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What Constitutes A Restaurant In America Is Changing

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Throughout the past two years, no topic has proliferated in the restaurant space as much as delivery. As consumers require such convenience, restaurant operators have been forced to delicately navigate this new space, giving up some control in the process. 

But as it turns out, there’s a lot of rhyme and plenty of reason. According to a new report from the National Restaurant Association, “Harnessing Technology to Drive Off-Premise Sales,” off-premise sales—including drive-thru, delivery and carryout—now make up 60% of all foodservice occasions. Driving much of this expansion is the advent and acceleration of convenience-driving technologies like mobile ordering. 

To understand just how much of an impact this technology has had, consider the historic trajectory of the industry. It started with table service. Then the fast food segment emerged (White Castle was founded in 1921; McDonald’s in 1940), followed by the drive-thru (1947). 

Since then, there hasn’t been a whole lot of change other than new segments, subsegments and categories (fast casual, snack/coffee, food trucks, etc.) popping up here and there. 

In the past two to three years, however, the pace of change has been put on turbo boost and we’ve now found ourselves at a clear inflection point. 

“Timing-wise, this is definitely a tipping point for the emergence of essentially a new business model for certain restaurateurs,” said Hudson Riehle, SVP of the National Restaurant Association. “The basic paradigm of what constitutes a restaurant in America today is changing.”

Riehle said there is a confluence of developments enabling the development of new foodservice channels. Chief among them is changing consumer demographics.

In fact, Gen Z is expected to surpass baby boomers and millennials this year as the largest population. Their spending power is estimated to be somewhere between $29 billion and $143 billion, easily surpassing that of the millennial generation. This is a big deal considering that Gen Zers know nothing different than how to get what they want in real-time simply through their phone. 

“Younger cohorts are exhibiting different wants and needs regarding what the foodservice industry is and what it can offer,” Riehle said. “From their perspective, nothing is more convenient than having the restaurant come to them.” 

As such, 39% of customers have used the drive-thru channel more than they did just a year ago; 34% have utilized delivery more often than a year ago; and 29% have ordered takeout more often than last year.

It’s important to note this data doesn’t mean the industry as it is now is going away. 

“It just means higher growth rates for the next decade will be aligned with the development of the off-premises market in conjunction with many of these new technologies,” Riehle said. 

It also means operators will have to be nimble, perhaps more than ever before. The industry is notoriously slow when it comes to tech adoption, but such an approach may no longer be prudent. For example, while 56% of consumers say they prefer to place delivery orders via a restaurant’s website, just 45% of operators offer this option, according to the association’s report.

The disparities don’t stop there: 43% of delivery users place orders via a restaurant app, while just 18% of operators offer this ability. To survive, let alone thrive, restaurants that haven’t done so will have to close this gap and quick.

That’s not to say mom-and-pop establishments (which make up a big chunk of the industry) will have to find enough cash to buy a tech startup like McDonald’s, Starbucks and Yum Brands have done in the past year. However, it does mean technology investments can no longer be an afterthought. 

The good news is most operators are aware of this. 

“One in three operators report that they’re lagging in technology. They’re cognizant of prioritizing allocating more resources to that arena,” Riehle said. 

Further, they’re increasingly becoming aware of the return. 

“When tech is applied against a labor-intensive industry that employs more than 15 million individuals, there can be substantial efficiency and productivity gains and that is starting to occur now,” Riehle said. 

Indeed, an earlier report from the association, released in April, showed that a whopping 70% of QSR operators plan to devote more resources this year to customer-facing, service-based technology like online or app ordering, mobile payments and delivery management. 

So what’s next?

Riehle makes it clear that technology is not a panacea for a restaurant operation, but rather a tool that will help facilitate the industry’s growth throughout the next decade. Importantly, he adds that younger consumers expect technology to be a part of their restaurant experience.

Since that’s the case, it’s important to understand what consumers want not just now, but next, as well as where early-adopting operators have found success.

For example, 44% of operators who offer voice ordering through a virtual assistant said the feature has had a “large” positive impact on their business. There are big projections for voice as more consumers adopt the technology and it becomes more intuitive for them. McDonald’s has even incorporated a voice-enabled job application process.

Geofencing has also made quite an impression so far, with 45% of operators who offer the feature experiencing a positive impact on their business. McDonald’s—ever the case study of early adoption—recently earned 6.4 million mobile impressions through a geofencing campaign, tying out-of-home billboards and in-app advertising on Waze.

Meanwhile, a majority of consumers (69%) say they are likely to use vehicles with built-in heating trays to keep food warm, while 41% are interested in autonomous delivery vehicles, and 36% want their food cooked while en route. A number of brands are working on perfecting these last-mile delivery details. &pizza just teamed up with Zume to grow its footprint through Zume’s mobile kitchen fleet, for example, while Pizza Hut unveiled a “mobile pizza factory” prototype late last year and Domino’s continues its work with robotics company Nuro to deliver pizza via self-driving vehicles (these actual deliveries are expected to begin this fall).

No doubt the pace is dizzying. But as consumers go, so goes the restaurant industry and right now, consumers are moving faster than ever.

“The industry has and will continue to be a consumer-driven industry and their expectations regarding meal solutions through non-traditional points of access will be an important driver of future growth,” Riehle said. “That doesn’t mean segments will disappear. It just means the industry is like a tree that, as it matures, is adding more branches.”