The past two years have been challenging for everyone in the industry, but it's been uplifting to look back on all of the opportunities to pull together and help each other through those tough times. It's been especially fun to review the gatherings everyone attended in person – such as the new video from the DMA NRA Party at the Post Office!

If you'd like to relive any of DMA's virtual events from 2020-2021, you can find all of the Leadership Series Webinars archived here. Please feel free to share the videos (especially the party highlights) with your network as well!

The content from the DMA Annual Meeting in October will be shared shortly after the event, so be sure to subscribe to the channel if you want to be notified when new videos are made available.

Restaurateur Stephen Schrutt on What Makes Gen-Z Tick

Every generation brings change, but Generation Z has an important distinction: It's the first generation to have grown up in the digital era and members have high standards for how to spend their time online.

While millennials are considered digital pioneers who grew up as social media developed and technology exploded, Gen-Zers, those born between 1997 and 2012, were born in the midst of these developments and matured into a ubiquitous social media environment, thus its preference for apps that bring restaurants to their fingertips.

Gen-Z is still outnumbered by both millennials and baby boomers, the two largest U.S. cohorts, but makes up about 20% of the population, numbering 68.2 million. It's also much more diverse than its elders, bringing a different perspective to all aspects of life, poised to disrupt business approaches that have worked for decades.

"Gen-Z is the go-to age group to target when opening up new dining concepts," Stephen Schrutt, CEO & founder of Hunger + Thirst Restaurant Group, told The Food Institute in an email interview. "Gen Z is focused on trends and experiences. The social media savvy generation live for concepts that are unique and memorable in all ways."

Schrutt – whose company operates hotspots like Parks & Rec, Dirty Laundry, The Avenue and No Vacancy in the Tampa Bay, Florida, area – said Gen-Z diners focus on every aspect of the dining experience like the smell when they walk through the door and whether there's a feeling of nostalgia. Then they focus on the service: Did it meet the expectations raised online?

This generation is both more critical and supportive.

"Gen Z is known to document everything, and their experience quickly becomes everyone else's experience through social media. If something doesn't align or is falsely promoted, they will be the first to call it out, and something hyped up could quickly turn into something overrated," Schrutt said.

"With TikTok and Instagram reels becoming extremely popular, review-style videos showcase their exact experience, through their lens and give their audience insights into your concept. This gives other people insights into your dining concept, and could either drive immense traffic to your location, or it could make people not want to go."

Technology will be key to restaurant evolution, with artificial intelligence allowing for immersive experiences that make diners feel they are somewhere completely different.

"Gen-Z loves to travel so it would be amazing for them to feel like they're enjoying authentic Cacio e Pepe in Italy while they're actually still in Tampa, Florida," he said.

Schrutt predicts there will be fewer chain restaurants in the next five to 10 years and more "unique dining experiences that create a memorable cuisine worth documenting, rather than just a grab-and-go meal."

"Gen Z cares more about quality than quantity which is why these unique dining experiences will also cater to more trendy food options that fit upcoming diets such as vegan, keto, paleo, etc. It is important to be inclusive of all kinds of diets to guarantee that there is something tasty and enjoyable for everyone on the menu," he added.

Fast-food, however, will not go away. Schrutt said he thinks there always will be a demand for fast food, but it's likely menu options will get healthier, and offerings will include higher quality ingredients.

"Gen-Z is a more health-focused generation that likes to consume light snacks and small meals rather than the more traditional three full meals a day," Schrutt said. "Fast-food restaurants should have a variety of options to cater to this new preference."

But there always will be a need for fast-food and technology will be integral to that as well, allowing diners to order ahead for pickup or to use delivery apps like Ubereats or Doordash to deliver higher quality food directly from a sit-down restaurant.

Outside factors also influence this generation's choices. Both Subway and Oreo have done a good job of reeling in Gen-Zers with their approach to the community and the planet.

"They trust these brands and feel heard by them. Each of these brands also has a big focus on the community and makes a significant impact," Schrutt said, noting Gen-Z is concerned about the community and the planet and more likely to support companies that both give back to the community and support the environment.

"As the owner of Hunger Thirst Group, my community matters to me. They are the backbone of what I do, and I always ensure if I am benefitting from them, I am giving back as much as I can. Community impact is huge, and I have developed so much love for my community. ... Without them, there would be no me. They are the drivers of success for each of my creative dining concepts, and they are a crucial part of Hunger Thirst Group, from the inside out." Food Institute Focus

Opinion: Future for Casual Dining Stocks Could be Grim

The near-term pressures on casual dining operators right now are obvious. Fears of a recession are rising. Consumer confidence is falling. Labor shortages have driven up wages, and in some cases forced operators to limit to-go orders.

