The last three quarters of 2012 have been rough for a number of restaurants. The only bright spot has been Quick Serves. 2013 will provide much of the same, especially during the first six months of the year. We still see the industry segment growing, but only 1.3% over inflation.
Energy prices and food inflation will be the wild card on how the industry performs. If we see a spike in energy costs due to continued turmoil in the Middle East, fewer discretionary spending dollars will be available for eating out. The effects of the 2012 drought will continue to be seen during the first half of 2013. This will drive the cost of protein and other staples to new heights.
The other great unknown is what is being called “Taxmageddon and the fiscal cliff”. This will occur if Washington decides not to extend the 2001 tax cuts. We do not believe that this will occur; some type of tax cut will be extended. If this does not happen, all bets are off. The Congressional Budget Office predicts a recession with the economy contracting 0.3% if these tax cuts are not extended.
The Driving Theme in 2013 Will Continue To Be “Local” or “Made from Scratch”
These two phrases really mean “Freshness” to our consumers and guests. It is great to support our local farmers and ranchers who provide high quality produce and meat products. However, many times this comes at a cost and may not be as reliable as other supply options.
The term “local” has been over used. We may see regulatory officials start to step in and define this for the industry if we do not police it ourselves. People hear the phrase and sometimes shut it out. The key for restaurateurs will be to properly promote the use of “local” sourcing and ensure they meet high quality standards. Use the name of the supplier on the menu or your daily specials. This will help your restaurant guests know it truly does come from a local source. Don’t source local just for the sake of local. Make sure you receive a return for the additional time and costs associated with local.
Gluten Free Options Need To Be Added
The market for gluten free is expected to top $2.6 billion in 2012 and grow by 30% every year through 2015. While it is estimated that less than 1% of the general population have celiac disease, many believe there is a derived health benefit. This segment should not be ignored. Your staff needs to be trained on the importance of preparing gluten free products and develop specific operating procedures. The wait staff and management need to be aware of menu items that can be safely suggested to the guests who desire or need gluten free products. A separate menu should be developed or, at a minimum, identified on the main menu.
Health Care Is Here, Do You Know What it Means to Your Restaurant?
Nothing has been more divisive in this nation than the passage of what is commonly known as “ObamaCare”. With the law being upheld by the Supreme Court, there are several secitions of the law that will start impacting restaurants next year with compliance required in 2014. There are a number of tax changes that will occur first. Capital Gains will be taxed at a different rate in 2013. Certain Medicare related contributions will change and there will be a separate tax on Medical Equipment Providers.
The chart to the right will help you determine if you are among the businesses required to provide affordable health care to your employees or pay a fine. There are two important aspects of the law that you demand your attention. First, equivalent employees -50 is the magic number. Second, 30 full time employees (those working more than 30 hours per week). The big fines kick in at the 30 employee mark. It does not mean you are in the clear if you do not meet this requirement, you are not out of the woods. There are yet to be defined regulatory issues that will put a burden on your administrative staff. You may need to hire out these responsibilities, adding costs.
Pay attention to this now to determine your requirements. Start adjusting your menu prices to reflect your new labor cost structure. Some large chains, such as Papa Johns®, have already announced a potential price increase of $1 – 2 per pizza because of this new law. We can assist you with your planning and help you implement these changes.
The Shift Away From Fine Dining Will Continue
The shift in the market away from fine dining experiences in 2012 will continue in the upcoming year as consumers remain cost conscious. There is still no clear indication as to where the economy in general is heading. Until this changes, consumers will be focused on “Perceived Value.”
The shift has mostly helped the Quick Serve Market and, as a result, a more high end opportunity. You see this with the new menus from Taco Bell® and McDonalds®. Sandwich chains that have offered a higher end product have reaped the benefit of this market shift. Patrons of these venues see greater value for their money. With the economy stuck in the doldrums for the next six to twelve months, the shift that began in late 2011 will continue well into 2013. This development of VALUE perception takes the form of more creative dishes, more reasonable or multiple portion sizes, and more attention to the “hospitality” aspects of service.
When Will This Recession End?
Last year we predicted the overall customer traffic for restaurants would increase in the 3 – 5% range. The overall increase is estimated to be around 3.6% or on the low end of our estimate. Most of this growth occurred in the first quarter of 2012. The final three quarters of the year were, and will remain, sluggish. Energy prices increased significantly at the end of the first quarter which cut into consumers’ discretionary spending.
