Restaurant Business Serves Up Mixed Plate For 2020

The restaurant business is: a) healthy for 2020 or b) apprehensive about technology.

All of the above. The 2020 outlook report from the National Restaurant Association was released today and it paints a picture of an industry dealing with the countercurrents of solid consumer spending and disruptive technology. In fact, by 2030, the National Restaurant Association expects that technology could completely change the face of dining.

First, the short-term prognosis. Restaurant industry sales are projected to reach a record $899 billion in 2020, a 4 percent growth rate. That growth will be driven by a generally healthy consumer spend and tight labor market. But when discussing the home delivery opportunity (off-premise in industry parlance), the short term is still healthy but the effect of technology starts to cloud the picture.

“Off-premises will be a prominent force of growth in 2020,” the report states. “To be successful, restaurant operators will look to strike the perfect formula of on- and off-premises for their business as consumers strive for convenience, but continue to look to the social escape that restaurants provide. When asked about ways in which restaurants could incorporate more technology, consumers primarily mention frictionless, convenience- and service-enhancing items, rather than people-eliminating items.”

The off-premise home delivery option is one of the ongoing challenges the report says could impact revenue. Its members are devoting more resources to technology, it says, because it will keep them competitive and provide customer convenience.

However, while home delivery spikes sales, it cuts margins. Some studies show  that delivery sales increase revenue 15 to 20 percent per year. But the same reports show a 20 to 30 percent margin hit. Many chains have cut back on home delivery, according to FSR Magazine, including Olive Garden and Texas Roadhouse, Barcelona Wine Bar, Burtons Bar & Grill, P.J. Whelihan’s Pub & Restaurant, and Iron Hill Brewery & Restaurant.

Matthew Britt, a chef and culinary instructor at Johnson & Wales University in Providence, Rhode Island told FSR that he was concerned about the long-term impact of restaurant outsourcing. He noted, “We’re in a world of technology where things are moving quickly and who knows what third-party delivery will lead to in the future? What if restaurants are creating third-party 2.0s coming into your kitchen to cook?”

In a separate report, one that imagines the industry 10 years out, technology dominates the variables in the restaurant business.

“Accelerating trends in technology and consumer demand will lead to more “cloud kitchens” and “virtual restaurants” — restaurants that exist only online or via an app,” the report says. “Growth will be fueled by the expansion of central kitchens for food prep, and social media marketing that showcases menus, philosophies and chefs. New chains could quickly emerge regionally or nationally.”

For now, delivery apps are an interface between consumers and restaurants. With their growing usage, the National Restaurant Association 2030 report posits that app companies could become private label restaurants.

In the meantime, the home delivery and third-party food app business has its own issues. A report from FinancialBuzz.com shows the industry is still competing on price instead of delivery performance. That explains why Seamless and Door Dash are investing in logistics and operational costs. For example, students at George Mason University in Virginia and Northern Arizona University have been getting food delivered by robots since the beginning of 2019. The company behind them Starship Technologies, raised $40 million to expand to 100 college campuses.

The future seems to be here for the restaurant business. The real competition and potential disruption will be among the delivery services themselves. The restaurant owners would like to be left to what they do well — cook and serve food.