Restaurant Recovery and Reset Outlook

October 6, 2021

The state of the restaurant industry has become hazy again. Some operators believe we’re in worst shape than three months ago, with Delta fears, vaccination conflicts, and labor/supply challenges squeezing the margin for error.

According to Rewards Network, total spending at quick- and full-service restaurants is up 7 percent, on average, compared to 2019. That being said, restaurants are still seeing fewer diners when compared to 2019 (negative 9 percent). It’s a discrepancy likely due to menu pricing—the cost of food has become more expensive and diners are eating out less frequently. The good news, though? It appears they’re splurging when they do. But how long that lasts and what phase arrives next is a guessing game.

QSR caught up with Cristin O’Hara, managing director and head of the Restaurant Group at Bank of America, to chat about current and future trends, and where operators should turn their focus to at this stage of the pandemic recovery.

Let’s start with Q3 and Q4 trends, namely around the so-called labor crisis. What are some ways restaurants can retain top staff and combat overwork and burnout, even in a dynamic where operators are often being asked to do more with less given the challenge to fully staff up?

As labor shortages persist, restaurants can take multiple steps to retain top talent. Many are raising minimum wages to $15 an hour. Many are also offering more holistic and impactful workplace benefits to employees, ranging from 401k plans to childcare benefits and extended family leave. We are especially seeing this trend take place at the franchisee level. Restaurants are also showing flexibility to employees balancing multiple jobs.

Some restaurants are offering “hero bonuses,” or other enhanced compensation programs, including appreciation pay, tuition assistance programs, bonuses and gift cards, to attract and retain top staff at the integral managerial level where the talent pool is often smaller. Franchisees should continue to offer these types of benefits to reward and support valuable employees they want to retain for the long term.

What are some techniques you’d suggest for restaurants to hire and attract talent? How has this changed compared to pre-COVID days?

Attracting new candidates remains a pervasive challenge. Despite receiving hundreds of applications, setting up those interviews and taking the candidate process forward has proven difficult. Often, employers are offering incentives such as payments to simply show up to an interview. Restaurants can continue to consider incentives and rewards to attract candidates, such as by proactively highlighting differentiated employee benefits and cultural perks and offering trainings and paths to higher management roles and greater compensation conversations. Given that general managers are short-staffed and doing more hands-on work within the restaurant, more franchisees are also hiring employees at the corporate office who specialize in recruiting restaurant-level employees.

Shifting to the topic of real estate, what are you seeing? And do you believe outdoor dining will continue to play a role after the pandemic subsides?

As uncertainty from the pandemic continues, restaurants that offer indoor dining are branching out wherever possible. Most are utilizing sidewalk space or parking spots in front of their buildings. While these can make for creative dining locations, they also come with the added complexity of negotiating with the city to secure their use as well as infrastructure investments to maintain them.

The weather is also a major factor—while warmer areas across the U.S. will continue to offer outdoor dining year-round, colder weather states may endure difficulty once winter hits. The impact of COVID-19 variants is further complicating and delaying dining plans, as safety precautions continue to shift. That said, given many customers prefer to eat outdoors even if indoor dining is permissible, we do feel outdoor dining is here to stay.

And what about ghost kitchens? Is a shakeout coming as the category gets flooded with new entrants? Or is there still plenty of demand?

Ghost kitchens are becoming integral to quick-serves and in-room dining establishments alike, and there are many new entrants in the space. Ghost kitchens are especially beneficial to restaurants that may not be able to offer indoor and outdoor dining but can offer takeout and delivery services. They have become a lucrative new business model for those who either had to pivot their services during the pandemic or were eager to take advantage of a growing white space. While we still should observe how ghost kitchens will function in the long-term, I feel confident they are here to stay.

What about “eatertainment?” This was one of the industry’s fastest-growing categories ahead of COVID and one of its hardest hit during. Is a resurgence in order? If so, what do brands in this sector need to do to ease consumers’ concerns?

Establishments who offer eatertainment are coming back with a vengeance. While this space was hit hard due to the pandemic, restaurant goers are increasingly feeling more comfortable returning to these establishments due to the increase of sanitation requirements, like intense cleaning protocols and rigorous air ventilation standards. The resurgence isn’t in order, it’s happening.

Moving on to the future, how could investing in a successful ESG (environmental social governance) strategy and running a sustainable business across the restaurant supply chain increase revenues and shareholder value? And why is this a vital target?

Increased awareness around climate change, racial, and social equity issues and COVID-19 has changed the way that many companies think about ESG strategies, and this applies to the restaurant industry as well. Consumer pressures have driven restaurants to focus on ESG. It has also become increasingly important that employers are purpose-driven with specific ESG and DE&I initiatives in place. Millennial and Gen Z restaurant goers, too, are especially more likely to consider ESG factors when entering a restaurant or ordering take out, asking themselves, “is this restaurant purpose-driven and socially and environmentally conscious?” before they choose to open their wallets.

In recent studies, we have seen that over half of all consumers say that a company’s purpose and values play an important role in their decision-making. Well-integrated ESG strategies can provide real value in helping restaurants stay successful in the face of disruption while delivering for the common good of all its stakeholders, ranging from employees and customers to investors.

With millennials/Gen Z representing the largest workforce segment, should we expect businesses to be socially active and purpose-driven well into the future? Are consumers making dining decisions based on ESG factors?

Millennials and Gen Z workers and consumers alike will continue to value companies who are purpose driven and socially conscious. While high-quality food and service will also remain important, commitment to ESG has also become a critical part of their decision making, more so than previous generations.

Let’s talk about technology. What are some COVID trends you believe will last well beyond the pandemic? Is there such a thing as too much tech, especially for full-service restaurants, coming out of COVID?

Every company has a list of priorities as it relates to technology investments, and some are more expensive or labor intensive than others. Every restaurant should assess their technology needs and investments based on their target customer segment(s), preferred customer experience and unique financial situation. To accelerate their digital platform, we are seeing restaurants scale up investments in digital marketing, high-tech delivery and takeout platforms, loyalty programs and payments technology such as card and touchless. Proper use of a POS system is imperative to run a successful restaurant, and more restaurants are implementing AI into their POS systems to maximize on its benefits. As consumers continue to demand digital-first restaurant experiences, we feel these critical technologies are here to stay.

On the marketing front, how has the past year changed things? Social media promotion, Twitch, and other platforms have gained relevance. Will this continue?

It’s now even more imperative to have a social media function in your marketing platform with a keen eye on what’s trending and what’s next. As consumers return to restaurants in force, targeted and engaging social media outreach is critical to standing out from competitors. The pandemic solidified smart phones as the primary mode for identifying and selecting restaurants. Combined with time spent on social media, restaurants need to reach prospective diners where they are with posts and promotions that quickly grab attention while highlighting any specials, discounts or perks. Quick response times are also more critical than ever—failure to respond quickly and meaningfully can lead a consumer to turn elsewhere. Any customer issues must also be addressed head on to mitigate the risk of negative review and preserve reputation.

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