No two success stories are the same. But the industry can learn from universal challenges.

We don’t need a room of experts to confirm opening a restaurant is daunting. First-year failure rates jump around dramatically, but it’s splitting hairs. The reality is that many restaurants open, but far fewer enjoy lasting success. And those who do survive into Year 2 don’t suddenly hit cruise control and let the profits stack up. One truth about this industry, an infuriating and intoxicating thing, is that what worked yesterday could easily fail tomorrow. There is no room for stagnation. It’s what makes the restaurant industry dynamic, exhilarating, challenging, and fulfilling. And it explains why operators get the bug and can’t shake it.

Today’s successful restaurateur is always learning, constantly testing new approaches, and paying attention to consumer behavior like it’s an extra limb. What’s key to note, though, is that every restaurant defines success differently. The 12-seat, omakase spot in San Francisco has a completely different set of goals than Applebee’s. But there are roadmaps to success every restaurant can subscribe to. It just comes down to noticing forks in the path and knowing which direction is best. And investing and barreling down the one that matters most to your brand.

Point-of-sale provider Toast shared its annual Restaurant Success Industry Report with FSR. There are some key findings worth exploring that could provide guidance headed into next year and beyond. The company surveyed 1,253 restaurant owners, operators, and staff, as well as 1,030 guests to understand their thoughts on what makes a great restaurant, the technology trends driving change, and where the industry is going.

Let’s start with the definition

Again, the question, “what does it mean to run a successful restaurant?” is not a broad-stroke query.

Yet these challenges, ranked in order by importance in Toast’s study, might sound familiar.

  1. Hiring Staff
  2. High operating and food costs
  3. Training Staff

Fifty-two percent of restaurant professionals named high operating and food costs a top challenge. Sixty-five percent said they raised menu prices in 2018 (up from 56 percent the previous year).

That’s a pretty telling statistic. And it likely comes in response to these other figures: 51 percent of operators said they have challenges with hiring staff; 35 percent with training staff; and 31 percent with retaining employees.

All of these concerns, given the tight labor pool and incentives needed to attract quality workers, raise costs. Fully staffing restaurants is critical, but it’s not cheap. Most vividly, 19 states increased minimum wage this year. Those wage pressures come with a price tag for consumers. But one of the issues surfacing lately is whether or not higher wages have led to improved consumer spending. For now, there seems to be a correlation. TDn2K VP of insight and knowledge recently said, “Restaurants have suffered from declining guest counts, but the relatively stronger economy of the last two years has enabled rapidly accelerating guest checks to lift the industry into positive same-store sales growth.” In other terms, the traffic problem has persisted for a decade, ever since the industry’s expansion began in the wake of the Great Recession. Only now a better economy is allowing restaurants to raise prices and offset some of the traffic hit.

This past March, for example, growth in average check was 3 percent, year-over-year. The pace at which guest checks grew accelerated throughout the year. On average, it upped 3 percent to that date since the fourth quarter of 2018. For perspective, the average was 2.4 percent for the first three quarters of last year.

Meanwhile, comparable traffic declined 3.14 percent in June and is down 2.88 percent in the rolling three months.

Restaurants simply have fewer guests to serve these days given the saturation of the industry. Couple that with rising wage pressures and the situation is complex, to say the least. Since the end of last year, the industry added jobs at a pace above 2 percent, year-over-year, every month, per TDn2K. Job growth was 2.2 percent in May. That’s placed a lot of added pressure on staffing. Toss in the stat that nearly one out of every five restaurant companies are continuously understaffed at the GM level, and there’s no surprise turnover rates are skyrocketing.

In many cases, restaurants are understaffing locations not because they can’t find willing employees—they just can’t afford them. With higher wage rates, some brands just need to do more with less. And does that negatively affect customer experience? It probably does. But there’s no escaping the challenge. Razor-thin margins operators (according to IBISWorld research, 67 percent of revenues go to wages and purchasing expenses and the average restaurant has just a 6.2 percent profit margin) aren’t going away.

Here were some other numbers from Toast in regards to challenges:

  • Tough competition: 21 percent
  • Understanding my restaurant’s metrics: 21 percent
  • Laws, restrictions, and government regulations: 23 percent
  • Optimizing speed and efficiency: 32 percent

The company dug into these to understand better how they translate to successful restaurants. It crosschecked the responses by comparing restaurants that said they saw a positive trend in net profit to restaurants that said they saw a negative trend in net profits. This explained how each group approached specific concerns.

