There are now 7 massive restaurant industry trends to now watch for, some of which most have already suspected, such as AI.
The outlook for the restaurant industry in 2024 is clouded by many of the pressures that defined 2023.
Inflation, diner price sensitivity, sluggish traffic and scarce capital will continue to plague operators, experts said.
“Right now is the hardest it has ever been in the 25-plus [past] years of running restaurants,” Bryan Solar, chief product officer at SpotOn, said.
These challenges may push restaurants to embrace new solutions this year, experts said.
Here are 7 massive restaurant industry trends to now watch for:
- More full-service chains will embrace service fees.
- Chains will focus on value, take smaller price hikes.
- Restaurants will streamline menus, but grow snacks and beverages.
- AI adoption will grow, especially in the back of house.
- Chains will lean on tech to cover rote tasks, deepen retention.
- Personalization becomes synonymous with loyalty.
- Development will moderate due to capital constraints, high costs.
Service fees will likely proliferate across the country, especially in municipalities like Washington, D.C., that have ended the tip credit in favor of minimum wage for hourly restaurant workers, said Bin Lu, executive chef of Blue Rock in Virginia.
Restaurant prices hikes are expected to soften in 2024 compared to the low double-digit increases of 2023, which have pushed diners to their limit, experts said.
This has restaurants pivoting towards focusing more on value.
Chains will also continue to reduce operational complexity in their kitchens to manage menu costs.
Restaurants rushed to incorporate artificial intelligence to their tech stacks in 2023 to smooth kitchen operations and improve service times by alerting operators, delivery drivers and kitchen staff when to prepare orders.
Experts expect this innovation to continue this year as chains fine-tune their operations for speedy fulfillment of omnichannel orders.
The restaurant labor market has slowly begun to improve, but operators will seek opportunities to displace rote tasks — such as placing orders — to guests so staff can focus on “high hospitality moments” and improve efficiency, experts said.
Loyalty programs, and overhauls to existing rewards platforms, proliferated in 2023 as restaurants aimed to deepen engagement with high-spend consumers.
Experts expect chains to improve their customer data processing to offer more meaningful personalization to their loyalty schemes.
Demand remains high for franchising, however, and agreements with operators will continue to be signed. But franchisees may try to put off the actual building for a bit, experts said.
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Other Economy News Today
Unexpected costs may now drive restaurants to close down in 2024, especially when mixed with labor shortages, experts warn.
Industry experts say that issues with margins or cash flow due to supply shocks, labor shortages and other disruptions can push operators into covenant default over their debts.
Last year, several large franchisees declared bankruptcy.
While each of these bankruptcies had unique causes, they provide a window into a set of common industry problems: rising input costs, including labor and food costs; difficulty raising capital to fund expansions or remodels needed to drive new sales; evermore expensive debt service; and static or falling consumer traffic, reports Restaurant Dive.
“All of those pressures that the franchisees are citing as causing problems with their operating economic models show really no sign of slackening their impact as you move into 2024,” said Eric Danner, a partner in CohnReznick’s restructuring and dispute resolution practice.
Ab Igram, executive director of the Tariq Farid Franchise Institute at Babson College, said those problems were likely to be serious only for over-leveraged operators.
“For the most part, it depends on the individual operator, what markets they’re in, how well they’ve maintained their units,” Igram said.
“If the economy continues to improve, that bodes well for franchisees heading into 2024.”
However, Danner noted that factors driving higher costs haven’t changed.
Unemployment is still low, contributing to labor market tightness that forces employers to compete for workers.
This dynamic may be driving wage growth above inflation on a broad basis.
While good news for workers, wage growth may eat into the cashflow franchisees need to meet the covenants on loans, which puts pressure on operators’ balance sheets, said Kevin Clancy, global director in CohnReznick’s restructuring and dispute resolution practice.
Because franchisee debt generally has cash flow or profitability requirements, issues with margins or cash flow due to supply shocks, labor shortages or other disruptions can push operators into covenant default, Clancy said.
Those shocks can be as minor as a particularly harsh winter, which cuts into traffic in some regions, he said.
Danner said full-service and fine dining in urban centers may also see a number of bankruptcies if business traffic and office attendance in central business districts remains depressed.
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Also Read: A Home Improvement Retailer Now Closes All 157 Stores
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