The State of the Restaurant Industry
On March 29, The Food Institute hosted a webinar with some of the
most dynamic operators in the QSR space today. Hosted by Lazard's managing
director John Goldasich, the panel included Kim Malek, founder and CEO of
Salt & Straw; Aaron Noveshen, founder and CEO of The Culinary
Edge and Starbird Chicken; and Riley Lagesen, chair of Greenberg
Traurig's Global Restaurant Industry Group.
They covered many topics with prime examples of what works in the industry
today and what doesn't, including (but not limited to) labor and supply chain
challenges, finding good real estate, an update on the California FAST Act
and Prop 22, as well as the modern consumer and what makes their businesses
and employees happy and successful.
"The national landscape is as diverse as ever and continues to evolve,"
"The pandemic turned the industry on its head. When would you see so
many employees not return to work? The pandemic changed the way restaurants
engaged the workforce, incentivizing them to stick around. Also, how do operators
money against COVID and a political and regulatory landscape? Coupled with
rising wages, interest rates, and benefits coupled with inflation and layoffs,
many restaurants are still doing well all over the country. There's a healthy
amount of development and cautious optimism despite pressure and challenges."
From there, the panelists dove into several topics; select excerpts are summarized
Goldasich noted that 75% of operators see labor costs increasing in 2023
amid the ongoing foodservice worker shortage, the changing workscape of recruitment
and retention, and perpetual cost increases from a world teetering on recession.
How have the guests responded?
Kim Malek – To say it's been fascinating on this front is putting it lightly.
[Salt & Straw] has been fortunate to be fully staffed. From a culture
perspective, we're cashing in our chips. It's a fun job in a good environment
and people like that. There's lots of open communication – I'm missing our
monthly company-wide town hall as we speak.
We're doubling down and investing in online training systems that people
can do on their phones, TikTok-style. We're trying to stay competitive from
a pay perspective. We manufacture our own ice cream and that's been harder
on the manufacturing side and the competition is unbelievable. We've had to
get creative with scheduling, flexibility, and training a culture that people
don't see in other places. We've added additional languages to training programs
and focused on folks in non-seeing/non-hearing environments, and we're looking
for folks for first-time employment or who are re-entering the workforce.
We need a work environment that supports people; I'm excited to do that.
Aaron Noveshen – Starbird has a similar philosophy. How do you be an employer
of choice? It's a conscious effort – it's not "if you build it, they
will come." We have to pay our managers well in the San Francisco Bay
We feature a bonus structure with no limited upside that we call superbonuses.
If people achieve and exceed their budget, they take a share of every extra
dollar they make. There's an entrepreneurial spirit and everyone receives
tips no matter their role. Sales cures all ills!
Starbird was also voted one of the best places to work in America. We always
battle food costs; we rarely battle labor costs.
We also offer $5,000 per year for employees for education benefits. Not everyone
will work here and we want to make an investment in their futures, not just
our own bottom lines. We have great educational training and many ESL folks.
We invest in language training through mobile technology.
The FAST Act
Riley Lagesen – The Fast Act was passed in September ‘22 to potentially increase
the California state minimum wage to $22/hr. It's characterized as a fast-food
restaurant proposition, but if wages are raised in one segment it will move
into all other segments. These are significant problems and issues for operators
and employees alike; there was a motion to impose joint employer liability
between franchisor and franchisees, but that was ultimately removed.
Expect to see similar legislation in other states despite Virginia striking
it down. Unionizing a restaurant has to be on a location-by-location basis;
it usually occurs in businesses where people want to stay and want to work
Same store sales are up yet margins are down for many operators. How can
operators mitigate supply chain challenges?
Malek – Dairy was up 40% this past year; it's about halfway back and we hope
to see it move to a more reasonable place. To get ahead of that, we adjusted
pricing and are investing in efficiencies. We invested in our kitchen and
automation to increase output. We saw margins increase, which we were really
fighting for. Yes, sales kills all ills and we were living in a pretty envious
position before the pandemic without minding our Ps and Qs; today, we're managing
every line item within our stores and kitchens to make sure every decision
is approved and we try to find savings and efficiencies at every turn. We
switched suppliers, doubled down on services, and it's really paying off.
We'll be stronger operators. Sales are rebounding and prices are coming down.
