Lessons and learnings
Throughout 2022, Firehouse Subs CEO Don Fox, in his 48th year in the business, penned a monthly column for QSR that touched on whatever key theme defined the restaurant industry at that time. This traversed the lingering impact of COVID-19, from how it adjusted dine-in experience and expectations, to labor and the present weight of inflation. What became clear from January forward, however, was that history was both repeating and rewriting itself in real-time. And there were plenty of lessons to learn from past pitfalls as well as how consumers embraced the biggest paradigm shift on record. With that said, QSR now takes a look back at some of Fox’s most insightful reflections and predictions. The end result paints a roadmap to an optimistic future, but one that will require innovative leadership and a continual commitment to what’s always driven the restaurant industry forward—the guest.
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It started with experience
“What does the future hold for quick service? Much earlier in the pandemic, I was concerned that in the wake of being denied the use of dining rooms, consumers would eagerly flock to casual dining restaurants; guests would be chomping at the bit to enjoy the experiences they had been denied due to government action. Some pundits and industry veterans predicted a modern-day “Roaring Twenties;” a cultural shift that would have presumably worked against the interests of quick-service restaurant brands. That concern was never realized. Guests have returned to dining rooms at a modest tempo, and there is no overt sign that the traffic that is returning to on-premises dining occasions is coming at the expense of quick-service restaurant visits. Threat averted ... at least for the time being.”
Read the full article: The Evolution of the Quick-Service Restaurant Experience
“The casual-dining segment has undergone more substantive change due to the pandemic. The increase in off-premises consumption of casual dining offerings appears to be sticky. During Darden’s earnings call in September, it was noted that 27 percent of sales at Olive Garden were to-go, and 15 percent at LongHorn. They specifically mentioned digital transactions as the key contributing factor behind off-premises sales; 60 percent of their off-premises business was executed through digital platforms. At Brinker International (parent company of Chili’s), off-premises accounted for between 32–35 percent during their second quarter (double what it was prior to the pandemic). Brinker’s increase in off-premise was driven in part by its Just Wings ghost kitchen brand, which as of late summer was in more than 1,000 locations. While these are important factors for the restored health of casual dining, their success on this front does not seem to be coming at the expense of quick-service restaurant. The future for the segment is bright. Quick service will continue to offer convenience and affordability that other segments of the industry are hard-pressed to rival. The brands that can couple those two core category attributes with superior hospitality and food quality will stand the best chance of success. Rising to the top will be brands that forge an emotional connection with their guests—an intangible that many brands aspire to, but all too few achieve.”
Fast casual into the future
“As we look at the future of fast casual, there are several themes that stand out. For starters, the largest fast-casual concepts of today look increasingly like traditional quick-serves, with drive-thrus and free-standing buildings becoming more common. Increases in average unit volumes and expansion into new channels of trade have led to several brands breaking out of their historic real estate models. In some cases, this has led to larger footprints needed to handle the addition of service channels and the sheer volume of traffic being added to the business, while other brands have been able to downsize (primarily due to the smaller dining room space needed in today’s world … a trend that began long before the pandemic). Cuisine has emerged as an important factor for brands aspiring to join the ranks of the largest fast-casual brands, which are primarily focused on mainstream fare. Mexican, sub sandwiches, burgers, and chicken rule the roost, accounting for eight of the top-ten fast-casual brands (only Panda Express and Panera fall outside of those categories). A little more diversity creeps into the 11–20 spots, with bagels, barbecue, pizza, and pasta making appearances. As you drill deeper into the top-100, more unique cuisine can be found. But as appealing as a more eclectic menu may be to some, the appeal to the broadest spectrum of consumers appears limited. This isn’t to say that there isn’t room for brands serving a niche product. But I would submit that, over the history of fast-casual, many brands built around specialty cuisines have expressed aspirations for growth that are not aligned with the marketplace.”
Read the full article: Where is Fast Casual Headed?