Commodity inflation means owners must raise prices to protect margins — but that decision runs the clear risk of deterring cost-sensitive customers.

Those pressures have been reflected in stock prices across the space. By my definition, there are eight US-based casual dining stocks which have declined an average of 30% so far this year. That's about five percentage points worse than the restaurant sector as a whole (again, by my definition, one more narrow than might be used elsewhere) and 12 points behind the 18% decline posted by the Standard and Poor's 500 index.

The declines aren't surprising — but they still have to be concerning for both investors and those operators.

After all, one consolation for most sectors is that this year's weakness follows years of strength. That's not the case for the casual dining sector, which mostly had struggled heading into 2022. The sell-off thus creates a big question: if the industry wasn't able to drive shareholder returns looking backwards, how can it do so looking forward?

Over the past five years, an equal-weight portfolio in eight casual dining stocks would have declined about 13% — even including dividends. To be fair, that to some extent overestimates the pressures on the industry. The two big winners over that stretch are the two most valuable companies: Olive Garden owner Darden Restaurants and Texas Roadhouse. (Disclosure: I'm short Texas Roadhouse stock in my personal account, for reasons I've detailed elsewhere — among them precisely the pressures on the casual dining space looking forward.)

While the average return of individual stocks has been negative, the overall equity value of the industry at least has grown.

But while Darden and Texas Roadhouse have succeeded relative to the industry, neither has topped the returns of the S&P 500 over the past five years. And it's too simplistic to blame the weak trading this year — or even the novel coronavirus pandemic — for the sector's inability to drive acceptable shareholder returns.

Even before this year's sell-off, the sector had underperformed. From 2017 through 2021, Darden had basically matched the index, but five of the eight companies posted negative total returns for the five years. Run the same exercise from 2015 through 2019 and the trend holds, with those five stocks declining, though Darden and Texas Roadhouse over this stretch at least beat the market.

Again, an optimist could respond that the industry, as a whole, has seen its equity value grow, thanks to the outperformance of the two leaders and the drag of smaller and long-struggling Red Robin on group averages.

But that relative performance might be precisely the point.

Texas Roadhouse was led by a charismatic founder in late chief executive officer Kent Taylor, who installed an impressive system of relentless quality. And unlike more mature rivals like Chili's owner Brinker International or The Cheesecake Factory, that chain has benefited from consistent expansion into new markets.

Darden stock, meanwhile, has been helped by financial engineering, notably the sale of declining Red Lobster. An activist effort in 2014 also breathed new life into the company's operations.

But without specific catalysts, casual-dining operators have struggled. Brinker has not been able to drive consistent same-property growth at Chili's. Dine Brands has never gotten Applebee's quite fixed; the same is true for Bloomin' Brands and Outback Steakhouse. Ruby Tuesday is no longer public, but it sold itself in 2017 for just $2.40 per share and then filed for bankruptcy during the pandemic three years later.

The struggles haven't been confined to legacy brands. Newer concepts — Maggiano's for Brinker, Carraba and Bonefish for Bloomin' Brands — haven't reached the growth required to continue footprint growth. Would-be leaders like Red Robin, Chuy's and BJ's too have disappointed.

What recent history thus tells us is that running a garden-variety casual-dining operation isn't enough.

That, too, shouldn't be a surprise, as the same trend holds throughout the consumer industry. More than a decade ago, Citigroup called this the "consumer hourglass theory": the coming shrinkage of middle-class-focused options that offer quality and price that both are "good enough".

In essence, the bank argued that being in the middle was the worst place to be. It's not hard to see that argument playing out in the restaurant space. Consumers have been willing to pay a few dollars extra for more local, more unique, higher-end sit-down experiences — or to save some money (and time) at the ever-expanding universe of fast-casual alternatives.

Indeed, the performance of most casual-dining stocks proves how difficult the middle truly is. Without a major differentiator — the scale and leadership of Olive Garden, the tight execution of Texas Roadhouse — consistent growth in casual dining was nearly impossible to drive when times are good. It's the key reason why investors are so worried about what performance will look like when times are not. Food Institute Focus

TikTok Expert: Authenticity Key for Food Brands Marketing to Gen Z

With an endless supply of content and more than 50 million daily users, there is no shortage of ways for brands to market themselves on TikTok – particularly to Gen Z.

In fact, half of Gen Z tends to use TikTok on a daily basis, with 55% having bought something after seeing it on the app, according to a survey from Student Beans.

With that, The Food Institute recently spoke with Eric Dahan, CEO of Open Influence, a marketing company that was recently named an official TikTok Marketing Partner, for his opinions on how food brands can successfully use the app to market to Gen Z:

What to Keep in Mind

"Gen-Z and modern customers want a brand experience that's authentic," said Dahan.

