A taste of things to come: Trends in the restaurant sector
June 30, 2016
The restaurant sector might seem to be comparatively immune from some of the technological and other megatrends now confronting businesses across the world. After all, a meal is a meal, and you can’t eat it virtually. But complacency would be dangerous in this sector, and restaurants are actually facing some fairly seismic changes, not least the impact of digital technology. So what exactly are we talking about? Let’s take a closer look.
Perhaps the biggest single trend of the last year or so has been the rise and rise of the ‘delivered to home’ phenomenon. This goes way beyond conventional ‘takeaway’ or even special takeaway menus - services like Deliveroo and Just Eat now bring high-quality food from restaurants’ regular menus right to the door. This is a significant opportunity for restaurant operators, but it also challenges them to adapt their business models to cope with the additional throughput, and manage the other operational challenges this approach brings, some of which may not be immediately obvious (there have been several incidents of local parking and traffic problems caused by delivery bikes, for example).
The home delivery trend overlaps with another, which is the blurring of the boundaries between what were once separate segments within the sector. This is a trend we’re seeing play out in many other industries, albeit in very different ways. Thus just as conventional restaurants are blurring with takeaway operations, so food to go and coffee shops like Pret and Costa Fresco are looking to further extend their food offering into new areas, including evening dining. And that’s only one example: it seems every operation selling some sort of food or drink service is looking at ways to expand that laterally. And there are a lot of new entrants too. In short, competition is hotting up, and mainstream brands need to stay agile and open-minded about how they respond.
Other trends we see growing over the next few years? Freshness, provenance and healthy eating will definitely gain more ground, and consumers will continue to explore new tastes. Cuisines like Korean, Thai, Vietnamese and Latin American, which were once confined to one-off and family businesses are now being rolled out as successful chains.
And last but not least, technology. Probably more of an elephant in the room for this sector than many others. Restaurants have been slower than some to fully exploit the possibilities of new technology. Online booking has been available for a while, both through restaurants’ own sites and services like OpenTable, but there’s still more that can be done here, and with digital and social media more generally. There’s also an untapped opportunity inside many restaurants. Consumers tend to complain more often about delays in paying for their meal than about the meal itself, and introducing digital payment systems could really help here (as well as releasing tables more quickly). Ordering via smartphones/tablets is another possibility, and an example of how UK outlets at the lower price points could reduce staff costs as they look for new efficiencies to cope with the National Living Wage.
On the menu: What are investors looking for in a restaurant business?
- How differentiated is the proposition to customers? Is it more ‘me too’ or something that genuinely stands out (which is much harder to achieve in a crowded segment like pizza/pasta)?
- How strong is the brand? What do customers think about it, online and elsewhere?
- How robust is the business model? This applies both across the whole business and at a site level. Key parameters here are sales densities, gross margins and staff costs.
- Does it have a proven track record? What investors will look concentrate on here is like-for-like sales and how consistent performance is between different outlets in different areas.
- What is the scope for growth? In other words, can the business be scaled up? What headroom is there in that segment of the market or to grow the segment? Can the business expand into new types of locations or internationally?
- And finally, as with every investment decision… How strong is the management team?
What do you think the future holds for restaurants in the UK? Share your thoughts below or schedule a meeting to discuss your situation in confidence.