“Perhaps the most interesting aspect of the segment’s future is how we will define it a few years from now. Once upon a time, the hallmarks of a fast-casual restaurant were higher-quality ingredients, bolder flavors and differentiated recipes that could (and often did) exceed casual dining offerings; a décor, atmosphere, and quality of service that was a cut-above quick-serves and did not encourage tips for employees (part of the formula for keeping the average check below comparable fare from a casual dining concept); speed of service that was not as fast as quick service, but faster than a casual dining experience; a drive-thru disqualified a brand from being in the fast-casual club. Applying such a litmus test to today’s fast-casual restaurants would result in many brands being ejected and recategorized as quick-service restaurants. What brand has moved closer toward being a casual dining restaurant? I cannot think of one. If the category keeps moving in this direction, the relevance of being crowned a fast casual may evaporate and being thought of as a superior quick-serve may be the most coveted position of all.”
Preparing for a dine-in revival
“The 64-seat question is this: what does the future hold for dine-in occasions, especially as it relates to quick-service and fast-casual restaurants? While the mass closure of dining rooms has no precedent, we can learn much from the past when it comes to consumer behavior related to on-premises occasions. At Firehouse Subs, we started experiencing a drop in our dine-in business in 2013. What was once more than 50 percent of our business became slightly less than that by the end of 2014. Trends are just that, and they take time to develop, so it wasn’t until well into 2015 that we recognized it as such. I don’t believe that we were alone, be it in the sandwich category or the broader quick-service segment, but what made it more salient for us was the fact that, as a sandwich concept, having more than 50 percent of our business prepared for on-premises enjoyment was a point of differentiation. Like some others in the industry, we started sharpening our off-premises tools (and it was a good thing we did, as we would have not been in such an advantageous position when the pandemic struck).”
Read the full article: Is Quick Service Ready for a Dine-In Renaissance?
“In my opinion, the answer to what lies ahead rests heavily on understanding the drivers of consumer behavior and the decline in on-premises occasions during the years leading up to the pandemic. Technology—digital and mobile tech in particular—is at the forefront in terms of bringing about behavioral change. At the most basic level, e-commerce has created a significant shift in how people spend their time, not just their money. A person’s day, if we were to map it out, is simply not what it used to be. The human experience is also more diversified than it once was, driven by more choices than ever before.
These forces are powerful; as powerful as any I have seen in my 48 years in the industry. One of the most compelling pieces of evidence: it is not unusual for a guest to favor using a given restaurant for an off-premises occasion despite giving that restaurant higher satisfaction ratings when they use them for a dine-in experience. Can a restaurant evolve their menus, service methods, and technology to tap into these forces, and optimize them to drive consumer occasions, whether for on-premises or off-premises consumption? Certainly. The COVID-19 meteor did not bring about the death of the dine-in experience. But it did change it, primarily by being an accelerant that brought the consumer to a point they would have otherwise arrived at on their own over a longer period. In this parable, the only species that need fear extinction is the restaurant operator that fails to adapt in the face of these seismic changes to the way we all live our lives.”
Imagining the Restaurant of the Future
“COVID-19 hastened a decline in dine-in business that was already underway. The change in consumer demands for off-premises channels of trade was immediate, and this created immediate challenges for operators. Brands were compelled to act faster and more creatively than ever before. Adjusting to the change in velocity across the channels of trade became a paramount consideration (not to mention the creation of new channels of trade for some brands). This has produced great innovation in a shorter period of time than we have seen in many years. (Fortunately for Firehouse Subs, our digital platforms for online ordering, third-party delivery, and our loyalty programs were robust prior to the pandemic, which hastened our return to positive comparable sales in less than three months after the start of the pandemic.) As operators gain better understanding of the changes in behavior that appear to be long-lasting, we see it reflected in new restaurant designs, often dubbed the “restaurant of the future.” It is little surprise that we seem to see more brands than ever announcing such initiatives. As the months and years progress, we will all watch with great interest to see where the greatest successes are scored, and which aspects resonated the most with consumers. There is little doubt in my mind though that the biggest wins will be driven by technology.”