I'm grateful for the diligence we've been through. On the other side, the
buildout prices of our supply chain were skyrocketing and it was terrifying;
we couldn't have opened seven new stores by June at that rate. We really fought
for every dollar to get out ahead. Interestingly, we got through it all and
we're standing and ready to go.
Noveshen – We increased some pricing but didn't want to overdo it; we don't
want to lose guests. We made up a 20% increase in food costs for sales through
everything else. We haven't lowered prices; we're promoting more tactically
but we're seeing incredible flow-through.
A new processing partner helped with growth; packaging came down in 2022,
and we re-negotiated packaging contracts and got some wins there. We shifted
to wings quickly – one of the first items to drop in price during football
season – and we're also known for salads, so we were able to promote items
like salads with less of the more promotional items and sold them anyway.
We did a promotion on truffle sandwiches and fries, charged an extra dollar,
and brought more margin dollars in that way. This buildout cost has been more
problematic than food costs. I have not seen one inch of movement in the cost
of construction coming down. We're paying 50% more for a fryer than we did
two, three years ago – there's no refuge in sight on that end. We're going
line item by line item – do we need this? Do we need custom tile in the bathroom
for a business that does 80% of business off-premise?
Noveshen – Real estate is not going down. Real estate is tough; when you're
a brand looking for quality real estate you have to hyper selective – we use
analytics and try to understand our consumers. Competition drives up price
so we don't just leap at every site we like.
Malek – We've had a similar experience. Deals aren't less expensive but there
are more available. We have to be ready to move quickly. We look at sites
and neighborhoods two and three years in advance – which block? Which side
of the street? We develop relationships with landlords so we can move with
them when we grow. It's mind-boggling how long it takes to get municipality
permits when we're ready to go. It's something important to figure out.
The restaurant business has never been easy, never for the meek or timid.
Similar to what we saw coming out of the great recession, there's a tremendous
amount of innovation and development in the restaurant space. Strongly influenced
by COVID, restaurants moved to different development options (virtual/ghost,
delivery-centric), but now the pendulum is swinging back to what's always
worked – company-owned, high-quality brick and mortar. We're seeing gravitation
back to some level of normal, but in a very different atmosphere. Everyone
has changed a little in how they view the foodservice experiment, when and
where they want to eat, and how much they'll pay for it.
In dealing with real estate, as Kim and Aaron said, it is competitive. Good
real estate always is. It's more expensive than anyone wants to pay and you
hope the results justify it. As a lawyer, you want exit provisions in your
Patience in real estate is so important in site selection. Make sound real
estate decisions; it's critical to your mental health, well-being, and happiness.
People who pick poor sites deal with it for years. It takes so much time and
resources. Making good decisions and building a good team has always worked.
You have to stay ahead of the game; you have to pay attention.
Per guestxm.com, sales and traffic growth is plummeting after a brief bump
in January. Average guest checks are down as commodity and labor costs are
beginning to ease. The average check grew by only 6.5% year-over-year in February
– the lowest since 2021.
Checks are down as commodity and labor costs are beginning to ease. The average
check grew by only 6.5% year-over-year in February – the lowest since 2021.
Malek – The whole country is challenged with labor and staffing. Let's make
sure we're staffed. What are the team satisfaction scores? What are the customer
satisfaction stores? Not only did we hit our sales target, but what could
drive that? If there's a jump in turnover, you'll see a negative sales impact
in a month. We reformatted our bonus program and focused on the work people
are doing that we can control. The positive outcomes will follow.
Noveshen – We look at a lot of data. As long as it's accurate, it'll fly.
We look at sales every day, but we look at guest counts versus average checks;
where are sales coming from? What channels? Virtual brands/web apps/walk-in/kiosk?
We have so many different ways to order at Starbird. We look at speed-of-service,
even on an hourly basis. If something goes over 10 minutes we can identify
what went wrong.
Stability among general managers is key and critical; not every GM is going
to have a regional or district manager opportunity. We survey them on a quarterly
basis. We look at menu mix, social scores, internal monitoring scores, chicken
markets and the forecast of chicken. LTO and promotional scores we look at
daily. Catering trends, loyalty trends, and controls; we look at comps and
assess where our controls are going. We do 2% of transactions in cash; it's
required by law.
Malek – Automated inventory has saved hours per week. We're working on other
innovations in this space when it comes to product; the ice cream industry
is famous for not having any innovation on a scoop-shop level.