A recent WP Engine survey found that 82% of Gen-Z respondents trust a company more if it uses images of real customers in its advertising, while 72% are more likely to buy from a company that contributes to social causes.

Dahan noted five ideas brands should keep in mind when creating content for Gen Z:

• Be authentic
• Create raw, relatable content
• Be on the platforms where Gen Z spend their time
• Have real values that you live by
• Have a positive impact

What is, and is not, Resonating

The days of picture-perfect Instagram content are done for younger consumers.

"Gen Z value content that is real and relatable, preferring the raw feeling of TikTok or Reels to highly edited images, said Dahan. "Focus on video ... demonstrate a value proposition succinctly."

"Gen Z hates feeling like their being advertised to," he added. "Make sure the messaging feels relatable," he added. "Also, avoid traditional gender roles like branding your product as ‘for girls' or ‘for boys'."

Dahan also believes niche content resonates with viewers.

"Amassing a niche following makes sense for influencers, so they often dig as deeply into a specific realm of content," said Dahan. "This is good news for brands that want to develop longstanding relationships with devoted niche groups." Food Institute Focus

Store News:

• Chick-Fil-A is testing an express drive-thru lane that ‘significantly' speeds up orders. The company calls its "Drive-Thru Express" model a game changer that will streamline the experience for its nearly 50 million mobile app users, reported Forbes (June 22). Full Story
• Burger King expanded its plant-based offerings with the debut of two new Impossible burgers: the Impossible King and the Impossible Southwest Bacon Whopper, reported Nation's Restaurant News (June 23). Full Story
• McDonald's plans to make changes to its franchising system as it seeks to reinvigorate its base of restaurant owners. Under the new rules, existing franchisees will need to go through a stringent review every 20 years to keep their restaurants, reported The Wall Street Journal (June 23). Full Story
• Meanwhile, McDonald's dollar drinks are dropping off menus. Many of the company's locations are removing the U.S. $1 deal for soda and other cold beverages of any size to help manage rising inflation, reported The Wall Street Journal. Full Story
• Additionally, McDonald's has agreed to buy out one of its longtime franchise groups, the Caspers Company of Tampa, Florida, reported Nation's Restaurant News (July 12). Full Story
• Chicken Salad Chick signed franchise agreements that will bring nearly 20 new restaurants to Texas over the next five years, reported Meat + Poultry (June 23). Full Story
• Olive Garden parent Darden Restaurants reported quarterly earnings and revenue that beat analysts' expectations, despite experiencing high inflation that weighed on its profits. Net sales rose 14.2% to $2.6 billion, topping expectations for $2.54 billion. Across the company, same-store sales climbed 11.7%, fueled by the rebound of its fine-dining business, reported CNBC (June 23). Full Story
• Sweetgreen is leveraging gamification and personalization with its new Rewards and Challenges program, and hopes to build on its digital sales mix, which is currently at 66%, reported Forbes (June 27). Full Story
• TGI Fridays parent TriArtisan Capital has found success in partnering with C3 virtual sushi brand Krispy Rice. Nearly one year after announcing the initial partnership, sushi is now available for dine-in at 17 Fridays locations, reported Nation's Restaurant News (June 27). Full Story
• Taco Bell is testing two new menu items using Kellogg's Cheez-Its cracker: Big Cheez-It Tostada and Big Cheez-It Crunchwrap Supreme, reported Nation's Restaurant News (June 28). Full Story
• Qdoba Mexican Eats announced its first foray into the virtual dining space with Pure Gold: a queso-themed delivery-only menu, reported Nation's Restaurant News (June 28). Full Story
• Dallas-based chain Cowboy Chicken is rolling out a new virtual brand for delivery and pickup only dubbed Smackbird, featuring Nashville hot chicken sandwiches and tenders, reported Nation's Restaurant News (June 30). Full Story
• Subway launched the "Subway Series" menu board, giving guests the option to pick from a dozen numbered subs. At the same time, the chain is de-emphasizing the customization that helped drive growth for decades, reported Restaurant Business (July 5). Full Story
• Restaurateur Danny Meyer's special purpose acquisition company and Panera Bread have called off a deal to take the sandwich chain public again, citing market conditions, reported CNBC (July 1). Full Story
• Duck Donuts is keeping its 2022 growth momentum strong with the signing of 13 franchise agreements for 19 shops during the second quarter, reported Nation's Restaurant News (July 7). Full Story
• Starbucks will close 16 U.S. stores by the end of July after workers reported safety incidents at the cafes. The company will close six locations in the Seattle market, six in Los Angeles, two in Portland, Oregon, and single stores in Philadelphia and Washington D.C., reported The Wall Street Journal (July 12). Full Story

