In a white hot furnace of industry insights and government policy analysis, the annual Restaurant Finance Monitor’s annual Restaurant Finance & Development Conference (RFDC) took place this week.
There was plenty going on and as always when you get this high a caliber of speakers in one room, far too much to capture in a single blog post. So with much editorial decision making, here are my top five takeaways.
Menu development and the Federal Reserve Bank
A connection many of us probably wouldn’t make immediately is between menu development trends and the Federal Reserve Bank! Thomas Bailey from Rabobank told us how: when interest rates are very low, the cost of money is too. That means it’s possible for companies to make large, sustained investments in disruptive innovations, think Beyond Meat, or alternative milks or cricket-based protein (it’s a thing, Google it!).
If you’re investing in disruptive changes, you need long term investment, not just for the product itself but to convince consumers to change their old behaviors – changing culture isn’t cheap! So when interest rates rise, and the cost of investing does too, menu development strategies are more incremental and require lower risk.Which begs the question: what are the prospects for disruptive innovations right now? Although we’ve seen some major brands pause on alternative meat products of late, Bailey reminded us of Amara’s law: “We tend to overestimate tech’s impact in the short run, and underestimate it in the long run.”
My thoughts are that any major innovations will inevitably come back around and gain mass appeal, but will take longer than initially thought.
Pizza frenzy or saturation?
Have we had enough pizza? Eric Gonzalez from KeyBanc certainly thinks so. In fact, we’ve actually had enough pizza for years now, except specifically for Domino’s pizza.
If you strip out Domino’s revenue from the overall sector results then the sector is flat, with no other major brands showing any substantial growth.
Domino’s recently announced deal with Uber Eats, which allows customers to order through Uber (whilst still being delivered by Domino’s), is anticipated to fuel further growth for the brand.
California’s minimum wage increase: effects beyond ‘fast food’ chains
The 2024 California minimum wage increase to $20 per hour for “fast food” food restaurants was something I heard talked about both on stage and the conference floor. The message from Patrick Doyle was that, in his experience, the change will likely take 6-12 months to work through the system.
Although the increase is specifically targeting “fast food” chains with over 60 locations, Riley Lagsen of the law firm Greenberg Traurig told us that it was likely to have spillover effects into smaller groups, full service restaurants and beyond as non-targeted companies will be forced to increase their prices to offer competitive pay to staff.
The future of work: hybrid vs. fully remote
Working from home is here to stay – it’s stabilized at 28% of all working days. But there’s nuance: frontline workers are fully onsite, it’s the manager and support functions that are at home more.
Compared to fully onsite, employees prefer a “hybrid” approach about the same as 8% more salary.
I’ve often thought that one of the main issues around working from home or fully in the office is the travel. And it turns out people hate commuting, and instead want to spend that time on things like leisure. But apparently NOT on grooming (when people WFH they don’t wash or BRUSH THEIR TEETH as often!). The news here is that fully remote is ‘probably’ a bit less productive than hybrid.
“Tell me how many people are employed and I can tell you how well the sector is doing.”
Can employment figures signal the health of the sector?
Is this long-talked of recession coming, or not? Jason Trennert, CEO of Strategas thinks “the bill is coming due”.
Trennart stopped short of predicting when, but fiscal expansion will have to be unwound sooner or later. If it doesn’t, inflation will stay high. He doesn’t think the Federal Bank has a “suicide pact” with it’s 2% target, but it wants it lower than today.
Will the next President accept higher inflation, or have the stomach to reign in spending or publicly call for interest rate rises to squash demand, thereby reducing inflation? (Based on populism being the political zeitgeist, I’d venture the latter). Taming inflation is hard, you can’t beat it just once, you have to beat it multiple times, like in the ‘70s.
Patrick Doyle, Chairman of RBI gave a nuance to this: the employment rate is his leading indicator to understand how the economy impacts the restaurant industry.
Why? The major growth in eating out has come from the rise of dual-income families since the 1970’s, as families accrued more disposable income. To paraphrase: As long as the employment rate stays healthy, so will restaurants.
In other words: Tell me how many people are employed and I can tell you how well the sector is doing.
Generative AI: the next wave of innovation
Boston Consulting Group gave an insight into generative AI’s (GenAI) impact on the restaurant industry, presenting some helpful mental models for how to think about GenAI as they spoke.
First is to remember that GenAI is a subset of AI generally, which also includes “traditional” forms like machine learning (ML).
An aside: it’s a sign of AI’s growth in the general public’s awareness that it’s possible for someone to talk about different forms of AI, rather than the blanket use of the term we were all hearing just a few short years ago.
Those traditional forms are about giving a defined output from structured input data; GenAI is about giving creative output from unstructured inputs.
Restaurants have been using traditional AI for some time, especially for front line applications like loyalty programs and menu development. But GenAI will be more helpful for back office functions. The end goal for restaurants is to combine the two. This is what will spur the next big wave of gains and promises some hefty rewards for whichever tech business gets it right.
Restaurants will have to think carefully about how they use GenAI to ensure real world safety.
While we’re nowhere near the HAL (from 2001: A Space odyssey) level of risk from AI, some of the real world threats might seem more mundane but no less of a danger to life.
An example was given about a store manager being able to ask GenAI how to replace a fuel hose, instore. The consequence of the instructions having an error could cause real world physical harm, say if the fuel hose is set up incorrectly and starts a fire.
We know that GenAI does have a nasty habit of telling you incorrect information, often with supreme confidence! So it’s imperative that any applications that impact on health and safety are thoroughly tested before deploying. (Even then, I’m not totally sure that avoiding mistakes can be guaranteed – which raises the question: who’s liable when GenAI’s instructions lead to a harmful outcome?).
If you’d like to understand how all of this is going to impact your guests and your brand experience, get in touch.