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COVID-19 Broke the Economic Model: Technology Can Fix It

May 10, 2021

As the country emerges from Covid-19 hibernation, many restaurant operators are discovering that reopening the doors and playing by the pre-pandemic game plan is no longer an option. Consumers now have forced operators to accept digital platforms. RTS Partner Mike Lukianoff explains what operators should do in a new era.  Meanwhile, if this blog hits home, let us know what’s on your mind! We’ll get in touch right away.

To be sure, restaurant fundamentals — providing good food and service for a fair price — remain. So does being in the right location at the right time. Yet to create a more profitable industry, aided by technology, we will have to replace the basic box-economics of restaurants with a new paradigm.

Below, we’ll show you five ways to begin that process, first by reminding you of current models (Industry Legacy)  and then by offering an alternative way (Paradigm Shift) of incorporating technology to meet new customer demand.

People  

Industry Legacy: Restaurant staffing is a problem that pre-dates Covid by at least 30 years; drawing people back post-pandemic is going to be harder than ever. The traditional restaurant economic model depends on low wage workers — among them undocumented workers, some operators hired to keep wages low. In fact, as many as 10% of the industry’s employees are undocumented, according to PEW research.

Paradigm Shift: Labor saving technologies are coming of age, from server-less/cashier-less ordering in the front of the house to robotic kitchen prep equipment in the back. The headcount required to run a restaurant will drop even further. But it’s not just about labor cost; it’s about overall productivity, e.g., innovative ‘ghost menu’ concepts that allow restaurants to carry a second ‘concept’ from the kitchen to boost efficiency from the same footprint and potentially the same staff.

Place

Industry Legacy: The most vulnerable restaurant development may be those clustered around mall and office parks that catered to the working and shopping crowd. That’s because the percentage of workers returning to offices and shoppers returning to in-person retail experiences remains highly uncertain.

Paradigm Shift: While people will return to the office, though not in the daily numbers they did pre-pandemic. That means more meals at home, and likely dining will be a destination rather than a stop-by occasion after work. This is an opportunity for restaurants (and sites zoned for restaurants) near higher end residential and which can bring an elevated food experience to time-starved people working at home who often have few food options. This means smaller footprints, closer to residential neighborhoods potentially hosting multiple concepts out of the same kitchen for off-premise and delivery efficiency.

Product 

Industry Legacy: For the past 20 years restaurants have been churning out new item after new item. Growing traffic counts through menu expansion and limited time menu items have been an essential part of the industry’s playbook. However, by 2020 the industry had a menu-bloating problem, i.e., too many items and ingredients crushing throughput and escalating food cost.

Paradigm Shift:  A smaller menu focused on fewer, high quality items that can be executed quickly, consistently and, ultimately, more profitably.

Promotion 

Industry Legacy: The American chain restaurant industry was built on the back of TV advertising. Even as other industries were transformed by the Internet, restaurants held fast to traditional media channels. Doing so impeded their entry into 21st century marketing practices, which relied on data. True, several chains did a decent job of collecting customer data through loyalty programs, but in general the industry was a decade behind other industries in digital promotion capabilities.

Paradigm Shift: Restaurants cannot delay in leveraging the new data streams to improve all aspects of improving the customer journey — from how potential customers are reached via digital media, to seamlessly personalizing offers tailored to their needs. This technology is now available.

Price

Industry Legacy: Annual menu pricing is a necessary evil for many restaurants. Often, it’s an exercise in food cost multipliers or competitor benchmarking. Large chains usually take deeper data-centric approaches to pricing but still tend to take a project approach. In both cases, most restaurants use pricing to react to changes in their cost structure rather than as a proactive and ongoing part of their planned growth.

Paradigm Shift: With expanded order channels, full digitization and promotion personalization, operators are able to change the effective order price by channel, time of day or bundle. Prices should be recalibrated by channel, adjusted by discounting and adapted to maximize throughput during peak hours. An ongoing price and channel management process considers promotional price, menu price and total purchase basket to ensure profitable customer behavior.  The ubiquitous ‘combo meal’ is a prime example of a questionable blanket discount applied to all items. It needs to be reconsidered and re-priced in the new era.

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