, have displayed rapidly changing behavior when it comes to dining. Fewer of them are eating out. And regardless of generation, 42% of Americans say they don’t eat out as much as they would like to. This change of behavior has been blamed on a number of different factors. People have less time to go out and enjoy meals, they have less money to spend on dining and, interestingly, because entertainment has moved into the home.
Technology is now allowing people to socialize, play games, interact, purchase and fulfil requests all from the comfort of their couch, bed, bath or wherever they might find themselves at home. Some argue that this preference to stay in, coupled with convenience, has fuelled the delivery market, putting companies like Deliveroo, Uber Eats and Just Eat on the map.
Moreover, when Millennials do go out, they’re starting to expect more from their dining experience, often powered by technology. For example, 60% of Millennials said they wanted to see restaurants use technology to make the process of ordering and paying for meals easier. This generation are also more likely to use self-service kiosks than their older counterparts (Gen X and Baby boomers).
Raising the roof on rent
Commercial rent remains higher than pre-recession levels in the US and last year, a report by CDG Leisure found 90% of operators would find costs would be unsustainable for their business if rents and rates increased as forecasted. Increasing rental costs and guests’ propensity for at-home dining has led to operators opening ghost kitchens or dark kitchens. These kitchens are set-up specifically to fulfil orders for delivery only. No large seating or serving areas needed and minimal staff required to prepare, clean and deliver.
Uber co-founder Travis Kalanick’s new start-up Cloud Kitchens, for example, sets-up and hires out ghost kitchens to everyone from national chains looking for an additional revenue channel to food entrepreneurs looking to test their concepts.
Minimum wage hikes
In the US, the minimum wage has risen from $7.25 that was set almost a decade ago, to $15 per hour. Whilst this is a great win for employees, it puts operators under enormous pressure to fulfil these wage increases. In the UK, a similar Living Wage was put into force pushing up national minimum hourly rate to £9.30 and this is expected to rise to £10.50 by 2024.
The ghost kitchens, smaller street food vendors, food trucks and pop-up food stalls that rent and staff wage rises have spawned are providing stiff competition for mainstream casual dining brands. This added pressure has forced many operators to digitize their customer journey, unlocking additional revenue streams, driving greater spend within their current channels and making the experience so easy and frictionless, that guests will be keen to dine with them again.
Personalized, digital experiences
Earlier this year, MacDonald’s acquired a tech company called Dynamic Yield to increase personalization and customer experience at its drive thrus. Using Dynamic Yield’s technology, the drive thru menu shows food based on the time of day, weather, current traffic and trending menu items. The tech can also instantly suggest and display additional items for a customer’s order based on their current selections.
If you can’t afford the $300 million price tag of acquiring a tech company to digitize your processes, thankfully, there are other options. Digital ordering and payment (mentioned previously as a Millennial desire), are proving valuable in the competitive fast casual landscape. Solutions such as mobile ordering and pay at table offer guests the added convenience they’re looking for on a device they’re very familiar with, saving them time and delivering that enhanced experience. For operators, mobile order and pay can speed up service helping to turn tables faster and, as a result, drive revenues. This technology can also help to take pressure off staff when they’re rammed during the lunch rush hour for example, allowing them to focus on offering great customer service. Pay at table can also dramatically reduce incidences of fraudulent chargebacks and can be used to encourage reviews and collect contact details to help build membership.
Mobile order and pay is also helping to open up additional revenue streams for operators. For example, at buffet-style restaurants where diners pay upon entry or at quick service restaurants where meals are ordered and collected at counters, there’s little opportunity to encourage additional purchases once the guest is sat at their table. Using mobile to top-up orders for additional drinks or sides can be a lucrative way to drive up spend per head following their main purchase.
There are many challenges facing operators and their bricks and mortar stores but looking at the industry as a whole, one thing is clear: the operators that are embracing innovation are thriving. Whether it’s mega-acquisitions on an eye-watering financial scale or the strategic implementation of hand-picked digital solutions, technology holds the key to survival for fast casual chains willing to make the move.