Restaurants aren’t easy work.
Googling the phrase “Should I open a restaurant?” is one of the few sure-fire ways to get the Internet to give you a sure-fire answer — and in this case that answer is “no.” Googling “advice for opening up a restaurant” also returns articles that say “don’t” and “be afraid, be very afraid.”
Every year, however, thousands of people ignore that advice and press on to own what the National Restaurant Association’s Chief Innovation Officer Phil Kafarakis described to MPD CEO Karen Webster as “their piece of the American Dream — a restaurant of their own.” In fact, the vast majority of the 1 million or so restaurants open for business in the U.S. today are owned by such entrepreneurial sorts.
According to the NRA (the acronym of the restaurant-focused trade group), 70 percent of the restaurants open for business today are single location establishments — though Kafarakis noted that various types of businesses were within that group.
“Inside that seven out of 10, just think about the different segments. Casual dining is the next big thing, but that is being carved into fast casual and family dining. There’s fine dining. Then there are places that are just pizza. Do you have any idea how many Joe and Vinny’s pizza parlors there are out there selling by the slice? Restaurants are the literal definition of a fragmented industry.”
Within that fragmented industry, Kafarakis told Webster, there are plenty of common concerns. A recent NRA survey of 1,100 restaurant operators nationwide revealed the Top 5 concerns – and that list may surprise some.
Nearly a quarter listed their main concerns as government and regulatory actions (like the new executive action on overtime pay, minimum wage and food labeling). That was trailed by recurring sales, which was the main concern of 16 percent of restaurateurs. Food costs and sales volume each clocked in at a respective 14 percent of operators’ main fears, while labor concerns bottomed out at roughly 8 percent.
“Government is always in the Top 2, and that has been very consistent,” Kafarakis told Webster. “The really important piece here is that if you think about a restaurant, you have a lot of expense as it relates to your labor force, and ACA [Affordable Care Act] just added to that. You have a significant amount of concern with food costs, especially this year, when there has been big volatility in the price of protein in products like eggs and other core items.”
And, Kafarakis noted, sitting side-by-side with all of these regulatory and food issues, is the coming wave of issues connected to payments and mobile technology.
“I’m just going to call it cyber stuff because that is how restaurants see it. They are in this very complicated payment ecosystem — but understand these are people who 10 years ago were using cash registers, so we have all these people in the middle of something they don’t really understand. They know there is a swipe — there are charges, and in the event of problems the card company handles it.”
Now that is changing, Kafarakis told Webster, as the need to switch to EMV and the advantages of mobile are emerging and are pushing into the restaurant ecosystem from a variety of angles. Using their phones, customers search for places to eat, read reviews, book reservations and in some cases pay — all on a screen. And while this is a benefit for restaurants, it also represents a challenge.
“We have a myriad of sensor devices and screens that need to access all of this data and you’re just a restaurateur just trying not to burn the creme brulee,” Kafarakis said.
Which goes a long way to explain, he said, the somewhat uneven progress of EMV and mobile in the restaurant space.
Among the 30 percent of restaurants with multiple locations — the segment that harbors the mega-chains like McDonald’s or Chipotle, there is relatively swift adoption.
For the lion’s share of restaurants, however, there is a much greater tendency to follow cautiously — and “follow rather than lead” — a conservative bent that is strongly encouraged by the economic realities of working in the restaurant business.
“Restaurant margins are very thin – 2 to 5 percent – so all it takes is one or two percentage points of increase on your expense line and you’ve blown up the model and the great American Dream of owning a restaurant goes bye-bye,” Kafarakis said.
More importantly, Kafarakis told Webster, restaurants more than any other retailer are in the experience business — and everything they do has to be measured against a very specific standard. A local lunch and dinner place might easily get signed onto a new mobile dining platform that helps them up their social media presence, discover new clients and a whole host of other exciting perks. But if that platform gets hacked by cybercriminals and all the data on it gets exposed, restaurants can find themselves with a new set of headaches they had never ever imagined back in the days when all they had to worry about was a cash drawer.
“This is of concern because it has a lot to do with their customer relationship management and systems and how you think about that. It has a lot to do with how to deal with that wealth of data that is now in their POS.”
Restaurant owners are often cautious to move quickly for just these reasons — especially because margins are so thin. Small mistakes have big consequences.
Part of the NRA’s mission statement, Kafarakis notes, is to help merchants navigate those choices.
“Sometimes there are so many solutions they don’t know what to select,” he told Webster, noting that he and the NRA team extensively test and vet those solutions and make recommendations to their members. The organization also works as an advocate for the restaurant industry in politics. They’ve also recently gotten into the insurance — after working for some years on modifications to the Affordable Care Act, the organization has now partnered with UnitedHealthcare to build an exchange for the restaurant industry.
The road forward will likely be bumpy, as innovation is coming fast and into an environment that is already heavily regulated and full of idiosyncratic individual actors. But, Kafarakis told Webster, the industry will survive and he believes even thrive in this new environment, mostly because they do not have a choice.
“When I talk to people I tell them, ‘The future is here now and it’s going really fast.’ My advice is — it’s here, so get your head around it — because it’s not going away.”