Prevailing Winds or Systemic Change?

Last month at the annual Global Best Practice Conference, Black Box Intelligence (formerly TDn2K) chairman and co-founder Wally Doolin presented an insightful glimpse into the economic, technological and demographic factors that are changing the landscape of the restaurant industry.

The New Reality of Brick and Mortar

We have to ask ourselves: do we have too many restaurants? Is the market oversaturated? In the last year, grocery stores, convenience stores and home food delivery services all raised the bar with service, product and price. There’s simply more competition for the restaurant industry beyond traditional brick and mortar establishments.

In the past, the restaurant industry conducted demographics studies to determine which restaurants to place near department store anchors at malls. But, consider this: 2,500 retail stores closed in 2016. 300 – 400 malls will go out of business in the next three to five years. There’s simply too much brick and mortar in retail, too, and that will impact our industry.

Demographics

We can’t discuss demographics without focusing on millennials. They are 75 million strong and 80 percent are already in the workforce. Millennials are changing everything about our society and the way we live our lives. Retailers are obsessed with how they shop, how they buy, where they live and other trends.

We know that millennials prefer independents over chain restaurants. But beyond that, how much research have we done in the restaurant industry about their preferences?

As we drill into demographics, we get some insight as to how the US is changing, and how we can respond. For example, 44 percent of the population is nonwhite, and 50 percent of immigrants to the U.S. have college degrees.

These statistics have profound implications for everything, from how we staff to what we serve. We’re in an industry that employs 14.4 million people, and it typically grows by 170,000 per year. So, where are the employees that we need? How do we staff our restaurants? What new trends can we expect with a more diverse employee and customer base?

Technology

The currency of value in the restaurant industry is price, quality and quantity. Now, the currency is time. How much time will you be given to sell your products or services? We’re already seeing real changes with table service establishments. People aren’t willing to devote 45 minutes of their time and also tip unless it’s a differentiated experience. However, speed is still paramount in quick service and fast casual restaurants.

Are You Nimble?

In his book “New Sustainable Strategy for Competitive Advantage,” Michael Porter observed, “Strategy is about setting yourself apart from the competition. It’s not a matter of being better at what you do. It’s a matter of being different at what you do.”

In the past, large players could leverage their size and data to effectuate quick changes. That still may be true, but data is becoming more readily available, and smaller players can gain insights as fast and as well as the larger players – sometimes even faster.

As Peter Drucker says, “The greatest danger in times of turbulence is not the turbulence – it is to act with yesterday’s logic.”

Breaking Down the Data

We see competitive advantages in our Guest Intelligence (formerly Guest Intelligence (formerly White Box Social Intelligence))™ data for guest satisfaction metrics such as food, beverage, value and ambiance. Food and beverage don’t hold up very well as competitive advantages, but value does. We think the difference is technology and speed. A restaurant can put a great deal of effort into creating a new product or setting a new price, and this strategy can be quickly replicated. Unfortunately, restaurateurs rarely get credit for innovation. Ambiance is simply the difference between remodeling or letting décor age, and a culture of cleanliness versus filthy stores.

What is a true competitive advantage when it comes to intent to return? Service.

Service as a Strategy

If service is the strategy, leadership development and management retention are the underlying tactics. We do a good job of initial training. However, in the U.S., on average, a company manager doesn’t get into a leadership development program until they’re 43 years old. That’s too late for those of us in the restaurant industry. Our managers need to learn how to deal with workplace diversity, customers, margin pressure and employee retention as soon as they assume responsibility for their location.

Our Financial Intelligence (formerly Black Box Intelligence) data reveals that management retention is a predictive metric. It’s worth putting in the necessary effort to reach the top quartile of this metric when one considers that the average company in our Financial Intelligence (formerly Black Box Intelligence) system leaves $5,450,570 on the table in turnover. While this may not flow to the bottom line, these funds can be reallocated to people and training. This alone is worth another $18,499,200 in comparative sales, and that’s real money.

The Takeaways

Big brands aren’t dead – mediocre performance is. It really doesn’t matter what size your company is, how old it is, or whether it’s private or public. The real strategic difference between brands is having the leadership ability and courage to create a culture where employees truly want to take care of customers.

Consider these factors as you design your 2017 strategic plan, and the tactics that support it:

• Chaos and uncertainty are the new reality of irreversible systematic changes in the workplace and marketplace. This requires new logic.
• Differentiation in service as a disruptive, sustainable strategic advantage requires a reallocation of investments in technology and staff.
• Leadership development is the “how” for a disruptive service strategy. Management retention is a predictive metric.
• The key to attracting and retaining top talent is to create an inclusive culture that balances people, profit, and purpose.
• Incremental changes and average performance aren’t good enough to compete in this environment.