Read the full article: The Perpetual Pursuit of the ‘Restaurant of the Future’
“There is one aspect of technology that is newer terrain for the restaurant industry: the digital realm. This is an area where the industry has an opening to lead. Digital tech offers the opportunity to enhance the guest experience and value proposition while simultaneously opening the door for greater restaurant productivity, efficiency, and profitability. It also amplifies our ability to market and promote. I dare say that digital technology has the potential to be the biggest game-changer for restaurants since the automobile. In the digital realm, the room for creativity and inventiveness is limited only by the imagination. Even for industry veterans like myself, who have lived through and experienced first-hand the implementation of most of the technological advances that have been applied to restaurants, this promises to be the most exciting period of innovation we have ever seen. I look forward with great anticipation to what the future has in store.”
Back on the floor
“Being at the National Restaurant Association show is always a reminder of the depth and breadth of our industry. Restaurant and foodservice companies collectively employed 14.5 million people at the start of 2022 (a figure still well below the 15.4 million employed before the pandemic). When we think of the restaurant business and the people that comprise it, the front-line and back-of-the-house team members come to mind first. They are the ‘yeast’ that gives rise to the preparation and serving of great food.”
Read the full article: The National Restaurant Association Show: It’s Great To Be Back
“While it may not be practical for companies to send all of their employees to Chicago (even just once), I highly recommend that a concerted effort is made to send a variety of people from different disciplines within the organization. Your team will develop a better sense of all of the moving parts of the industry and the interwoven nature of the various trades and service providers. Without fail, innovation is always on display, and can inspire your team in ways that you may have never considered. When it is all said and done, the main draw of the show isn’t the latest shiny piece of equipment, nor the popular booths offering the latest culinary delights. (By the way, make sure to pack clothes that have those elastic waist bands—you’ll need them). It isn’t the educational seminars that make the unpredictable Chicago weather of May worth the gamble. (Though you certainly do not want to miss those sessions). Just like the industry itself, it is the people who make the difference.”
Learning from the next generation
“When I look over the list of quick-service restaurant brand chief executives that have been recognized over the decades, I see an evolution of leadership traits and competencies. I have personally observed much of that transformation. The initial CEOs for many of the legacy brands were often the founders; innovators who brought a unique entrepreneurial perspective and pride of ownership to the role. Sometimes those traits became liabilities, and we have seen over the years examples of founder-led companies hitting a wall. There have been many brands with more potential than was ever realized. Alas, we are all mortal, and successorship is inevitable. The baton of leadership must eventually be passed from one generation to the next. While it is difficult to assign a specific timeline to it, I would suggest that the 1980s marked a period of important transition for the industry. By then, the major quick-serve brands had 25-plus years under their belt. The second generation of leadership had access to resources that the founders might never have dreamt of. Yet some of these leaders spent the early years of their careers in the less sophisticated period of the industry, and had not matured in ways we might expect today. I dare say that some of the second generation of CEOs brought baggage with them that did not necessarily serve the industry or their brands well. This time period also saw an increase in CEO talent arriving from outside the industry. At times that was a great thing. Sometimes not.”
Read the full article: Cultivating the Next Generation of Restaurant CEOs
“As we pushed into the new century, I would submit that a third generation of CEOs emerged. They were people who better understood the human condition. Servant leadership—a concept that many old-school hard-line leaders would have dismissed as being weak—became an increasingly common ingredient for success. Empathy became one of the most important characteristics a leader could possess, regardless of what rung on the ladder they occupied. These leaders didn’t just climb the corporate ladder, some of them gave birth to new concepts. They struck out on their own to build from the ground up, as opposed to the difficult task of fixing a struggling brand from the inside.”