Noveshen – Regarding higher food costs and unprecedented rainfall and flooding
out west, it's still TBD on many of the California crops. We promote heavily
in the summertime around salads. This year we're doing a big switch and re-launching
the sandwich category; it's the most competitive part of the chicken business.
We're trying to win the sandwich category, too; when competing against the
$5 or $6 sandwich, there's no salad that cheap. We've spent the last 6 months
with new breads, new chicken, new saucing techniques, new packaging. We'll
launch new sandwiches – a little less produce-dependent – and the timing should
be good this year with the produce market. Food
The Teens Have Spoken: Chick-fil-A Remains Favorite Restaurant
Three things remain constant in life: death, taxes, and Chick-fil-A.
In Piper-Sandler's recent survey of teen spending in the U.S., the
Georgia-based restaurant chain still struts its stuff above Starbucks
and Chipotle and accounts for 13% of teens' pocket cash, according
to the report. Starbucks came close with 12% and Chipotle was a distant third
at 7%. Piper Sandler is an investment bank which conducts the semi-annual
poll of more than 5,000 American teens in 47 states.
Since the pandemic, Chick-fil-A has enjoyed quite the sales boon. The chicken
sandwich specialist enjoys almost twice as many cars in drive-thru lines than
its competitors according to QSR (5.45), followed by McDonald's (3.13) and
Wendy's (2.67). The motor queue also moves faster than its competitors, slinging
chicken at a clip of 107 seconds per vehicle, followed by McDonald's at 118
seconds and Taco Bell at 127 seconds.
And, last week, Chick-fil-A released some truly staggering numbers, approaching
almost twice the sales revenue since before the pandemic. It generated $18.814
billion in sales in 2022. Its last four years look like this:
Chick-fil-A Sales Revenue (billions)
Where Do Teens Shop? On Their Phones
Other key takeaways from the Piper Sandler report: food was the No. 1 spend
for men (24% of their wallet). Specific to food and beverage, SQ's Cash App
was the most popular peer-to-peer money transfer app with 41%, coming in just
above Venmo at 39%. Apple Pay ranked No. 1 for payment apps within the past
month (39%) followed by Cash App (25%).
More than half of American teenagers cite Amazon as their favorite e-commerce
site (57%). Forty percent of teens are at least part-time employed.
Following nationwide trends regarding plant-based food, less than half of
teens are willing to try plant-based meat (42%). During spring 2021, that
number was 49%. Plant-based dairy didn't fare much better; just 40% answered
they consume it or are willing to try it. Goldfish remains the most popular
snack brand (12%), followed by Cheez-It and Lay's (10% each), and Doritos
Perhaps most telling about this year's survey is how teens are consuming
media (and the influencers and brands upon them). In the year of TikTok everything,
TikTok usership actually declined as the favorite social media platform (37%),
followed by SNAP (27%) and Instagram (23%).
For customer service interaction, the mobile phone is the preferred method
with multi-year gains via texting and SMS messaging. Top social causes are
the environment (19%), followed by racial equity (9%). Inflation was the top
concern for just 4% of survey respondents.
The top influencers were Alix Earle, Andrew Tate, and Selena Gomez. YouTube
streamer and food/bev influencer Mr. Beast ranked No. 5. Food
Restaurants Struggling to Secure Chicken Sandwich Supplies
The growing popularity of chicken sandwiches has pitted chicken producers
against restaurant chains as the latter increasingly seeks birds in the 4-pound
range, The Wall Street Journal reported.
Restaurants are finding it tougher and more expensive to secure supplies
of smaller birds, especially in the wake of the pandemic, which saw the slaughter
of small birds halved between 2005 and today, the Journal reported.
Chicken producers say it's more expensive to grow smaller birds and years
ago switched to developing 8-pound, big breasted varieties. Dan Shapiro, chief
executive of Krispy Krunchy Foods, which supplies C-stores and stadium concession
stands with chicken products, told the Journal smaller birds are needed to
satisfy consumer demand for chicken sandwiches.
The Journal reported KFC and Chick-fil-A, the two biggest chicken
chains, also prefer the smaller birds. KFC has warned franchisees about supply
pressures. The two biggest suppliers, Tyson Foods and Pilgrim's Pride, say
they're reluctant to switch facilities to small bird production despite the