It’s going to be a weak New Year and first quarter. You need to anticipate and plan for this. Traffic will rise less than 1% over last year during this time period. Whether or not you choose to participate in this recovery that will occur in the second half of 2013 is up to you. Guests will become more finicky in their choice of dining entertainment. We estimate the overall market to grow 3-4%. To capture a portion of this growth you will need to provide “Perceived Value” and market to your customer base with a personalized approach. Place special attention on marketing to the over 50 crowd.
Commodity Prices Will Result in Food Inflation
The severe drought of 2012 will continue to affect almost all food costs, especially beef, well into 2013. Customers will want to see lower to flat prices due to the stagnant economy. Vendors will pass higher costs along. Restaurants will be stuck in middle. True food inflation will be over 10% higher in January 2013 than it was at the beginning of 2012.
To counter these divergent issues and their negative effect on your bottom line, you will need to push the guest to purchase items on the menu that you would like them to buy. Price increases are inevitable. Communication with your guests will be key. This will require operators to take a hard look at their menu and design it to draw the customers to higher gross profit items. Menus will need to be updated and revised more frequently than in years past to take advantage of guest expectations as well as specials offered by food suppliers (this will also allow you to offer locally supplied items more easily). Reduce the breadth of your menu to achieve reductions in labor. Special attention will need to be placed on reducing back-of-the-house requirements.
Do not take price increases at face value from your providers. Many commodity prices go up and down. Watch the trends. Knowledge will help you in discussions with food purveyors.
There Needs To Be a Continued Effort in Taking Care of the Kids
For the last six years, we have stressed the importance of taking care of the kids and improving the menu options for this important age group. The “Gen Y” group is starting to mature and have children. They will not stop eating out because of this. It will be even more important to cater to this group. If you offer an off-the-shelf bag of macaroni and cheese and hot dogs on your kids’ menu, this needs to change. American Demographic Magazine states that married couples with children spend an average of 44% more at restaurants than those without children. Happy kids mean happy parents. Provide a fun and unique selection of foods for the kids.
The Use of Social Marketing Will Continue to Grow Beyond Facebook and Twitter
Don’t have a Facebook page or a Twitter account yet? Well now you need to think beyond these mediums. What about an iPhone or iPad Apps. You will also need a Droid App. Qcodes? How about an internet access point in which the guest signs on with their Facebook account, allowing you to capture all types of demographic and marketing information? These all need to be integrated into your web page. When was the last time you updated your web page? Is the content current or do you still have that special event from last October listed there? Social media is quickly becoming the communication of choice for many of your restaurant guests.
In 2012, forty-nine percent (49%) of your guests under the age of 44 have used Twitter or something similar. The number of unique visitors to Twitter has increased 1,382% year after year. During the same period, Facebook usage increased 228%. These will only continue to grow and expand to alternative social sites. Reduce the amount of resources you are spending on conventional print and TV advertising, and get closer to your guests by using these highly effective social marketing tools. Groupon® will fade for restaurants as well as daily deals.
An Evolving Palate
According to the research firm Techmomic, consumers are increasingly driven to try new flavors. This will expand into the fast casual segment with an emphasis on Asian flavors.
You need to take advantage of this trend. Do not go overboard, however. Keep items on the menu that are your specialties and enhance your brand. Offer unique tastes through seasonal menus or daily/weekly specials. A great place to start will be desserts. Be bold with these items. Market them often through your social media site. This will encourage your guest to not only try the item, but follow you and look for the new adventurous flavors.
The Big Thaw That Never Happened
Financing for new restaurants will remain gridlocked. Last year we stated that there were some signs that access to credit was thawing. Large lenders to the restaurant industry like GE Capital, Wells Fargo & Co, and Bank of America, stated they were either lending more or would have more money to lend than occurred in the past several years. This only materialized with restaurants that had strong balance sheets and had been in business for years. The last six months of 2012 have seen tightening again in the credit markets. The odds of getting bank financing for startups or expansions will be nearly impossible in 2013 for independents and franchises alike. Private equity will be the trend next year for these new concepts.
Can We Help You with Any of the Above?
National Restaurant Consultants is a world renowned leader in providing restaurateurs with assistance in resolving some of the most challenging aspects of their businesses. This includes refining or expanding concepts to take advantage of an ever changing market place. Our most popular service, Operations Analysis™ has saved operators nationwide thousands of dollars and is one of the most powerful tools available.
If you believe that you are not ready for any of the above changes occurring next year, or need assistance in your operations, we would love to speak with you. Please call or send us an email, and we will get you on the road to expanding your revenues and increasing your profits.