Executives on the Move:

• KFC named Tarun Lal President of KFC U.S. Full Story
• Red Robin CEO Paul Murphy plans to retire at the end of the year, reported Restaurant Business (June 22). Full Story
• McDonald's announced that Kevin Ozan will take on the new post of senior executive vice president of strategic initiatives, Ian Borden will succeed Ozan as chief financial officer, and Marion Gross will take on the top supply-chain post, reported MarketWatch (June 27). Full Story
• Meanwhile, McDonald's named Jill McDonald executive vice president and president of international operated markets, reported MarketWatch (July 13). Full Story
• Burger King has named Thibault Roux as chief digital officer for the U.S. and Canada, reported Nation's Restaurant News (July 8). Full Story
• Domino's Pizza has appointed Edward Jamieson as chief financial officer, effective in October, reported MarketWatch (July 11). Full Story
• Dave & Buster's announced an all-new leadership team, including four new executives and four established D&B team members, many of whom now have new position titles, reported Nation's Restaurant News (July 11). Full Story

Supply Chain Pain Seen Stretching to mid-2023

Supply chain pain could extend well into next year, industry experts said recently, further straining the U.S. food industry and other businesses.

Camerican International President Josh Gellert told The Food Institute that while disruption was easing for those relying on ocean carriers, congestion at domestic warehouses and the specter of a West Coast port strike continued to challenge supply chain operators.

He also noted that high interest rates, economic uncertainty, and the war in Ukraine continue to pressure supply chains.

Boeing CEO David Calhoun also shared his view that supply chain pain could persist through 2023 while speaking at Bloomberg‘s Qatar Economic Forum, reported Reuters (June 22). Full Story

"It's been a real issue for manufacturers and will probably stay that way in my view almost to the end of next year," Calhoun said.

Global Pressures Cause Further Disruption

Michael Murphy, who serves as senior director of global supply chain at Camerican, said the U.S.-Asia supply chain would likely remain disrupted until second quarter 2023, and better efficiency and modernization of U.S. port infrastructure would be needed to truly normalize.

Following China's recent decision to lift COVID-19-related lockdowns, many importers feared a dramatic spike in imports to the U.S. from the country. Thus far, those fears had not been realized.

"Vessels are not full as yet, and there's a growing expectation that the months of August and September may see a sudden spike in volume," Murphy said in an e-mail to The Food Institute.

It's not just the U.S. seeing supply chain disruptions.

"European port congestion and vessel delays are constant, and rates remain high from Europe until 2023," Murphy said. "South America rates remain high due to full vessels and port congestion, mainly in destination ports on the U.S. West Coast."

Logistics Costs on the Rise

Total logistics costs in 2021 reached $1.85 trillion, rising 22.4% from a year prior and representing 8% of U.S. gross domestic product, according to the State of Logistics Report from the Council of Supply Management Professionals (CSCMP).

Of note, inventory-carrying costs increased 25.9% in 2021, with transportation costs jumping 21.7%. This dynamic led to uneven supply chains and inconsistent product availability for consumers shopping both in-person and online.

CSCMP noted trucking freight continued to see more volume and opportunities, with road freight expanding by 23.54% to an $831 billion spend in 2021. Many operators could turn to trucking considering a growing backlog on the U.S. rail industry.

Port Bottlenecks Extending into Freight

Railroad operators are beginning to report that backlogs at the ports of Los Angeles and Long Beach have begun to overflow into the nations railways, with some retailers waiting weeks to move cargo by trains out of the regional seaports, reported The Wall Street Journal (June 24).

The backlog is stretching as far as BNSF Railway Co., which said it'll limit the number of boxes the railroad will carry out of Southern California.

The Port of Los Angeles' executive director, Gene Seroka, said about 29,000 boxes were awaiting pickup via rail during June, tripling the usual amount of cargo being held in container yards just as peak import season hits. Food Institute Focus

Join Cleveland Research Company this summer for their 2022 Foodservice Forum in Denver, Colorado!

CRC is excited to return to an in-person event this year on August 25. Attendees can expect a day full of thought-provoking sessions with industry guest speakers, presentations led by CRC research analysts, and networking opportunities with fellow foodservice professionals.

Presentation topics include a macroeconomic overview, freight & transportation, chain restaurants, independent operators, distribution, and non-commercial foodservice. The overall goal of the Forum is to provide actionable insights to help your foodservice business move forward and find greater success in the months and years ahead.

Click here to learn more about CRC’s Foodservice Forum and register today.