5 Trends to Watch in the Restaurant Industry in 2022
January 7, 2022
1. Decreasing Reliance on Third-Party Food Delivery and Ordering Services
It’s no secret to anyone in the restaurant industry that third-party delivery service providers (DSPs) are a necessary evil in today’s world of everything on-demand, especially for the fast-casual and casual dining segments. While 2021 saw a significant return to on-premise dining following anemic sales in 2020, consumers have come to enjoy the ease and convenience of digital ordering and food delivered to their doorstep.
In the first nine months of 2021, DoorDash sales grew to $3.6 billion, just shy of double the $1.9 billion it saw in the same January – September period of 2020. An 89% increase in revenue in a one-year period shows consumers are happy to pay the delivery costs and fees in exchange for staying home. Their motivation is likely a combination of factors, ranging from convenience to lingering skepticism among this segment about public health factors related to the pandemic.
In 2022, look for restaurants to take strong steps to bring this audience back to the dining room, or at minimum, to their direct ordering channels, where commissions and fees don’t eat so heavily into profit margins. What will this look like?
- Expect to see restaurants to lean heavily into marketing their direct ordering platforms to convert guests to direct ordering.
- Expect to see a focus on increasing frequency with existing guests through loyalty programs and incentives to order direct.
- Expect to see many restaurants set higher prices on third-party platforms to help offset commissions and fees charged by the DSP, giving an edge to their direct channels.
- Expect to see restaurants without digital ordering capabilities invest in these capabilities via platforms like OlO, ChowNow, and FreshBytes to name a few in order to stay competitive.
2. Improving Kitchen Efficiencies with Menu Simplification
We’ve all been to Cheesecake Factory, which boasts one of the largest, wide-ranging menus in this writer’s recollection. The company considers it one of their strengths, and according to president David Gordon, it has no plans to cut the menu any time soon.2 In fact, the company added four new cocktails, nine new entrees, and additional vegetarian options last year, bucking the trend of many restaurants to reduce their menus amidst supply chain constraints and high protein prices.
More broadly though, the last two years saw menu cuts from significant players like McDonalds, Taco Bell, KFC, Hooters, Panera Bread, and Subway3, with Forbes reporting that 60% of restaurants have trimmed their menu offerings4. Much of the justification from restaurant owners indicates supply chain, labor shortages, and customer experience are behind the cuts.
In 2022, look for many restaurants to continue menu optimizations to improve kitchen efficiency. What does this look like?
- Expect to see cuts coming to your favorite menus if you haven’t already.
- Expect to see fringe ingredients removed from recipes – condiments, sides, sauces, garnishes – or other items only used in one or two items on the menu – and either replaced with something comparable, or eliminated completely to reduce SKUs, make-time, and inventory.
- Expect to see restaurants limit some items to dine-in service, while only top-sellers are offered to users of online and digital ordering.
3. Managing Labor Shortages
Two pitfalls for which almost no restaurant emerged unscathed in 2021 were supply chain delays and labor shortages. Coming into the new year, neither are fully resolved. According to the National Restaurant Association5, the first seven months of 2021 saw steady job growth in the industry, adding back 200,000 jobs. August and September saw numbers flat, largely attributed to a spike in COVID cases, before growth returned in October, just to stagnate again in November. The short synopsis is: demand for labor continues to outpace supply of workers.
While restaurant management quickly points to high unemployment benefits as a cause for workers remaining home, data compiled by 7Shifts indicates its more complicated that that. 26% of restaurants report not being able to find enough cooks, while 17% can’t hire servers fast enough. Where did everyone go?
Some key findings from data collected by BlackBox Intelligence and Snagajob7 help tell the story:
- 15% of hourly workers have left the restaurant industry altogether in the last year
- 33% of hourly workers responded that they “would like to leave the restaurant industry”
- Independent restaurants are viewed more favorably as employers than chain restaurants
- A full 20% of respondents said their perception of chains is “negative” or “very negative”
The study goes on to list the top three reasons workers have left the restaurant industry:
1) Higher pay (28%)
2) More consistent schedule and income (23%)
3) Professional development and career growth opportunities (17%)
In 2022, look for restaurants to make strides towards improving their value proposition and perception to potential employees. What does that look like? There’s no silver bullet here, but some potential solutions include:
- Increasing hourly worker pay, manager salaries, bonus potential, and other perks
- Adding benefit availability to a segment of workers that typically doesn’t receive (or take advantage of) most benefits
- Offer hiring and retention bonuses, as well as referral bonuses
- Creating career roadmaps and development tracts for all levels of employees
- Creating policies that prioritize Diversity, Equity, and Inclusion (DE&I)
4. Improving Customer Experience Both On-Premise and Off
Coming into 2021, we saw many brands increase investments in facilities and deferred maintenance, as well as upgrades to audio/video packages, takeout stations and lockers, and even parking lots. Throughout the year, we saw investments in digital ordering systems, dedicated curbside pickup tablets, and point-of-sale system overhauls. Everywhere you look, restaurants are adapting to the shifts in the industry and consumer expectations and making strategic bets on how those shifts will continue. These investments and overhauls are attached to improving the guest experience, both in-store and out.
