Bob McDevitt is the senior vice president of franchising for fast-casual chain Golden Corral and is on International Franchise Association‘s board of directors. North Carolina-based Golden Corral has grown to include about 500 restaurants since its first location opened in 1973. Aziz Hashim is the president and CEO of National Restaurant Development and a member of the IFA executive committee. NRD was founded in 1996 and owns and operates more than 50 restaurants, including Popeyes, Domino’s and Checkers.
SmartBrief interviewed McDevitt and Hashim about their perspectives on the restaurant industry and the trends and challenges they think are important for the industry today and heading into the future.
What do you think are the top trends in the restaurant industry right now?
McDevitt: The most pervasive trend in the restaurant industry is the need for menu innovation in order to remain competitive in the business; new and different recipes to motivate additional frequency among consumers and inspire new customers to try the concept. Recent efforts by Golden Corral include lobster tail as an add-on for $3.99, and the introduction of wings on the buffet. Another noteworthy industry trend is a shift in restaurant spending from millenials and younger generations (under 50) to baby boomers and seniors. This shift is not just demographic but is also a function of delayed retirement and relatively more discretionary income. Some concepts are more suited to this phenomenon than others. Golden Corral is currently featuring an early dinner special for seniors (over 60) at a low price, $7.49, including drink.
Hashim: One of the top trends in the industry right now is growing customer demand for higher quality offerings with value-driven pricing. There is much more competition from emerging chains particularly the fast-casual segment, which is causing new and established brands to keep continual innovation at the forefront to remain relevant in the restaurant landscape. It has also been increasingly difficult to find talent due to the incremental lowering of unemployment rates, lack of progress on immigration reform and regulatory uncertainty creating a damper to growth.
What do you think are the biggest differences in the industry between this year and last year?
McDevitt: If anything, the need for innovation is even stronger in 2014, the acceleration of a trend. Industry sources forecast slight improvements in traffic in 2014 vs. 2013. However, today’s consumer is much more cautious. These consumers have growing discretionary income; but, with so many new choices, they will be more selective where they spend their money. So the challenge for brands with a strong reputation is to keep that business through new ideas that appeal to their regular guests and inspire new ones.
Hashim: Commodity prices are the biggest difference between this year and last because they have stabilized, which has created a well-needed cushion for operators. After several years of escalating input costs due to a variety of reasons, including foreign demand, weather issues and fuel prices, this year’s forecast has some good news.
What do you think are the most important things for restaurant operators to pay attention to right now? And in the near future?
McDevitt: At Golden Corral we are focused on innovation; but, we are also concerned about reinforcing our value position. As noted, Golden Corral recently sold a 3-ounce lobster tail for only $3.99 with the purchase of a buffet. It was a break-even proposition on the lobster tail, but, it increased traffic and the value proposition was through the roof.
Restaurant operators are always finding ways to increase labor efficiency without sacrificing concept strengths. However, operators must pay close attention to the Affordable Care Act and potential minimum wage hikes, and develop creative ways to conform without affecting the customer experience.
Hashim: The economic recovery is still anemic so the pricing power is not fully there. Operators will have to continue to provide greater value to the consumer, but this scenario is unlikely to change in the near term. Meanwhile, there appears to be the making of another real estate bubble as landlords are back to charging high rates especially for prime sites. This means restaurant unit economics will have to be kept in check. History has shown that unsustainable rents are a leading reason for unit failure. Therefore, in the competition for sites, operators will have to be cognizant of the impact of high rental rates on the probability for survival for the restaurant.
What do you think is the most exciting thing happening in the restaurant industry right now?
McDevitt: As much as new competition frustrates those of us with proven concepts, it is exciting to watch the industry evolve with new entrepreneurs with new ideas. We make an effort to learn from them, to see what makes new ideas tick and stick. We want to figure out what all the excitement is about. We saw the Las Vegas buffets introducing more and more pre-portioned, single serve products and have tried them with surprising success.
We are also excited for the industry because we are seeing investors of all shapes and sizes recognize the potential and buy into proven concepts that are suited to today’s environment.
Hashim: It’s a great time to be a restaurant consumer and a restaurant operator. The change of U.S. customer’s palate has ushered in demand for new menu items with different flavors and textures. This has given rise to new restaurant chain development with interesting offerings, and ultimately, the market pressures create impetus for existing chains to rise to the challenge by upgrading menus and investing in menu innovation.
What do you think are the industry’s biggest challenges, and what can restaurant operators do to meet them?
McDevitt: We all face big challenges of external threats like rising commodity costs, minimum wage and other legislation potentially harmful to our business. But these threats are always there to one degree or another; and, our industry is better than most at taking these on as an industry, not as individuals. The real challenge is the need to continue to offer your customer a better meal at a great price, and figure out how to make money doing it in spite of all the external threats.
Hashim: Regulatory pressures are the biggest challenge facing the industry due to a barrage of new laws threatening to put a choke-hold on development. Not just the cost of new regulations, such as the Affordable Care Act and potentially minimum wage increases, but the opportunity cost of the compliance takes away entrepreneurs from growing their business by forcing them to focus on understanding, implementing and complying with burdensome regulations. In addition, operators need to get active in public affairs to educate lawmakers about the unintended and harmful consequences of well-meaning policy. These lawmakers need to hear from the restaurant operators who actually employ people, create new jobs and have to live with the policies made.
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