“In my opinion, the most successful CEOs in 2050 won’t possess some sort of new, unique skill set that we can’t envision today. Their success will be rooted in providing inspirational leadership. Period. And where will they learn to do that? From today’s CEOs. Today’s chief executives should strive to lead by example, forge mission style orders (i.e., don’t micromanage), instill a culture of fair accountability, and maintain optimism within their organization. I firmly believe that these are the traits that will motivate and drive the ascension of today’s youth. Some of these team members will become the CEOs of tomorrow.”
History lessons from inflation
“When reflecting back on the historical record, the closest example to today is arguably found in 1973. In May of that year, inflation hit 5.5 percent. Seven months later, it was 8.7 percent. Similarly (but hopefully not ominously), we hit 5.4 percent in June of 2021, and it took 11 months to climb to the current 8.6 percent. The ramp up period is similar, but hopefully, the road ahead deviates from what we experienced through the balance of 1973 and well into 1975. During that cycle, inflation peaked at 12.3 percent in December 1974, and did not drop below 10 percent until May of 1975. Is there similarity between these two periods? You bet. The price of oil skyrocketed back then. The underlying causes for the oil/gas crisis of 1973–74 are eerily reminiscent of today. I’ll refrain from going into a lesson on the geo-politics of the time, but (according to a report from the Federal Reserve) the net effect took a barrel of oil from $2.90 in October of 1973 to $11.65 by January 1974: a nearly 4X increase. Sound familiar? The role of energy in the current economic saga is likely the cornerstone for inflation and will drive much of what is to come.”
Read the full article: Here We Go Again: Inflation, Recession, and Old Lessons Learned
“When inflation of the sort we have today is coupled with recession, staying the course can be a more daunting task. During the Great Recession, inflation never rose above 5.6 percent (July 2008) and we actually had deflation to a point as low as negative 2.1 percent (July 2009). The pressure we see today relative to the cost of doing business is unlike anything we saw in 2008–09. Some of the learnings from that time will help us today. Others, not so much. The brands that navigate most successfully through today’s economic challenges may well be the ones that figure out what pages of the playbook to keep, and which ones to discard. One page that some may double-down on might be found within that 2008 opinion piece: ‘As we deal with some of the harsh realities of today’s economy, we must constantly remind ourselves that the vast majority of customers still cross the threshold expecting that they will get their money’s worth. That means we must provide them with the product quality and portions they have come to expect, at a fair price, served in a clean, inviting environment by people who deeply appreciate their business and demonstrate it through their actions.’”
A look back in time
“Since 1998, the population of the USA has grown by 20.7 percent. Quick-service restaurant brands, in general, have gotten stronger as the nation has grown. Yet the overall growth among the top 50 brands has not necessarily meant that the segment has been without volatility. Of the 50 brands in 1998, only 27 remain on the current QSR 50. Over the long term, the shakeup in the segment has been considerable, though the addition of the snack category is responsible at least in part for the displacement of five of the brands that exited the list. In 1998, there were 14 burger brands in the QSR 50 with a combined unit count of 40,665. In 2021, the count is 9 percent higher. In contrast, chicken brands on the QSR 50 list accounted for 9,879 in 1998 compared to today’s 14,572. The increase of 47.5 percent serves as testimony to the ascension of chicken as the most consumed protein in the nation.”
Read the full article: The New Order of The QSR 50 in the 21st Century
And a look at this year’s QSR 50
“Near the opposite end of the spectrum is pizza/pasta, which accounted for 22,612 units in 1998 and only grew by 83 locations by the end of 2021. Among the top pizza players, it has been a battle for market share and the deck has been reshuffled as a result. Compared to 13 brands on the list in 1998, there are now only six. The category within the QSR 50 that has grown the most since 1998 is “global.” The rise of Chipotle, which was not on the list in 1998, and Panda Express have helped grow the category significantly by 79 percent. Perhaps the most interesting storyline when comparing 1998 to today is found in the sandwich category. Back then, there were 18,495 sandwich units divided amongst seven brands. Fast forward to today, and the seven brands on today’s QSR 50 list account for 33,038 locations. The category growth of 78.6 percent is just a thin line of mustard shy of the global category. But then, the complexion of the sandwich category has changed dramatically in terms of the players. From today’s QSR 50, only Subway and Arby’s appeared on the list in 1998. Lost between the lines of the 1998 and 2021 QSR 50 reports is the rise and fall of Quiznos.”
