We’ve spent at least a year trying to understand how the restaurant consumer has remained so resilient despite persistent macroeconomic headwinds, and cracks are certainly starting to show. But consumer habits are far more nuanced than they have been in the past and the pandemic ignited permanent shifts that are now laying the foundation for the “next economic phase.”
That is at least according to AlixPartners research, which was released exclusively at the recent Prosper Forum event in Amelia Island, Fla.
The thesis of this research is that spending patterns have taken a “lasting shift” toward an experiential mindset, expected to continue through any tightened spending. As AlixPartners notes, “The intentional consumer does not necessarily spend less, but is much more deliberate about how and where to spend.”
This, of course, has implications for restaurants – good and bad. On the positive side, AlixPartners believes this behavior shift has created disproportionately more restaurant dollars to spend, despite headwinds; a pattern that has been reflected in recent quarterly and industry-wide sales increases. According to the National Restaurant Association, a majority of restaurant operators reported positive same-store sales in July, while nearly 60% of operators report their same-store sales are up year-over-year. The consulting firm expects this intentional spending toward meaningful dining experiences – over mindless consumption of goods – to continue.
“We expect consumers will continue to prioritize experiential purchases, cutting back on retail before restaurants and eating out less rather than simply trading down, as they did in prior recessions,” the research notes.
Therein lies the negative side – AlixPartners expects this shift to yield less frequency, which is likely negatively impacting traffic across the industry. As nearly all U.S. consumers cut back on their discretionary spending, consumers have indicated a stronger interest in meaningful, higher quality, more engaging dine-in experiences, even if they spend more per occasion, but eating out less frequently.
A reduction in frequency means brands will have to further differentiate against the convenience and experience spectrum, and brands trying to be everything to everyone will struggle. AlixPartners notes that operators will likely have to be even more nimble than they were during the pandemic, by responding to peaks and valleys in service flows, right-sizing operating hours, and augmenting staffing schedules. Menu engineering will also become more important as inflationary pressures linger, meaning operators will have to lean into cheaper proteins, smaller plates, and a more varied price point, for example, to offer a stronger value proposition.
Brands have also been sharpening their focus on loyalty programs to maintain some frequency in this environment. McDonald’s reports it gets a 15% increase in frequency from loyalty members, for instance, while Chipotle CEO Brian Niccol also said his company’s rewards program drives more frequency and higher spend among its 35 million members.
Notably, the shift in how consumers determine when and where to spend money on dining means the headwinds and tailwinds in each sector are more nuanced than they have been in the past. Broken down by segment, AlixPartners recommends that casual dining brands lean into their service model and in-restaurant experience to further differentiate themselves from fast casual, while also focusing on profitable traffic. Fast casual brands, meanwhile, should position themselves on speed, convenience, and value, while also diversifying their core target customer base beyond millennials. Fast casual concepts also need to position themselves to compete with the speed of the drive-thru channel. Quick-service operators should focus on profitable traffic and value without compromising profit margins. And, as higher income cohorts increasingly trade into QSR, premium choices should be available.
A shift toward more intentional spending is also driving consumers to swing away from third-party delivery, which is facilitating a move toward first-party delivery and accelerated investments in pickup channels. That said, third-party certainly isn’t going away, as evidenced by Domino’s recent adoption with Uber Eats after holding out for the past several years, and Red Robin’s “investment back into third-party delivery” to be more top of mind on those platforms, as CEO G.J. Hart shared during the Prosper Forum.
Implications for the workforce
This “new consumer profile,” as defined by AlixPartners, has created a pivotal and disruptive point for the industry, and a continued and expedited transformation is needed within its workforce to meet these changing needs. The consulting firm said that means moving away from a transient or entry-level labor force to a career with development opportunities.
Several companies have embraced this shift throughout the past several years, creating more training opportunities for career advancement, adding benefits such as college credits and certifications, and more. CAVA is a good example here, adding an Academy GM Network to serve as a “farm system” for new restaurant GMs. CEO Brett Schulman recently said the program “proves that you can build a career, not just have a job.”
That said, such career development opportunities will need to be a bit more robust than they’ve been in the past. As AlixPartners outlines, “the next generation of employees will need a heightened skillset to work more broadly across operations and to leverage AI, technology, robot kitchens, and other innovations while also delivering against customer experience.”
Essentially, these shifts mean the restaurant industry needs to meet the demands of the “new consumer profile” by ensuring it has the right workforce in place.
“Workforce management will be critical regardless of where companies fall on the speed versus experience spectrum,” AlixPartners reports. “It’s ultimately less about wooing companies, and more about attracting top talent that can feed the consumer experience.”
Contact Alicia Kelso at [email protected]