from APT's Restaurant Practice

What’s on tap for restaurants in 2015?

January 15th, 2015 | Posted by Admin in Restaurants

In 2014, more restaurants introduced digital ordering, new labor laws caused executives to re-evaluate their staffing models, and restaurants continued to focus on growing sales in slower dayparts. In 2015, we expect the importance of digital to grow, enabling restaurants to focus more on offering customizable options and sending targeted offers to their guests. Meanwhile, as restaurants continue to streamline their menus, new calorie laws will likely lead to healthier options and new menu layouts. From 15 years of experience working with top restaurant organizations, here are key trends for restaurants this year.

1. Digital ordering goes beyond pizza. Following pizza players like Papa John’s and Domino’s, where digital ordering now accounts for roughly 50% of their U.S. sales, more restaurants are continuing to explore this option. Taco Bell and Starbucks are among the brands to introduce the capability through their mobile apps. In the coming year, we expect to see more digital ordering options and digital-strengthened services like curbside pick-up and delivery.

As adoption of mobile apps increases, marketers are likely to leverage them to send more targeted offers. While a targeted promotional strategy presents a huge opportunity, it can also be risky, as some of the targeted guests may have purchased at full price anyway. Many restaurants will try to measure the effectiveness of their promotions based on redemption rate. Unfortunately, the risk of giving away more money actually increases as redemption rate increases. For example, a “$1 off Soda” offer might be redeemed by a high number of guests, yet it’s possible that a large percentage of those guests would have actually paid full price for a soda. To determine which offers truly generate incremental profits, restaurants should test their promotions on a small scale, identify which guests respond most profitably, and use that information to target it to the right guests going forward.

2. More restaurants turn to customization. Fast casual concepts like Chipotle pioneered customizable options, and now, more restaurants are heading down that path. Taco Bell is enabling customization through its new mobile app, and Pizza Hut is taking pizza customization to the next level with over 20 new ordering options. While offering customizable options presents an opportunity for restaurants to appeal to more guests (Millennials are likely a large target) it will also present challenges.

One chief concern of introducing customization is its impact on throughput. For restaurants that have made billions by rapidly making consistent products, they will need to understand the extent to which longer preparation times alienate loyal guests, who may be expecting the same turnaround time (though the popularity of single-cup coffee players like Philz and Blue Bottle suggests that some consumers may be willing to wait). Further, new customizable offerings will likely necessitate other changes, including staffing changes (e.g., more back-of-house staff), new technology (e.g., ordering kiosks), changes in marketing messages, and more. Many brands are already using in-market tests to confidently understand which customization strategy will be most profitable, and we expect others to continue this trend.

3. Interactive dining: More devices, more features. Many restaurants have already introduced tabletop devices, which enable more efficient ordering and payment, more information sharing (e.g., nutrition facts and videos for new LTOs), and cross-sell opportunities, among other benefits.

In the coming year, we expect restaurants to continue testing the profitability of new devices, how they should be implemented (e.g., hardwired to the table or hand-held?), which new features should be offered (e.g., gaming, payments, personalized promotions, etc.), and if staffing models should be adjusted.

4. Restaurants streamline their menus. More restaurants are streamlining their menus, from eliminating specialty dishes and appetizers to reducing entrée choices in key categories such as chicken and beef. These changes are aimed to refine operations, reduce spoilage, and encourage guests to order more profitable, higher-loyalty items. As restaurants continue to pare down their menus, executives will need to dive deeper into their data to identify which items are leaders, which should be improved, and which should be removed.

While streamlining the menu can have clear benefits, doing so can also anger loyal guests and jeopardize large checks. Restaurants should look beyond basic financial metrics like item sales and number of checks, to more robust metrics, including number of items ordered with each item, overall check size, and the likelihood that a guest will trade up to a higher-value item, to truly understand whether removing an item will hurt their business. Take this scenario, for example–a restaurant wants to remove milkshakes from their menu because item sales are low. However, by incorporating guest-level data, the menu team may realize that milkshakes actually drive extremely valuable checks from highly loyal guests who are coming in to purchase them along with full meals. Such menu analysis can help menu teams generate hypotheses about which items to remove. These hypotheses should then be tested in a subset of restaurants to understand what will happen when guests have the opportunity to vote with their wallets.

5. Calorie requirements impact menu mix. With sweeping calorie regulations ahead, restaurants are racing to understand the impact of calorie labeling and how to profitably adjust their strategies to prepare for the changes. Restaurants with operations in cities or states that had previously-mandated calorie laws can use past actions as a natural test vs. control opportunity, comparing performance of restaurants in markets with calorie labeling requirements to similar restaurants in markets without these requirements. This analysis will reveal the cause-and-effect relationship between putting nutrition information on the menu and menu mix, check composition, and profits. It will also show which variations of their strategies were most effective (e.g., introducing healthier options, new menu layouts, etc.), enabling them to have a distinct advantage over competition as they roll out labeling to the rest of their network.

When evaluating these trends and other business initiatives, the most successful restaurants will not limit their testing agenda to just one or two ideas, but instead will capitalize on these trends to test dozens of new ideas. When executed correctly, such an ongoing Test & Learn process can help restaurants continually drive millions of dollars in added profits each year.


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