Some takeaways: Less-profitable restaurants are aware that the cost of doing business (rent, inventory, salaries, etc) is affecting their bottom lines. Successful operators worry, too, at 49 percent, but are more focused on hiring staff to support their restaurants.

“Unprofitable restaurants may want to focus their efforts on hiring, training, and retaining high-performing staff members, as their contributions will increase sales, helping offset high operating and food costs,” Toast said.

The biggest challenges

Unprofitable versus profitable restaurants

  • High operating and food costs: 60 versus 49 percent
  • Hiring staff: 54 versus 53 percent
  • Training staff: 26 versus 40 percent
  • Retaining staff: 39 versus 29 percent
  • Attracting and retaining customers: 30 versus 31 percent
  • Optimizing speed and efficiency: 29 versus 36 percent
  • Tough competition: 20 versus 20 percent
  • Laws, restrictions, and government regulations: 26 versus 21 percent
  • Understanding my restaurant’s metrics: 15 versus 21 percent

An Empty Restaurant With Tables And Chairs With Menus

Declining traffic is a reality many restaurants face.

Where’s the optimism?

Despite the mounting tasks ahead, restaurant professionals said they were mostly optimistic about their prospects in 2019. Contrary to recent years, it appears the percentage of diners eating at home is decreasing (that doesn’t necessarily mean dine-in traffic is lifting. There are just more options now to get food where you want it, when you want it).

Per Toast’s data, 91 percent of restaurateurs expect their profit to increase in 2019 compared to 2018.

How it broke down:

  • Increase somewhat (5–10 percent): 39.4 percent
  • Increase significantly (more than 10 percent): 34.3 percent
  • Increase by a little (less than 5 percent): 18.2 percent
  • Roughly stay the same: 7.1 percent
  • Decrease by a little (less than 5 percent): 1 percent

However, compare this to the number of restaurants that actually increased sales in 2018 and it presents a very different picture. While 62 percent of restaurants saw an increase in profit last year, 13 percent said profit was steady, and 12 percent reported a decrease.

Comparing 2018 to 2017, what was the trend in net profit?

  • 28 percent: Increased somewhat
  • 21 percent: Increased significantly
  • 13 percent: Roughly stayed the same
  • 13 percent: Increased a little
  • 13 percent: My restaurant was not open
  • 5 percent: Decreased a little
  • 5 percent: Decreased somewhat
  • 2 percent: Decreased significantly

The data suggests a positive trend. Toast found that 51 percent of restaurants witnessed an increase in profits between 2016 and 2017; 17 percent saw profits decrease; and profits stayed the same for 16 percent of operators. In this year’s report, a larger number of restaurants said their profits increased than the previous year. The curve is turning upward.

Let’s look deeper at the responses to these challenges. Raising menu prices is the obvious one hogging headlines. Rightfully so considering it’s approaching 70 percent. But it’s not the cure-all for everybody, and it’s not the only option if you’re running a restaurant that fiercely guards its value proposition.

  • 65 percent: Raising menu prices
  • 50 percent: Changing the menu
  • 47 percent: Scheduling staff for fewer hours
  • 28 percent: Changing hours of operation
  • 16 percent: Halting hiring efforts
  • 13 percent: Laying off existing employees
  • 11 percent: Adding a credit card fee
  • 5 percent: Lowering salaries
  • 3 percent: Other
  • 2 percent: Done

Take solace in the fact that nearly everybody (98 percent) has had to make some change to offset rising challenges, like labor and overtime laws. You’re not in this alone.

What would you do, if you could afford it?

Toast asked an intriguing question to operators: If additional capital was available, where would it go?

  • 47 percent: Repair or update equipment
  • 44 percent: Renovate or remodel my restaurant
  • 32 percent: Franchise or open another location
  • 27 percent: Buy new technology
  • 26 percent: Hire more roles
  • 19 percent: Buy new real estate
  • 7 percent: Other

Some of these “other” responses included buying a liquor license, which can run upward of $40,000, expanding seating and outdoor options, investing in training, and boosting marketing spend. One operator said they’d like to add a living wage surcharge for staff. Another mentioned that lack of available staff prevented them from running at full capacity. The result: The restaurant has had to turn away business. A scary equation that plays out every day for many operators.

Rory Crawford, the co-founder of BevSpot, suggested in the report that restaurants could focus on key ingredients or top-selling menu items to stay on top of menu profitability. This way restaurants can uncover opportunities to either re-price, re-portion, or feature differently with menu items that can significantly increase profits.