“What does all this mean? While the quick-service restaurant segment is robust and as stable a place as any within the restaurant industry, it is at the same time intensely competitive. I’ve heard more than once in my professional life the point of view that some brands are “too big to fail,” but by studying the history of quick service and the broader restaurant industry, we can dismiss that as a myth. If anything, such a belief is fertilizer for complacency. Looking back at the past 23 years, we can also see how the preferences of diners change over time, and well within the lifetime of our investments. It is a reminder that change is inevitable. The brands that embrace change may be more likely to occupy a spot on the QSR 50 another 23 years from now.”
The evolution of being a great franchisor
“What should a prospective franchisee look for in a franchise? Well, there’s no simple answer to this question. The maturity of the brand and franchisor is a critical factor, as new brands in the early stages of franchising sometimes possess a less robust track record. The franchisor will presumably present all of the information that is required of them by the FTC, which should include contact information for any existing franchisees that the prospective franchisee can connect with. Still, the franchise candidate may have only a fraction of the insights that might be available when considering an offering from a more established brand. With all of that said, a new franchise brand might represent a ground-breaking opportunity with significant upside potential, but the lack of track record may make it an inherently riskier proposition. On the flip side, a well-established legacy brand may represent a lower-risk proposition. No matter which end of the spectrum a franchisee is considering, the key ingredient for a quality decision is the degree of due diligence they exercise.
Read the full article: Franchising: A Restaurant Business Model All Its Own
“Most franchise candidates face an important decision before signing on the dotted line. The gravity of the decision is unique to each individual or entity. It’s important for them to do their homework, as they’ll discover much about the historical performance of the brand and franchisor, and that knowledge will form a foundation upon which to build their assessment of the present state of the business. They will hopefully seek out other franchisees of the brand in order to assess the current state of affairs and other aspects of the business. Ultimately, they will then have to make their own assessment of the prospects for the future. No one can predict the future with certainty, but ideally, both the franchisor and franchisee will make every reasonable and fair effort to produce a successful outcome. It is fair for the franchisor to expect that the franchisee will apply their best effort to the business. Likewise, the franchisee should harbor the same expectation. And while both parties have many common interests, it needs to be acknowledged that their respective businesses are unique to themselves. As mentioned previously, one cannot succeed without the other, but it should not be overlooked that what it takes for each to succeed is unique to their respective businesses. If neither party loses sight of that and makes it a priority to respect the other party’s point of view, the chances of success are endless.”
The pursuit of the perfect drive-thru
“Over the years, there have been many technological and operational system enhancements that have improved speed, throughput and accuracy. Ideally, these improvements have boosted convenience for the guest, which in the end becomes the most significant benefit that drives usage of the channel. After all, if not for being of greater convenience than other ways of accessing the brand, why would the guest use a drive-thru to begin with? If not for a financial reason to do so (e.g., a lower price point compared to other channels of trade), I’m at a loss. All that being said, I believe there is another attribute that is not given enough consideration when designing and operating a drive-thru. If I wanted the highest-performing drive-thru, I’d request one more thing from my engineer: impulse power.”
Read the full article: In Search of the Perfect Drive-Thru Restaurant
“An advantage that drive-thru restaurants possess over other providers of ready-to-eat meals is the ability to capture consumers based upon impulse. It is not unusual for more than 80 percent of a quick-service restaurant’s sales volume to be derived from the drive-thru. And of that, an uncertain (but one would assume consequential) percentage of the sales volume is derived from impulsive decision making. A restaurant that is not designed and operated with this segment of the market in mind is likely missing out on business. Impulse and convenience are intertwined, but they are not the same. For example, ingress and egress (the right to enter and/or exit) are both very important aspects of restaurant design. If we are focusing on convenience, ingress and egress are of relatively equal importance. However, when it comes to appealing to impulsive decision making, ingress is by far the dominant factor. Any factor that detracts from the consumer’s ability to act on impulse is one that will potentially limit sales.”
