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Restaurants after COVID: an industry for the better?

Too many restaurants?

Lee Schulman, owner and operator of Old Vinings Inn and chairman of Panacea Management Group Consulting, says the industry was oversaturated before COVID – a widely held belief that appeared to be leading to a wave of bankruptcies. While around 90,000 closures (the number remains uncertain for now) were unfortunate, of course they created a natural lightening in some respects. And that drove innovation into the survival pool. “Operations that were already at the limit have failed at this point,” said Schulman. “Those who were successful, however, are going to come out much stronger. These operations were forced to take a close look at every detail of their systems and refine them in real time and on the fly. Any system that did not immediately exceed operational expectations was scrapped, and those that worked were immediately integrated into normal operations.

Portalatin agrees there were too many restaurants in 2019. During the Great Recession, only 5,000 net new restaurants were added between 2007 and 2010, compared to nearly 25,000 in the three-year period before the crisis, according to Rabobank.

The number of restaurants and bars in the United States has grown at a compound annual growth rate of 2.2 and 2.5 percent over the past five years, respectively. About 45,000 new restaurants (net of permanent closures) opened in the three years leading up to the coronavirus, more than in any comparable period in the past 25+ years. This is something that led pundits to suggest a course correction, like the one that flooded retail, was already underway.

“In terms of the total number of restaurants, I think you can meet customer demand on a more efficient store network,” Portalatin says. “What you are going to see happen is that you are going to see a lot of opportunities for the strategic development of new stores. Among all the disruption of routines we talked about earlier is the idea that many in the country have moved a little more or a little less urban, a little more suburban. “

Howard adds, “I think we were definitely heavy with the number of seats per market. And then you had all the new rising brands coming into the market. The emergence of fast casual and the rapid expansion of fast-casual restaurants and their ability to visit any strip center in the country.

The brands still standing are more active and resilient than ever.

“The biggest change will be what customers expect when they dine out,” says Schulman. “Whether it’s the supply chain, staffing, or new restaurant models, dining experiences at all levels of service have changed and they won’t go back to what they were before. Overall I think the experience for everyone will be better.

Could you say the same for virtual brands?

If the restaurant market exploded, how would you describe the flood of virtual brands? Chowly CEO Sterling Douglass turned heads when he suggested there could be 100,000 running on third-party apps. That was August 2020. Uber Eats recently estimated that the number on its platform tripled last year to north of 10,000. According to the aggregator, 15% of restaurants were operating a pre-COVID. It climbed to 51% in 2021.

Really, no one can say for sure what the number is. In Baum + Whiteman’s 2022 food and beverage forecast, the company predicted a “free to all competitive” as ghost kitchens accelerate their expansion.

But when does saturation come into play? And how will customers react when they find out that online food brands don’t exist in the real world? Euromonitor has estimated that ghost kitchens could grow into a $ 1 trillion industry by 2030. Grand View Research has tapped that figure to $ 139.4 billion by 2028.

This will take place in all sub-segments, from host kitchens to virtual concepts to virtual food halls, etc. Baum + Whiteman suggests that an aggregator, like DoorDash, could even launch a ghost fleet of its own invented brands, sold through its platform, cooked in the company’s ghost kitchens, shipped by its own delivery people. “If that happened, we would see these delivery specialists [who already take a financial bite out of conventional restaurant revenues] competing with their own restaurant customers in very important and overlapping ways, ”the company said, adding that it believed that would happen eventually. Too many players, he notes, inevitably means consolidation. Different players will emerge and join virtual and real restaurant brands as well as robotic and digital control systems linked to restaurant IT systems.

“We envision two record years for M&A brokers,” the report says. “And a difficult period for the small independents who still cook by hand.”

Moscow has extensive experience in the virtual space as a concept designer. And its red flag is not that different from its larger point of hospitality. Brands can’t rush into space throwing a viable product in front of guests. “You can’t eat software,” she says. “… If you spend all those marketing dollars to get the consumer in the first place and come up with something that you know isn’t optimal, what’s the point?” “

Like convenience, delivery, and drive-thru, the space is getting far too sturdy for skating. Upheaval will come sooner rather than later, says Moscow, because consumers are increasingly aware of the convenience trade-off and why they don’t need to compromise.

The world of take-out is suddenly more attractive, she adds. Meal subscriptions. Any chance for a brand of confidence to play into this home occasion in new ways.

One thing about prepared foods, too: they look unappetizing on location (like a grocery store), but they work well in offsite applications. “I think a lot of restaurants can take that kind of thinking,” she says. “Alright, # 1, this will reduce our peak labor costs. It’s more of a preparation than a service, and it’s just a different shift in mindset that needs to happen.

With celebrity-based concepts, Moskow says, we might notice a trend towards more food-focused personalities wearing the mantle. That’s not to obscure Baum + Whiteman’s comment on robotics. Aaron Allen, CEO and Chief Global Strategist of his namesake Aaron Allen & Associates, said of this possibility: “If you add them up like their SaaS fees were salaries, there would be maybe $ 10 million in salary. robot in the world. But we believe that in the next three to five years, the number could be as large as the entire commercial catering equipment space, which is over $ 40 billion.

Allen says that when thinking about the job, restaurants will start paying general managers more and pressure will increase to cut shifts, if possible, in favor of automation and other workarounds. “It’s going to be a lot of, how can we have the same number of operating hours but with fewer working hours,” Allen says. “So you will probably see more sophisticated GMs. And all that is [easy] if it pushes this or moves that from here to there, a robot can do it a lot cheaper. So they will become the new one [crew member.]”

Does this sound like a Jetsons outlet? Remember when shipping was a source of division just a few years ago? Allen sees emerging ideas like chatbots, voice control, and QR codes skyrocket in consumer consciousness. Industrial and convenience engineering. Drive-through systems alone, he says, represent a multibillion-dollar opportunity for entrepreneurs. “They cost around $ 200,000 per drive-thru to replace them,” he says. Multiply that by the properties that need to be updated and that’s a huge number, Allen says.

Natural language processing applied to chatbots. Voice command so brands can see and analyze the emotion behind the words. Internet of things. There is no shortage of communication tools ready to break through.

Plus, just like a potential consolidation in the virtual space, so do restaurants, especially franchises, Allen says. Fazoli’s was sold in early November to FAT Brands for $ 130 million. After adding 23 Native Grill & Wings units for $ 20 million later in the month, the FAT Brands acquisition bill soared to $ 892.5 million in 2021 (it bought Global Franchise Group for 442.5 million dollars over the summer and the Twin Peaks sports bar for $ 300 million in September).

Restaurant Brands International achieved its own success in November by raising $ 1 billion for Firehouse Subs, adding a sandwich giant to its line of Burger King, Tim Hortons and Popeyes.

Allen sees this reality dominating the M&A scene. In the United States, acquisitions generate nearly 30% of revenue growth for publicly traded companies, he says. “To look at [Dunkin’ and Arby’s owner] Inspire brands, ”he says. “It’s the fastest growing restaurant business in world history and just started in 2017.” Inspire, backed by Roark Capital, who also owns Sonic Drive-In, Jimmy John’s and Rusty Taco , acquired Dunkin ‘and Baskin-Robbins for $ 11.3 billion in fall 2020.

Another thing to consider: About 85% of global restaurant growth comes from outside of the United States. “There are really very few independent companies in this field [top 500], In-N-Out Burger would be one, ”Allen says. “But there are a lot of much bigger guys out there who are pulling the strings.”

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