Only 9 percent of restaurants said they’ve experimented with no-tipping setups.

How do you rise above?

Here’s a problem restaurants have seen play out all too often: They waste time on re-hiring the same positions every few months when someone leaves. Replacing an hourly employee can cost nearly $6,000, according to a study from Cornell’s School of Hotel Administration. So if a restaurant is maintaining a 73 percent annual employee turnover rate (which is actually lower than many counter-service brands), that’s potentially $428,072 or more being lost. It’s even more for GMs.

And as Toast rightfully explains, high turnover isn’t just costly—it impedes team bonding and collective growth. It’s also frustrating.

What are restaurants doing:

  • 31 percent: Providing health insurance to staff
  • 30 percent: Say competing with high-paying job offers is a top challenge in preventing employee turnover.
  • 8 percent: Employ a no-tipping model and 6 percent add a back-of-house service charge to the check.

Seventy percent of operators said they have an employee handbook to help in the onboarding process, and 53 percent said they provide trainings for food safety and alcohol serving certifications. Also, 46 percent said they put an emphasis on shadowing and mentorship to emphasize the potential for employee growth. Another 32 percent provide sexual harassment training to ensure a safer environment for all staff.

Right now, staff turnover rate is soaring, averaging an all-time high of 75 percent per the Bureau of Labor Statistics. When you consider that almost three-quarters of employees are likely to bolt before a year, it’s a troubling battlefield.

What programs do restaurants offer new hires?

  • 68 percent: Employee handbook
  • 53 percent: Food safety & alcohol certifications
  • 52 percent: Training manual
  • 46 percent: Shadow/mentor program
  • 39 percent: Orientation classes
  • 36 percent: Formal check-in after 30/60/90 days
  • 32 percent: Sexual harassment training
  • Online training: 19 percent
  • None: 7 percent

“So why do people leave? Higher-paying job offers was the number one reason why restaurateurs thought their staff members were leaving,” Toast said. “Restaurateurs also noted that they struggle to train their employees sufficiently to excel in their roles, which is linked to the next common problem they’re facing: employee performance.”

The benefit of benefits

Yes, money talks. Always. But this generation increasingly cares about quality-of-life elements in the workplace. It’s one of the main reasons they stick around. Millennials like to feel as though they’re part of a club that shares their core beliefs. If they feel they don’t belong, they probably won’t stick around. Too many options out there. Here’s a deeper dive into the subject.

Toast asked restaurants what benefits they offer employees.

  • 31 percent: Health
  • 23 percent: Worker’s compensation
  • 21 percent: Dental
  • 18 percent: Vision
  • 18 percent: 401K
  • 14 percent: Paid family leave
  • Disability coverage: 11 percent
  • Transit/commute reimbursement: 4 percent
  • Other 3 percent

Benefits have long been a contentious topic for hospitality companies. The restaurant industry has some of the higher rates of underinsured and uninsured employees, which leads to financial insecurity for many people. It’s why workers often leave restaurants for more stable pay and benefits—not because they dislike the work or company.

However, it’s not as though restaurants operators are cold hearted individuals who don’t want to support employees. It’s simply very difficult to provide benefits, especially for small businesses. Health insurance, in particular, is extremely costly for low-margin operators. Even more so with high turnover rates. Many restaurants elect to provide health insurance after a certain amount of time employed as opposed to when people are hired.

The tipping debate rages on

Danny Meyer’s bold statement he was ending tipping at his restaurants four years ago stirred a firestorm of debate. The topic has trailed off a bit since. The model works for some but not others. There are still customers who want that control. Plain and simple. And not everyone is OK with seeing that extra charge on their checks.

Per Toast’s data, just 9 percent of the market are experimenting with the no-topping model, opting to either pay high hourly wages to all employees or adopt a revenue/profit-sharing model.

Which tipping method does your restaurant use?

  • 53 percent: Cash-out tips (servers take home the tips they earn, minus taxes, table by table, at the end of the night).
  • 25 percent: tips as wages:
  • 17 percent: Automatic gratuity
  • 11 percent: top pooling
  • 8 percent: No tipping
  • 6 percent: Back-of-house service charge

It isn’t easy

Toast asked operators, “when you think about your experience managing labor and payroll, what are the top difficulties or frustrations you encounter?”

