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While the fast-casual category continues to be the fastest-growing industry sector, the road in 2015 will be bumpy. We will see constant change and challenges around every corner. For industry leaders, there are issues that will keep even the most seasoned executive awake at night.
Here is my top 10 list of biggest challenges the fast-casual industry will face in the months ahead.
1. Real estate. It is getting tighter and tighter. Unfortunately, landlords are retrieving the upper hand; it is not a black-or-white scenario. Will landlords kill the golden goose by charging more than operators can bear? Aggressive negotiating skills will be an important tool in the coming year.
2. Technology arms race. It’s a constantly changing environment. In many cases, the verdict is still out if social media is triggering direct return on investment and sales. But social media must not be avoided. Fast-casual operators will have to closely watch the social media trends to be smart with allocating resources. Facebook, Yelp, Instagram, Snapchat, Vine, Foursquare, MySpace, and others are all viable ways to connect with consumers. Who knows what new social media tools will emerge?
3.Private equity dollars. Mega dollars are chasing smaller and smaller chains. A good example is the growth in the fast-casual burger and pizza categories. How many more of these concepts can the industry handle before it bottoms out?
4. Obamacare. While the impact did not seem too strong the first year, the unanswered question is what kind of an impact it will have in 2015.
5. Fuel prices. What goes down must come up (and vice versa). We’re seeing fuel prices go down to pre-recession levels, but the reality is that they will go back up. Lower prices should boost consumer disposable income, and that is good news for our industry. At some point, though, the Organization of the Petroleum Exporting Countries (OPEC) will have to jump in to protect pricing.
6. External threats like terrorist attacks and natural disasters. These are “black swan” scenarios and are all but impossible to predict. For example, Florida skirted major disaster during hurricane season last year. Will the good luck continue in 2015?
7. Labor costs and joint employer mandates. Who would think that we might return to a tight labor market? We could easily see this challenge emerge during 2015. Will the new immigration deal make a difference? Will the regulatory environment result in a $15 minimum wage or disastrous joint employer rulings be headed your way? We’ll have to see what happens.
8. Credit card fees. Face the facts: We have evolved into a cashless society, and it eats at more and more of our profits. With technology, this is a reality that will not change. While usage continues to dramatically increase, expenses fail to drop. Can our industry find a way to bypass this draining? I wish I had the answer.
9. Commodity prices. While the price of chicken is coming down, beef is years away from returning to normal. Chocolate and olives could go up this year; what other foods will be next year’s avocados, shrimp, and limes, all of which climbed in price in the past year?
10. Shrinking margins. As an already extremely tight business model gets squeezed, which chains will not survive 2015? Industry players will have to run, not walk, to survive.
Gloom and doom is not my mission here. As the fast-casual industry continues to survive and thrive, my point is that we can never rest on our laurels. No matter how successful our concepts, there will always be stones in the road. The operators who adapt and watch for these obstacles will be the success stories in the coming year.