Key areas of focus reported by popular restaurant brands include:
- Decreasing delivery driver and guest wait time for picking up off-premise orders
- Increasing speed of service for dine-in guests
In 2022, look for capital expenditures to continue in these and other areas. What does that look like? Answers largely depend on the concept, but include several of the following:
- Pickup lockers and shelving for contactless takeout and delivery orders
- Technology services and back-office SaaS aimed at streamlining scheduling, inventory, deliveries, sales reporting, waste and loss, and more.
- Deferred maintenance on grounds and facilities, kitchen and bar equipment, and audio/video packages for destination eateries, sports bars, and other concepts focused on social gatherings.
5. Alternate Revenue Streams: Ghost Kitchens and Virtual Kitchens
If you’ve utilized any of the third-party delivery services in the past year, you’ve likely seen some unfamiliar new restaurant concepts popping up in your area with a very specific menu-driven focus on particular items. Concepts with strength in core menu items are being solicited and often encouraged by the third-party delivery providers to create virtual kitchens that target specific high-demand food items. Think wings, burgers, and seafood.
These aren’t new brick and mortar restaurants setting up shop in your neighborhood; they’re existing restaurants spinning off a virtual brand that gives the appearance of more variety in your area with food items you might not associate with their primary brand, or where your perception of the primary brand might keep you from choosing them.
A few noteworthy examples that have emerged: Buffalo Wild Wings launched its own virtual brand called Buffalo Wings & Rings, focused on – you guessed it – chicken wings and accompanying sides in select markets. Applebee’s spinoff called Cosmic Wings might be showing up in your next DoorDash search. Even Hooters has a virtual brand focused on its burgers called Hootie’s Burger Bar.
What’s more: celebrities and influencers are partnering with restaurant brands to add even more notoriety to some of these virtual kitchens. In early 2021, YouTuber Mr. Beast “launched” 300 restaurants overnight, partnering with different restaurants in each market to actually cook and fulfill the orders.9 In Utah, it might be fulfilled by Buca di Beppo. In Manhattan, it might be Handcraft Kitchens & Cocktails. But make no mistake: with the monumental reach of Mr. Beast on YouTube, his promotion of “Mr. Beast Burger” and personal brand behind the virtual brand will undoubtedly generate a meaningful new revenue stream for the restaurants behind the scenes.
Partnerships like these are springing up through services like REEF Kitchens, Lunchbox.io, All Day Kitchens, as well as directly from third-party delivery services like UberEats, Grubhub, and DoorDash.
In 2022, look for even more ghost kitchens and virtual brands to pop up, adding a new marketing twist to some of your favorite eateries. What does that look like?
- Celebrity brands and endorsements of virtual kitchens
- Restaurants adding or augmenting capacity to keep up with an influx of new customers
- Large brand portfolios to add multiple virtual concepts or expand their primary concept through virtual kitchens hosted by other brands
What other trends are you monitoring in the restaurant industry? What others should we take a deep dive into here?
“There is nothing permanent except change.” - Heraclitus
Citations
1: The Motley Fool “DoorDash Stock: Buy, Sell, or Hold for 2022?” January 6, 2022 (View Here)
2: Eat This, Not That “4 Major Menu Changes You’ll See at the Cheesecake Factory” March 23, 2021 (View Here)
3: CNBC “These Restaurant Chains Cut Menu Items During the Pandemic” August 8, 2020 (View Here)
4: Forbes: “The New Reality is Restaurants Are Cutting Menu Offerings, Probably Forever” December 27, 2021 (View Here)
5: National Restaurant Association “Restaurant Job Growth Slowed in Recent Months” December 16, 2021 (View Here)
6: Restaurant Dive “Why Aren’t Restaurant Workers Coming Back? Here’s What the Data Shows.” September 8, 2021 (View Here)
7: Technomic “Study Uncovers Labor Crisis for Foodservice Industry May Not Be Temporary” August 24, 2021 (View Here)
8: Black Box Intelligence “Restaurant Industry Growth Trends to Know in 2021” (View Here)
9: New York Times “You’ve Heard of Ghost Kitchens. Meet the Ghost Franchises.” February 2021 (View Here)
