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Q&A: How can foodservice operators succeed in today’s environment of slow growth?

Changing consumer habits are causing a slowdown in restaurant growth, but updating their operations in a few key areas can help foodservice operators grow even in today’s tough market, according to David Portalatin of the The NPD Group.

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Restaurant and Foodservice

Q&A: How can foodservice operators succeed in today’s environment of slow growth?

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Foodservice operators are facing a tough reality, as the average change in traffic in the restaurant industry is 1% or less, according to research by The NPD Group. A combination of consumer trends are leading to fewer restaurant visits, and retail sales at grocery are also on the decline.


David Portalatin, NPD’s vice president and  industry analyst for the food sector, shared insights about what factors are contributing to this slowdown and how operators can adapt in a presentation last week at The NPD Group’s 2017 Foodservice Summit. SmartBrief spoke with Portalatin about how restaurants can tailor their operations to the needs of modern consumers and “escape the 1% world.”

The average change in traffic in the restaurant industry is 1% or less, according to NPD. What factors are contributing to this slow down?

Multiple factors have contributed to stalled growth in the restaurant industry.

Even though the US economy is improving consumers are still cautious about how they spend their money, and this cautiousness applies to all restaurant types — quickservice and full service restaurants.

The drop in grocery store prices provides another barrier for restaurant operators to overcome in order to increase traffic. Food costs away-from-home increased by 2.3%  and food at-home decreased by 2.2% in the last quarter of 2016, according to US government data. The widening gap in the cost to eat at home or at a restaurant makes it easier for consumers to decide to eat at home. In addition to the higher cost of eating at a restaurant, consumers often believe that restaurant prices are too high and not a good value.

Lunch, which is the largest daypart in terms of traffic, has struggled for several years. More lunches are eaten at home over the last decade, and lunch restaurant orders  originating from work have declined. In addition, consumers are likely shopping from home more, which reduces the number of opportunities to grab meals out of the house.

Today’s millennials generate 200 million fewer restaurant visits than the same age group did 8 years ago. This generation eats at home more not only because of the cost saving but also because they want to have control over their food choices, to eat fresh, less processed foods and to have more involvement in their meal prep.

In addition to declining restaurant traffic, we are also seeing a slowdown in grocery sales — how is it possible that both in-home and away-from-home purchases are falling?

That is the question of the day! With NPD Group’s  continual tracking of in- and away- from-home consumption, food manufacturers and foodservice operators are asking, “how can volume be stalled at both grocery and foodservice? Are people eating less?” There isn’t one simple answer but rather several possible explanations that can be grouped in two buckets:

  • Are people eating less? Restaurant traffic is down, food and beverage consumption overall is soft; and there are fewer items included in meals today than there were in the past.
  • Is growth occurring in places that are more difficult to measure? Places like subscription services, such as meal kits; e-commerce tracking; fresh and prepared foods around the perimeter of grocery stores; and multicultural influences on the consumption and sales of ethnic foods or purchases at specialty ethnic stores. All of these factors point to a world that is increasingly complex and where growth is coming from emerging new sources.

Millennials are a key consumer group for restaurants. How are the habits of the millennial generation affecting foodservice growth, and what can restaurant operators do to appeal to this demographic?

Millennials are still the heaviest restaurant users although they have cut back substantially on their visits. Millennials aren’t a homogenous group and are diverse in many ways, but there are some traits that are unique to this generation. Food is more than sustenance to millennials. They want eating to be an experience whether they’re at-home or away-from-home. They enjoy choosing the foods and beverages they eat and prefer fresh foods over processed foods. Millennials are adventurous in the foods they eat and were introduced to global cuisines at an early age. Just like with any other group, foodservice operators can win with millennials by understanding and meeting their unique needs and wants. 

What other strategies should foodservice operators embrace in order to grow in this 1% world?

There are six different ways that can help operators increase traffic: convenience, execution, experience, digital, innovation and flexible occasions. Foodservice operators should embrace the convenience factor — it’s a chief reason why consumers eat at restaurants. There is a reason why convenience stores consistently outperform the foodservice sector in customer traffic. The full experience of dining out is part of a restaurant’s value proposition and should be carefully thought out. Digital ordering has grown from 637 million to 2 billion visits over the last five years. It’s no longer a nice to have, it’s a must have. 

Restaurant operators often think in terms of the traditional dayparts of breakfast, lunch and dinner, but  consumers eat when they’re hungry. Visits to restaurants and foodservice outlets during morning meal (breakfast and a.m. snack times) and afternoon snack have grown while visits at the traditional lunch and dinner times have declined. We’re also seeing young adults eating snack foods as main meals more often than the same ages did a decade ago. Rethink the day and what’s on the menu throughout the day.

Innovation is another tactic. Consumers always are interested in the new, whether it’s a new menu item or a new concept. And whatever you do, execute it well. We know from our research that the top growing restaurants have the highest customer satisfaction ratings in overall experience, taste, atmosphere, quality and feeling like a valued customer. In other words, good execution is a happy and satisfied customer.     

SmartBrief is a sponsor of The NPD Group’s 2017 Foodservice Summit.


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