  • 19 percent: Overtime calculations for employees with service charges and multiple rates of pay
  • 13 percent: Employee turnover
  • 13 percent: Employee management in two or more systems
  • 12 percent: Managing employee schedules
  • 9 percent: Tip calculation
  • 9 percent: multi-location management
  • 9 percent: Time important to payroll
  • Recruiting the right employees faster: 7 percent
  • Managing compliance with local labor laws: 6 percent
  • Buddy punching: 5 percent

The No. 1 complaint isn’t overly surprising. Dealing with blended overtime, or calculating overtime pay for employees with service charges and multiple rates, is a headache. If an employee works some shifts as a server and others as an assistant manager, they must be paid for overtime hours at a “rate of not less than one-and-a-half times the weighted average of all non-overtime rates used during that workweek,” according to EPay systems.

The power of email

Chains across the restaurant landscape are collecting consumer data at unheard of rates. Whether through digital recipes, loyalty programs or comment cards, you can argue operators know more about guests than ever before. Everyone is what the pizza industry once was. Yet what do you do with that data?

Email marketing is an effective tool but it walks the line of being intrusive, spam-y or just getting lost in someone’s overflowing inbox.

Per Toast’s data, 31 percent of guests said they’d be happy to receive emails from a restaurant once a week, and another 29 percent said they only wanted to hear from a restaurant once a month. Also, 21 percent said they don’t ever want to hear from a restaurant. As always, have an opt-in button.

What should you say in the email? That’s critical, too, since the days of mass marketing are quickly dissipating.

One to circle: 87 percent of guests said they loved hearing about specials and discounts.

Are gift cards still important?

Forty-one percent of restaurant professionals said gift cards are an extremely important part of their strategy. However, only 12 percent of guests agreed. The reason they’re ambivalent: Toast believes it’s because customers don’t want to carry around physical gift cards anymore. Sixty-nine percent of restaurateurs are now using digital gift cards, either via text or email, and that trend should only gain speed.

Reaching guests

One of the biggest challenges in today’s restaurant climate is how to reach customers. Foot traffic isn’t what it once was. Case in point: Malls. Just like retail, it’s—in most cases—a losing strategy to rely solely on spontaneous business.

Here’s what Toast found:

  • 88 percent: Guests said recommendations by friends and family influence their decision to visit a restaurant.
  • 91 percent: Restaurants that use Facebook (78 percent use Instagram, too).
  • 51 percent: Guests who ordered directly from a restaurant’s website in the past month.

The last stat is worth circling with a bright marker.

Toast found that 45 percent of surveyed diners eat at a restaurant multiple times a week. Another 20 percent said once a week. Six percent said every single day. What this says is there are no shortage of people eating out. That’s not slowing down. But considering the growing pool of options, inspiring repeat visits is a nuanced task.

Toast juxtaposed why guests and restaurant owners think customers pick a certain spot.

Sometimes, while it’s hard to admit, it’s best to follow the guest and not our own heart.

Clearly, word-of-mouth marketing is invaluable. Restaurants seem to be overemphasizing the impact of Facebook, which could be worth remembering when spending those marketing dollars. Online reviews were also valued higher by owners. That probably makes sense considering the ramifications—a Harvard Business School study showed that a one-star increase on Yelp can boost revenue by 5–9 percent. Those operators are putting stock in something essential.

Let’s look at the same side-by-side kind of glance into why people choose one restaurant over the other.

The key here: Quality of food always reigns supreme, and maybe value isn’t as critical as we think. Or at least some diners don’t want to admit that. Also, value has so many definitions it’s hard to lock down in a survey. And it varies dramatically by customer base. There are always going to be value seekers. Some look for it in price. Others in experience.

“Restaurants in the U.S. have come to understand the value of marketing: The country has more than 660,000 restaurants, and great food isn’t always enough to stand out anymore,” Toast said.

Who at the restaurant handles marketing?

  • 34 percent: A dedicated employee.
  • 24 percent: An employee, owner, or GM who mainly has other responsibilities and focuses a small amount of time (less than 25 percent) on marketing.
  • 21 percent: An employee who devotes a significant portion of their time (more than 25 percent0 but who has other responsibilities.
  • 11 percent: My restaurant does not do any marketing
  • 10 percent: I don’t know

It’s important to note that this question included marketing campaigns and efforts such as putting out advertisements, deciding on promotions, and managing social media accounts.

Getting social

Here’s how the platforms broke down in response to how restaurants market:

  • 91 percent: Facebook
  • 78 percent: Instagram
  • 39 percent: Twitter
  • Linkedln: 16 percent
  • YouTube: 14 percent
  • Snapchat: 13 percent
  • None of these: 3 percent

Instagram, as it’s been widely explored, is on the rise with restaurants. In 2017, only 18 percent of operators said they used the platform to promote their businesses. It was 24 percent last year. This year marks a rather impressive leap.

