Hungry for growth – how the restaurants sector is evolving to meet

Hungry for growth – how the restaurants sector is evolving to meet

The implications of Covid across almost every sector have been well documented, and this couldn’t be more evident than in the dining industry. As we move into 2022, restaurants face a challenging backdrop of food price inflation, supply chain disruption and employee shortages. At the same time, household income continues to be squeezed with discretionary spend increasingly precious.

The unwinding of pandemic support generates additional economic headwinds – the impending end of reduced VAT, lower rent relief, lease protection and, for some,  the repayment of pandemic loans, paints a somewhat gloomy picture. Despite this, our discussions with those in the industry would suggest that there is much to be optimistic about. With many social activities off the menu over the past two years, many of us rediscovered the joy of dining out and restaurants are benefitting from pent-up demand as things begin to normalise.

Much like we saw in the pub sector a few years ago, the pandemic has opened up some much-needed capacity in the market. Although highly unfortunate for some, there is a real opportunity for those that remain, and there is no time for resting on laurels. Technology has meant that barriers to entry are lower than ever, resulting in a diverse choice for consumers. Facing fierce competition and increasingly discerning customers, restaurants are having to up their game and it is clear that the pandemic is no longer considered a viable excuse for below par service. 

One of the long-term shifts brought about through Covid was the adoption of App and related technology by consumers, and delivery services correspondingly boomed.  This has played a key part in enabling restaurants to become more multifaceted and flexible, no longer relying on a single proposition. During Covid, Gaucho, for example,  developed a ‘Meat and Bun’ premium burger delivery brand. Nando’s’ customers can choose to dine in, order click and collect, have home delivery or pick up a meal kit from the supermarket. Brands are also increasingly trialling new physical formats – last year, itsu opened its doors to its first ‘dine in’ concept in Reading, and Fridays is rolling out smaller format to-go sites. As Jamie Mitchell, Non-Executive Chairman of Rare Restaurants, puts it: “Restaurants no longer think of themselves only as a brand where you sit down – customers are everywhere, and you can reach them everywhere.” 

This model, however, is not without significant challenges and the restaurant sector faces a difficult journey ahead, following in the footsteps of the retail industry which has been undergoing a digital transformation over the past decade. The stakes are high; new formats and channels create opportunities to reach new customers and delight existing customers in new ways. Done well, it can enable brands to capture a wealth of valuable data and get closer to customers than ever before, opening up potential for personalisation and encouraging trial across the broader portfolio.  Done badly, there is a real risk of irreparable brand damage. 

Restaurants must now think holistically across every touchpoint and, as a result, many of our clients are increasingly seeking talent from outside of the immediate sector. Over the past few years, we have seen the marketing role evolve significantly, and businesses are looking to the worlds of FMCG and consumer technology for talent with the crucial digital and brand building capabilities to connect the dots most effectively. Last year, Shadi Haliwell joined PizzaExpress as Chief Customer Officer from Three, with a remit to reinvigorate the brand and deliver a digital transformation. In the same year, Nando’s hired Sarah Warby (former CEO of Lovehoney with a background in retail and FMCG marketing) into the newly created role of Chief Customer Officer. These roles will undoubtedly be strong contenders for the CEOs of the future; for example, former Wagamama CEO, Emma Woods, started her career at Unilever and headed up marketing at Pizza Express and Merlin where she latterly delivered a group-wide digital transformation before joining Wagamama.

Another notable shift is the growing importance of strong technological leadership. Erica Livermore joined Fridays as Chief Technology Officer in 2020 from Virgin Active to overhaul its technology infrastructure, bridging the gap with the guest experience. Erica believes the focus should be on creating a frictionless and flexible experience. She explains, “there is no one size fits all and guests don’t always want to use technology. What’s important is the choice.” Rather than reducing human interaction, the ambition is to ensure higher quality interactions: “The warm elements of service are here to stay. Technology, when used well, enriches the experience, alleviates some of the minutiae of tasks and means more time to spend with guests.”

Operational complexity has also increased, and the explosion of the delivery channel has created capacity challenges. Whilst less of an issue when sites were closed to the public during Covid, it had to be carefully managed on reopening when the kitchen had to cope with both dine-in and delivery customers. Competing in the delivery channel in the longer term comes at significant cost, and should be considered carefully as a strategy. It does not work uniformly for every type of cuisine or style of presentation, and more premium or experiential-led brands may be wise to focus their energies on delivering a superior dine-in experience.

Those brands that do choose to play in the delivery space are grappling with a host of potential solutions. If like me, you have had an otherwise enjoyable dining experience interrupted by drivers in helmets coming in and out of the restaurant, then you’ll be pleased to hear that many operators are now remodelling or opening new sites with this very issue in mind, creating out-of-the-way delivery points and food lockers which can keep food warm for up to an hour. Many brands are also exploring the use of dark kitchens or operating reduced delivery menus in order to protect the customer experience. During the pandemic, Burger King and Wagamama are amongst those which opened delivery-only sites in the UK.  

One CEO I spoke with discussed the careful use of promotional activity to push sales only when capacity drops and even raised the prospect of dynamic pricing, charging customers a premium for delivery during peak times. We may be some way off this possibility (with not insignificant brand implications to consider), though it is not beyond the realms of imagination that in the future, restaurants may look to manage capacity cleverly in the same way that the hotel and travel industry has been doing for years.

In addition, the home delivery experience cannot be an afterthought. In recent years, the advent of streaming and entertainment services make a night-in a compelling proposition, and at-home dining should match up. Soggy bags, missing items and poorly presented food can damage brand equity, and unlike when dining in, issues cannot be easily rectified. Unless a brand invests in the capabilities to run their own delivery channel as Domino’s have, customers with problems will find themselves dealing with the third-party delivery provider: perhaps more efficient, but impersonal and a missed opportunity to deepen the brand relationship. In 2020, Dishpatch pioneered an alternative approach with its finish-at-home meal kits prepared by some of the UK’s top restaurants such as Ottolenghi and Angela Hartnett’s Café Murano. With its unique proposition centered on superior quality and presentation, the business has enjoyed strong growth in a short timeframe – indicating a clear consumer demand for an elevated at-home experience. 

It seems this new landscape is characterised by a refreshed set of threats and challenges, but also significant opportunities. As a result, we have seen a clear change from a hiring perspective as businesses seek to diversify and future proof their model, and there is much to do to emerge on top. As ever, the customer must come out as the winner with greater choice and an enhanced experience, no matter the touchpoint.