The restaurant industry is optimistic about 2023. But that doesn't mean it will be easy.
The pain of the pandemic has forced needed change in our industry—for operators this meant smaller menus, fewer SKUs, a focus back on the core business, greater efficiency, expanded off-premises services, and more thoughtful innovation.
As an industry we must look forward. Operators and suppliers must embrace our new food-away-from-home landscape. Yes, there is still work to be done—on building improved profitability and managing persistent and frustrating supply chain issues.
READ MORE: The State of Restaurants in 2023
We believe operator-supplier communication, transparency, and collaboration will be more critical than ever before.
This calendar is not a year to let your guard down, whether you’re a supplier or an operator.
Let’s look ahead. Here are Kinetic12’s eight predictions for 2023.
- Profitability is now job No. 1
- Labor engagement creates efficiency
- Supply chain disruption will persist and require supplier collaboration to manage
- Careful and strategic expansion of menu innovation
- Technology will solve problems
- Consumer brand loyalty will drive frequency
- Off-premiss execution will improve
- Hybrid prototypes are the future
1. Profitability Is Now Job No. 1
In 2022, many operators experienced low to negative profitability because of a combination of forces, including their inability to fully cover unprecedented cost increases, the new labor shortage environment, the dramatic consumer shift to off-premises, and painful and on-going supply chain issues.
Many business model adjustments have occurred to address these pressures.
In 2023 we see an elevated focus and investment to address profitability by understanding the change driven by the pandemic and, secondly, making the big adjustments needed to make their business models profitable in a long-term sustainable way.
We see profitability in 2023 as a function of these five variables:
- Optimizing price without impacting frequency
- Reducing labor turnover and controlling labor hours
- Controlling costs and cutting waste
- Ensuring individual menu item profitability
- Maximizing high-margin off-premises business
2. Labor Engagement Creates Efficiency
A critical post-pandemic shift has occurred in the labor market creating an industry-wide labor shortage and specifically a shortage of properly skilled people.
To make the situation worse the industry is experiencing high labor turn-over as employees are quick to “jump ship” to what they perceive are better or higher paying jobs.
In 2023 we see a continued and elevated operator focus on team engagement to address these labor realities, including: investments in training, promotion from within, work-life balance programs, new compensation models, increased employee communication, greater scheduling flexibility, and allowing the team to have a greater say in their work environment.
In Q4 22 “labor,” as a business issue, moved back up to the No. 1 and No. 2 spots in the Kinetic12 Emergence survey. Hiring great people is important but hiring the right people and keeping them through engagement programs is now the focus.
3. Supply Chain Disruption Will Persist & Require Supplier Collaboration to Manage
The last two years of chronic supply chain disruption has been a stark reminder of the critical importance of guaranteed supply and elevated the function of supply management to a higher level.
Moving forward into 2023, we expect that supply disruption will persist, and the supply chain function will maintain a higher focus with operators. Many are waiting for the inevitable next supply disruption event, and therefore we expect continued investment in minimizing supply risk by adding second suppliers, broadening specs, elimination of problematic custom products, maintaining smaller menus and reduced SKU counts.
In terms of supplier management, we predict supplier collaboration to become even more important, but not with everyone. Operators will be selective as to which suppliers get pulled “into the tent” and to rely more heavily on their “strategic” supplier partners. Supply chain manager’s time is at a premium more than ever before and there is little appetite for wasted meetings and non-value-added projects. We see a higher expectation on suppliers to bring value and solutions.
The Q4 22 Emergence survey ranked operators' preferred supply chain solutions from 1–12.
It is interesting to note that many of these are compensating behaviors for an inconsistent supply chain, and not long-term solutions. In 2023 we expect operators to evolve away from these short-term fixes by re-thinking their supply chain partners and strategies and push to a long-term solution.
- Having back-up items pre-approved
- Constant communication with suppliers/distributors
- Approving more substitutions
- Keeping more inventory on hand
- Having a better sourcing plan in place for markets with fewer locations
- Innovating on products that are readily available
- Running fewer LTOs
- Cutting the overall number of SKUs
- Ordering further ahead
- Eliminating proprietary SKUs
- Buying local
- Removing menu items
4. Careful and Strategic Expansion of Menu Innovation
In 2023, we predict operators will increase their pace of innovation and LTOs but do it more strategically—based on insight, not emotion, using a pipeline of ideas and a published process for testing … and to ensure that any new idea is margin accretive to the business.
For some operators, LTOs have been used as a marketing tool to create interest and drive traffic but there is a heavy burden on the organization to do that through innovation. It impacts purchasing, training, and execution consistency.
Over the past two years, many chains reduced their pace of innovation to focus on cost management and, frankly, staying in business. This year brings a clean slate of opportunity, and we will see more innovation in all aspects of the menu, including off-premise specific items, snacking, profit-drivers, catering and bundling, and need-state positioned items.
The Evolution of the Innovation Mindset
Through 2022, the top two answers to the survey question on innovation mindset shows a consistent move to more careful and strategic innovation. This means a focus on “retrenching” back against the restaurant’s core positioning, on profitability, the need for change, and embracing the new post-pandemic environment.
