Which restaurants are most vulnerable to a double dip?
Chipotle is the top performing restaurant stock of 2010 not because it has the best burrito but because it has brand attributes that resonate with consumers who feel the chain is genuine in their commitments – not just as marketing slogan but as a way of operating. Steve Ellis has credibility with his “cause” and purpose. He’s an example of the restaurant CEO of tomorrow. Of course, they also happened to be in the right place at the right time (whether by chance or smarts) with a variety of emerging trends that swelled up right underneath them. Chipotle is far less vulnerable to a double-dip than the chains who still aren’t seeing the real dynamics which are reshaping our industry. A couple of Tylenol and some rest are not going to make this headache go away. For many, it’s going to require surgery and some dramatic lifestyle changes.
Do you think the 2008 crash has already prepared QSRs to handle a backslide?
There are many indicators of an impending global food crisis. It sounds like dooms-day fanaticism within our industry but there is no question that booming population growth and consumption patterns will push the hard physical limits of our food system. The charts tracking commodity price increases look like a hockey stick. They shot up over 200% in 2008 and in recent months have risen again. These are tremors for what is waiting a decade or two ahead and there will be many more tremors as we make our way there. Estimates suggest we need a 25% increase in annual agricultural production to meet the population growth demands. We are just past 6 billion on Earth today and will reach 9 billion by 2040. Estimates are that the capacity of our plant (sort of like the “maximum occupancy signs hanging in restaurants or elevators) is around 10-12 billion.
Are your restaurant clients telling you that they are concerned for a double dip?
The worst hit are those in the lower check-average casual dining segment. The unit economic model of the restaurant industry has fundamentally changed and the change is irreversible. This indisputable truth has been masked by the recession and misdiagnosed by many analysts and industry strategists. Dismissing the woes of casual dining as a recessionary ailment is like dismissing a brain tumor as a headache. Many executives and analysts are advising “take two Tylenol and sleep it off’ when really they should be prepping the patient for massive surgery. This is more the double-whammy full-service should be preparing for. The recession IS NOT the main culprit but a symptom of the underlying issue of unit economics.
Do you believe restaurants should be preparing for a double dip?
QSR’s were already more assimilated to the way Millenials think and communicate. Millenials are now a larger (and, arguably a more profitable) audience for the restaurant industry than even Baby Boomers. Many of the executives running the chains and marketing decisions are “Digital Immigrants” that didn’t grow up with all of the technological advancements that Millenials – or “Digital Natives” – now take for granted. Millenials make up a tremendous share of the employees working in restaurants and dining in them. Many of the Digital Immigrants still haven’t assimilated with or recognized the importance of learning the language of Digital Natives. For the next several years, this assimilation and mastering the opportunities of digital marketing present one of the biggest opportunities for restaurants regardless of their size, segment, menu or geography.
Are QSRs a different case when it comes to the impact of the recession since their lower-priced offers may become more attractive in hard times?
Wendy’s is doing the best it can with what it has. Menu intiatives like “sea salt fries” is a great example of taking something from casual dining and adapting it for QSR. In my view, one of the very best places to look for future trends is to look at world-acclaimed fine dining restaurants. Within 5-7 years, elements of fine dining’s hottest trends trickle down the continuum to QSR. Sea salt has a very wide appeal today and it’s not a huge surprise to see it in recent QSR menu introductions. Looking back 5-6 years ago gourmet sea salts were all the rage at destination-restaurants.
There are countless examples of this theory to support it. What’s as predictable as some mutation of fine dining innovations eventually making their way down to the QSR is the current-day reactions of executives who can’t conceptualize how something in fine dining can work in QSR at any point, much less in a horizon just 5-7 years out. It doesn’t come down the continuum exactly as-is, but some mutation often does trickle down and present solid opportunity for bold and courageous chains willing to take calculated risks in pursuit of innovation and market leadership. Hats-off to Wendy’s for having the courage to go for it and for others who are doing so as well.