Restaurant innovation

Why The Food Industry Has To Change What It Brings To The Dining Table

For a consumer, the most important deciding factor in picking a place to eat pre-pandemic was pretty simple — which was offering them the best meal they were in the mood to eat at the time.

Delivery services were a nice extra, something to be added on to bring in new customers.

Now, consumers are thinking about totally different aspects, including cleanliness, safety, fast delivery and flexible carryout options.

“I think the industry is going to make a shift here, and I think the brands that have positioned themselves digitally will be the benefactors early on and other brands will have to follow suit,” Chipotle Chief Restaurant Officer Scott Boatwright told Karen Webster during a week-long series on the power of digital in restarting and reinventing the economy.

Also included in the conversation were Potbelly President and CEO Alan Johnson, Paytronix Systems CEO and Co-Founder Andrew Robbins and Independent Grocers Alliance (IGA) CEO John Ross.

 

Consumers, the panel noted, are no longer only asking about the best meal; they are wondering how to procure the best meal in the safest, cleanest environment, which in the short term could mean their home dining rooms.

The year started out looking solid for Potbelly, Johnson noted, with the company’s emerging digital business picking up steam and comparable sales growth heading toward 4 percent on the year.

“And then bang overnight, we lost 75 percent of our business with almost no warning,” he said. “So, back then, digital was about 24 percent of our traffic. That instantly reversed, and now it’s 75 percent of what we do.”

It’s a story both Boatwright and Ross could relate to directly, and a tale Paytronix has been part of through this pandemic as nearly overnight the panel saw consumers radically reverse their preferences when it came to dining. These reversals have pushed the entire food industry toward digital pivots, which will likely persist through to the other side of the current crisis and utterly change what the right recipe is for keeping consumers coming to the table.

Delivery, Loyalty And Innovation

Social distancing didn’t create the digital shift, but it did accelerate it, the panel agreed. Ross noted that the grocery and restaurant markets have pushed forward about five years in only about three months — and the changeover has been jarring to industry players at times.

IGA has seen digital grocery orders in some places surge from about 30 a day to about 300 a day, Ross said. That has led to all kinds of operational questions. How do you stage things like ice cream and meat orders? How does one recover the lost margin in the already thin margin grocery game since digital grocery delivery is less profitable than its in-store counterpart? How can grocers build proper communication networks with consumers to best manage expectations? The advances have been technological, but from the point of view of store workers, the challenges have been mostly rooted in and around adapting processes.

Boatwright noted that there have also been challenges regarding picking up the pace and getting comfortable rolling out new ideas faster. As of the start of 2020, Chipotle was already several years into a digital upgrade of its entire platform, from incorporating delivery aggregators into the site in 2017 and building out its digital loyalty offering in 2018 to adding Uber Eats to the platform in March of this year.

The crisis shut down the company’s dining rooms and pushed all business to those developing digital channels, he noted, which meant re-prioritizing the company’s offerings.

Having already been working in the digital pipeline has “paid huge dividends over the last couple of years” Boatwright noted, “and really positioned our brand well for this crisis.”

But being positioned well for the crisis, the panel agreed, has also been about being prepared to exit it — and to work with customers who will also be exiting and contemplating going back to physical transacting. Going forward, trust is going to be the new currency when it comes to capturing consumer stomach shares.

Cooking Up The Right New Experience

The great hope, the panel noted, is that the consumer regains their appetite for eating out again — not a totally ridiculous expectation given the fact that human beings are social animals who want to eat out together. But that desire will likely be tempered by what the new experience of dining out will be for the immediate future.

Given the restrictions presented by coming to physical locations around temperature scans, limited seating capacity and masked waitstaff, the panel noted, a lot of future business will likely shift to delivery while still making enough money to remain open. It won’t be a small challenge.

“The future is going to be about convenience and access,” Boatwright said. “Ten years ago, in our industry specifically, access was about the number of locations at the right spot to meet consumers where they are. But I think the aggregators have helped us turn that thinking on its head, so going forward I think access won’t look like new brick-and-mortar dining rooms and restaurants in the communities we serve. We might see a rise of digital-only kitchens.”

Moreover, Robbins noted, the restaurants of tomorrow also have to consider their relationships with aggregators going forward and how that will affect their business models.

“It looks like there’s a cost problem of about $2.75 with a cost of using the aggregators — as in the gap between the cost of using them and what consumers are willing to pay,” Robbins said. “And the restaurants and convenience stores are really taking the brunt of that $2.75 where it’s eating in their margins, and that really isn’t sustainable.”

There isn’t a perfect answer for solving that small but unsustainable gap, the panel noted. Some will look to bring delivery in house, others will likely have to raise prices to put the cost back to the customer and begin to undo the idea that “free” delivery exists. Or that free anything exists for that matter, since the costs will always go somewhere. How to distribute those costs such that restaurants don’t go bankrupt and consumers don’t feel like they are being ripped off will be one of the foundational challenges of the food industry in the future.

“I’ve always had the philosophy that if the customer values it and thinks you do it best, I think they are willing to pay for it,” Johnson noted.

But finding where exactly that value is, and how much consumers are willing to pay will be the challenge across the industry going forward and will create a major inroad for grocery stores, which had been losing the race for the consumer’s stomach share pre-pandemic, the panel agreed.

The world is going to look different, Johnson said, and what is considered normal is going to be different.

“I don’t think anyone knows exactly what ‘the new normal’ will mean going forward for quite some time,” he said.

But Robbins noted that the industry has been actively adapting for the last several weeks. And although the transitional period has been hard for all involved, he said he believes what will ultimately be on the menu for consumers and food sellers going forward will be a massive improvement on what was available at the start of the crisis.

“One thing I’ve noticed about these industries is that they’re driven by some of the most entrepreneurial people in the world,” Robbins said. “I think we’re going to have a million different experiments going on, and I don’t think it’s one type of restaurant or store that comes out on the other side. I think we’re going to end up seeing more variety in things than you can imagine today.”

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PYMNTS LIVE ROUNDTABLE: TUESDAY, JULY 14, 2020 AT 12:00 PM (ET)

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