We estimated around 20 percent of restaurants globally would have closed in 2020–2021 due to the global pandemic. Limited-service chicken and pizza were the strongest segments in terms of resilience to COVID. The impressive growth in digital sales and drive-thru sales (Popeyes’ drive-thrus, for example, were up 100 percent compared to 2019) is a case study for how new product and profit center innovations present an opportunity to lift average unit volumes, even in adverse situations.
The quick-service industry was in a much better position to face the pandemic than its full-service peers. The inertia of those wins, however, is starting to slow down. As the global industry sees a dramatic swing in revenue from old ways to new alternatives, quick-serves will have to continue adapting in this race for the survival of the fittest.
THE MOST SALIENT PAIN POINTS AND OPPORTUNITIES IN FOODSERVICE
A complete recovery for the global foodservice industry will require a top-to-bottom overhaul of its supply chain and distribution systems along with significant changes to the guest experience.
Menus, ingredients, new calculous for make-buy-decisions, kitchen reconfigurations, evolved unit-economic models and investor expectations, a disoriented consumer public and operating crews: it all adds up to make for the most massive recalibration of the commercial foodservice industry in modern history.
And it will have to happen in less than 18 months. The Great Global Reset is happening—with or without those that decide to participate. These are some of the challenges and opportunities the Aaron Allen & Associates team has been identifying for years.
Increasing Labor Costs: Labor is the No. 1 pain point in the restaurant industry. There is an opportunity (and need) to knock hundreds of billions of dollars in labor costs out of the unit-economic model for the restaurant industry to evolve, modernize, and achieve the kind of tech-enabled productivity (and valuation) gains that other industries have seen far ahead of ours. In the U.S., a good benchmark for the global industry, 82 percent of all employees in restaurants (including serving workers, cooks and food preparation positions, and support positions for these) could—to a large extent—be automated.
Stagnant Productivity Growth: In aggregate, U.S. workers’ productivity nearly doubled between 1987 and 2017. The restaurant industry has been among the slowest to grow—about 80 percent below average at a 0.4 percent CAGR. Restaurants have been historically slow to adopt new technologies, which is becoming evident through those productivity metrics.
Safety and Sanitation: Always a salient point but increasingly so during and after COVID-19. Sure, there was money to be made in panning for gold during the gold rush, but it was the landowners and supplier community (selling the picks, shovels, pans, and transport) that was most profitable in that period of time. Today, that will mean those selling the new training systems and protocols, personal protective gear, and tools for modernization (touchless and contactless, robotics and automation systems, and other technology that improves safety, productivity, and profitability).
Slow Growth: While mature markets like the U.S. and Europe show slow (but steady) growth, 85 percent of all the foodservice growth is originating outside North America. Global industry leaders derive an increasing percentage of revenue from outside their home markets (more than one-third), and quick-service restaurants have been particularly effective in pioneering to new markets.
EVERYTHING IS GETTING SMARTER, AND OPERATORS SURVIVAL DEPENDS ON HOW THEY CAPITALIZE IT
As Henry Ford once famously said, if he’d given people what they wanted it would have been faster horses. This is a fitting sentiment for the foodservice industry in general.
Especially in mature and established markets, growth in the restaurant industry is coming primarily from acquisitions and incremental growth achieved through the expansion of product and profit centers. At the same time, margins are getting increasingly pressured by raising costs (primarily labor, with food and occupancy costs also contributing to the margin squeeze).
Technology has not been widely adopted in the restaurant industry. Those operators that are driving innovation are doing so within their own brands (and this is happening just among the very largest in the world). Little to no innovation is driven by operators in the middle market and below. It’s hard for those chains with under $2 billion in sales to allocate CAPEX to R&D.