“Impulsive behavior is complicated—it is decision making that is done in a small fraction of time. For example, a consumer may make a convenience-driven decision to visit a restaurant that has a reputation for slow or inconsistent service. They love the food, but haven’t been thrilled with the speed of service in the past. The decision to go to that restaurant is nevertheless driven by convenience, simply due to the fact that it is a quick-service drive-thru and fits within a certain drive time that aligns with their need for convenience. On this particular occasion, as the consumer drives within sight of the restaurant property, they observe that there are no cars in the drive-thru lane. They can then breathe a sigh of relief and go ahead with their order and purchase. Alternatively, the consumer may see eight cars in line, and given their past service experiences, they’d more than likely make a spontaneous and impulsive decision to order at the competitor across the street. As brands refine or reinvent the drive-thru experience, the ability to satisfy the impulse purchase may be the most significant factor for optimizing sales volume. Once the design is optimized and implemented, the battle is waged in the field by each individual restaurant striving to perform at the highest level with the tools they have been provided. Make no bones about it: the winner will capture more than their fair share of the drive-thru galaxy."
Building great teams
“Working for a great company is one thing, but working for a great brand is another. Forging a brand that inspires superior performance at the restaurant level is something that deserves every franchisor’s consideration, especially when success on that front is likely recognized as much—or even more—by the guest as it is the employee. For brand leadership, the task starts with a simple question: Does a prospective employee have a reason to prefer working for one of your franchisees instead of another restaurant brand? If you can place an affirmative check in that box, then you’re ahead of the game. I would submit that many brands are not discernible on this front. For many job candidates, a quick-service restaurant is a quick-service restaurant. How does a franchisor help create points of differentiation? I know it is a well-worn cliché, but having a distinct, well-understood brand culture is (in my opinion) the surest way to set your franchisees up for success. Of course, there’s always the possibility that a franchisee may botch it. But if they do, the reason for their inferior performance will be easily recognized as a failure to embrace the culture of the brand.”
Read the full article: Building Great Teams on a Foundation of Pride and Purpose
“Transforming a brand’s culture is no easy task. All too often, company leaders try to change the undesired behavior without first addressing the beliefs and values from where those behaviors originated. Perhaps some success can be had in changing behavior for the short-term. But if you want to gain a sustainable advantage in the marketplace and to help your franchisees establish their business as a great place to work, you can’t ignore the beliefs and values that you desire for your brand. The behaviors will follow.”
Technology, leaders, and the guest experience
“I have always believed that members of management, at all levels, should be customers of their brand. It is invaluable to experience your restaurant as your guests do. You should be served the way your guests are served, from the beginning to the end of the dining occasion. You should taste your products the way that the guest enjoys them—not in a perfect test kitchen environment, but in the dining room, the car, the office, or at home. By the way, when you sample in the dining room, please bus your own table. That is part of the guest experience as well.”
Read the full article: The C-Suite View of Technology
“As we integrate technology into our brands, we need to make sure that we take a holistic approach to understanding these upcoming generations. And as we strive to integrate technology on the assumption that the majority of younger groups will embrace the effort, we shouldn’t lose sight of the fact that technology is just a part of the guest experience. In our organization, it’s important for us to understand the value that our digital efforts bring to the guest experience. Technology should enhance the occasion from the guest perspective, not create friction. Let’s never forget that, in the end, restaurant brands ultimately win or lose primarily on the merits of their organic experience in the restaurants. Understanding the relative importance of your brand attributes is paramount—even among the tech lovers, the bite may still trump the byte."