My expectation and outlook is that the application of industrial engineering in foodservice will grow at a fast pace in 2018 due to the business pressures that restaurant operators will continue to experience in 2018. Labor costs will keep rising and the same applies to real estate costs. Fortunately, food costs have remained somewhat stable recently, for the most part. Hopefully that continues. But then again, it may change, as it has done in the past due to natural cycles.
The bottom line is that these factors will force restaurant operators from all industry segments to keep an eye on efficiency with the goal of enhancing profitability and unit economics. Average operators will want to become good, good ones great and the great ones will want to maintain their industry leadership positions.
Labor costs will undoubtedly continue to increase. The question is at what pace? This reality will drive concepts to improve labor efficiency and streamline labor costs as much as possible. Good brands realize this represents more than an exercise to reduce cost for the sake of reducing cost. It also includes making better use of labor by making labor more efficient.
The difference between reducing labor cost and making labor more efficient can appear subtle at times, but it’s a critical concept all operators must understand. Most operators prefer to drive more sales while using the same amount of labor. Successfully accomplishing this helps lower labor as a percentage of sales, which equates to higher efficiency. I always tell concepts that the best way to the bottom line is through the top line (driving more sales and throughput).
Real Estate Efficiencies
Real estate costs represent another real area of concern. During bad economic times, real estate costs go down. While not so great for the overall economy, this is a good thing for restaurants. When the real estate market is down, restaurants can often renegotiate lease costs with landlords, since they have the leverage with the landlords, who run the risk of having vacant space due to a lower demand.
Fortunately, or unfortunately for restaurant operators, during good economic times, real estate costs go up. I guess this is one bad end result of a positive economy. This pressure area for restaurants drives the need to make the concept as small as possible.
How can foodservice equipment suppliers support operators today?
Start by emphasizing foodservice equipment that has multiple uses. On a recent project, we were able to replace a five-foot grill with a combi oven that not only took less floor space and less space under the hood, but also provided the restaurant with more versatility to cook other items. This versatility lowered labor costs. Finicky consumers will continue to put pressure on restaurants to keep innovating their menus. Operators who do not innovate risk losing sales to another concept that will. Any equipment that facilitates menu innovation, like combi ovens, will continue to be in vogue. I always say: “If you don’t menu innovate, you can die, but if you menu innovate, you can kill yourself”.
Is this the year that automation will really break through? My answer: this is a definite maybe. As I have previously written, costs, specifically labor, will drive automation in today’s foodservice industry. Automation will really take off when the cost of implementing such technology crosses with labor costs in the economic spectrum.
But automation does not stop at restaurants. I just read an article and saw a video about the new fully self-serve c-store that Amazon Go opened. The key question in automation is always the cost to implement and maintain, since this is the key metric that the savings on labor (or other areas) will have to balance to have a payback. Another one is reliability.
So “what is in concept (wallet)” for you this year? I would suggest that if you look around, there are plenty of opportunities to enhance your business. Hopefully your glass is half full and you drive your business with optimism to get the other half filled. Rising labor and real estate costs may seem like pressures but it might be more productive to see these issues as opportunities to improve your business or your customers’ businesses.
The need to drive efficiency through capital and operating cost streamlining will continue to push concepts to do more with less. That translates into more sales, better service, more products, more options, but all with less capital and operating costs. At the end of the day, this can also mean more business for all in the foodservice industry. Go get your piece!