5. Technology Will Solve Problems
The evolution of technology as a mechanism for greater efficiency, labor management and streamlined customer interaction will continue. The torrid pace of tech adoption we saw through the pandemic will not let up in 2023.
New technology will focus on making it easier for customers to order and pay, but also to engage with restaurants on the things that are important to them, such as through an app-based loyalty program that keeps them connected with innovation and special offers.
Technology will also provide greater productivity and efficiency within the restaurant by adding better training tools, inventory management systems, new tech-savvy kitchen equipment, and by collecting and analyzing customer transaction data.
New systems and technologies are rushing into the foodservice industry driven by the crunch of COVID-induced issues. There are many problems to be solved and technology aims to solve them.
Throughout the four quarterly 2022 Emergence surveys the top five technology investment areas have remained largely unchanged. That is because these are the five critical business needs where operators see tech as a solution.
Top Five Tech Investments:
- Management Analytics Tools
- Social Media Marketing
- Employee Engagement, Scheduling, and Training
- Supply Chain Inventory and Order Management
- E-Commerce and Digital/App Functionality
6. Consumer Brand Loyalty Drives Frequency
With menu pricing continuing to be under pressure in 2023, consumer expectations will rise along with the price. This only adds pressure to consistently execute with excellence.
Loyalty and frequency go hand in hand. Heavy users drive the business and for them, consistency is expected.
In 2023, building loyalty and repeat visits will once again become a critical focus for restaurants. This took a back seat the last two years to managing costs and staying open. But now the focus on loyalty is back.
Loyalty is driven by four things—these will be a critical focus for operators this year:
- Dependability— i.e., consistency
- Being better than other options—flavor, service, value, etc.
- Delivering on the need state that drove the occasion—e.g., quick meal, social gathering
- Creating a great experience—making an emotional connection in some way.
In 2023 operators will continue with a renewed focus on delivering value to their customers. In the Q4 22 Emergence, operators ranked the tactics they are using to deliver value. Interestingly, the top 3 answers were about consistency, experience, and loyalty programs—a trend we see continuing.
7. Off-Premises Execution Will Improve
The explosion of off-premises foodservice has been arguably the biggest impact of the pandemic on the industry. Chains that had it, refined and expanded it. Chains that did no takeout were forced into it to survive and now see it as a critical part of their business model.
The fact is off-premises is good for business. Orders are larger and there’s no dine-in costs. Growing off-premises is the single greatest revenue opportunity for most restaurants.
At the same time, one of the greatest challenges foodservice faces is improving the quality and experience of off-premises. Unfortunately, restaurant food is not designed to travel. Few foods hold up well over time and, clearly, it’s impossible to replicate the in-house experience at home.
Despite that, consumers love it and want more of it. They will continue to look for better take-home and on-the-go options and will expect it to be easy to order, pay for, pick-up and get delivered.
In 2023, optimizing off-premises execution will be one of the top trends and areas of investment in our industry. This involves developing custom off-premises menu items, upgrading the order and pay systems that enable it, and making capital upgrades to drive-throughs, curbside and take-out areas to make it easier for customers to get.
Why Operators Like Off-Premises
- Orders are larger, on average.
- It’s easier to execute. The customer does a lot of the work by ordering online and there’s no dining room to clean.
- It’s easy to promote profitable add-ons, which have a higher take-rate online.
- It’s easy for staff to multi-task (takeout window, curbside delivery, expeditor).
- Longer-term, it allows for less dine-in and the reduction of the size of the restaurant footprint.
8. Hybrid Prototypes are the Future
Last year was the year of developing and opening new prototypes. They were smaller, required less labor, were cheaper to run, and designed to better manage off-premises volume. They were also less expensive to build and incorporated innovative systems and designs.
The good news for 2023 is that we expect some stability coming back to the supply chain so the nightmare of construction delays will ease, though not entirely.
Regardless of whether labor improves, or inflationary pressures recede, the industry-wide march forward to re-invent itself will continue.
It’s an exciting time for foodservice. Innovation is on full display and consumers will reap the benefits of sleek, attractive, and efficient new restaurant designs.
What will new restaurants look like?
Our Q4 22 Emergence survey ranked the most successful design elements in recently opened prototypes.
This year, will be a different year for foodservice. We predict more stability than the past 3 years and a refreshing refocus on the fundamentals of good business.
Bruce Reinstein and Tim Hand are partners with Kinetic12 Consulting, a Chicago-based Foodservice and general management consulting firm. The firm works with leading Foodservice suppliers, operators and organizations on customized strategic initiatives as well as guiding multiple collaborative forums and best practice projects. They also engage as keynote speakers at operator franchise conference and supplier sales meetings. Their previous leadership roles in restaurant chain operations and at Foodservice manufacturers provide a balanced industry perspective.
Contact us to talk or learn more about how we can help your organization understand the Restaurant of the Future and how Emerging & Growth Chains will define the future of Foodservice. Bruce@Kinetic12.com or Tim@Kinetic12.com.