Twitter has also picked up steam, going from 4 to 2 to 39 percent in that same span.

Where’s the money going?

Toast asked which of these advertising and promotion methods will your restaurant pay for in 2019.

  • Social media ads: 67 percent
  • Community/event/charity sponsor: 53 percent
  • Google/search engine ads: 42 percent
  • Newspaper/magazine ads: 32 percent
  • Public relations/agency partnerships: 24 percent
  • Direct mail ads: 22 percent
  • TV ads: 11 percent
  • Other: 5 percent
  • None of these: 4 percent
  • Radio ads: 2 percent
  • Billboards: 1 percent

The online ordering conundrum

By now, for most restaurants, off-premises is a love-hate relationship with staying power. Convenience rules the marketplace and full-serves can’t run from it like they once did. The reason being that fast casual brought quality into the limited-service arena that muddied the age-old trade off. Sit-down brands don’t have room to rest on their food laurels anymore. There are great options available in grocers, C-stores, and even at quick-serves that once ignored ingredients with reckless abandon. Everyone has stepped up.

Which of the following have you used to place an online order from a restaurant in the past month?

  • 51 percent: A restaurant’s website
  • 38 percent: An online ordering aggregate site (like DoorDash or Grubhub)
  • 29 percent: An app for a restaurant or food ordering service (such as LevelUp).
  • As third-party apps have grown in popularity, so have restaurant-specific ones. This is maybe a more prominent reality in quick service but it’s worth paying attention to. If users skew more app than brand loyal, it could pay off to give them both. For multi-unit brands, the tech has boom potential.

Are guests platform loyal?

Most studies say yes. For restaurants, this often means it’s important to be represented across multiple third-party delivery platforms. McDonald’s recently inked a deal with DoorDash to expand its reach after getting to 9,000 or so restaurants with Uber Eats. For a giant franchise system, this is critical because brands tend to be reluctant to advertise heavy behind the service when the entire system isn’t onboard. And given that aggregators aren’t shy to market their own trial deals, restaurants able to put message behind delivery will have a leg up over those who don’t. Awareness remains one of the biggest hurdles for restaurants looking to break into the space.

Also, working with multiple aggregators allows restaurants to diversify their customer base.

Toast then asked what are the most critical factors when it comes to online ordering for delivery.

Restaurants versus guests

  • Speed: 57 versus 77 percent
  • Value (low delivery fees): 49 versus 74 percent
  • Quality of food when delivered: 75 versus 72 percent
  • Ease of ordering: 59 versus 60 percent
  • Tracking delivery driver progress: 40 versus 10 percent
  • Ability to gain loyalty points: 22 versus 6 percent

One result stands out: Delivery diners care more about the speed of arrival than the quality of the food (77 percent to 77 percent). Take that into consideration when choosing where to invest.

Menu moves

It is clear guests are becoming more health conscious. Forty-three percent of Americans claim to always be on the lookout for healthy options. Fifty-two percent say they at least sometimes do so, according to the International Food Information Council. How are restaurants meeting this demand?

Which dietary preferences do you have (guests) versus do you have menu items that category to the following dietary preferences (restaurants)?

Thirty-seven percent said they display information, like calories, on printed or display menus. Thirty-six percent said they plan to start, and 27 percent said they don’t plan to.

How frequently do restaurants update their menus?

Where technology fits

In Toast’s study, the most important restaurant technology featured turned out to be online reservations. Where would many full-service brands be without them? Fifty-one percent of respondents gave it a 6 or 7 on a scale of 8. WiFi availability was labeled extremely importantly by nearly 70 percent of people.

That’s needed for guest satisfaction. It’s also essential to take in third-party orders and other digital business.

Interestingly, 20 percent of guests said handhelds were extremely important to their experience. They result in faster turnaround times for food and drink orders, and they can pay, sign, and tip with the tap of a button. But would that work in a fine-dining spot? Everything should be considered case to case, restaurant to restaurant. Forty-seven percent of restaurant operators said handhelds were extremely important to their strategies and 47 percent said they were somewhat important. Handhelds lead to better throughput and give staff notifications, helping improve communication and cut down on running back and forth from the kitchen to table.

Consumer Trends, Delivery, Expert Takes, Feature, Labor & Employees