Flexibility, Nimbleness Helps Small Chains Overcome Industry Challenges
Our multi-part series focuses on the unique ways small chains can tackle big obstacles in 2022 and beyond.
January 5, 2022
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Sponsored by Stratas Foods
Small Chain Solutions
Sponsored by Stratas Foods
A shortage of products and ingredients, higher prices, and inconsistent supply continues to plague the entire restaurant industry, but the situation has been particularly hard on small and regional chains. With no end in sight to this disruption initiated by the COVID-19 pandemic, small operators — more so than their bigger, better-resourced counterparts — need to find ways to deal with the uncertainly and volatility to stay competitive, or, merely afloat.
While some small operators may have supply chain figured out, recent research reveals that many do not. According to a new survey of small and regional chains conducted by Stratas Foods, makers of Frymax and Mazola Frying Oils, in conjunction with Nation’s Restaurant News, 40% of survey respondents report they are still considering how to deal with ongoing supply chain changes.
Whether your brand has supply chain management under control or not, here are four tactics to consider:
Tap into technology
Digital technologies have no doubt been a game-changer for large chains that were able to quickly pivot to online ordering and delivery during the pandemic. But for small chains, big tech can often feel far from reach, even though it can offer significant ROI, especially when it comes to supply chain issues.
In the last year, Chronic Tacos, a Mexi-Cali taco chain with 60 locations, deployed a digital platform that has facilitated more effective inventory management, price monitoring, and product cost shifts.
"The platform lets us do auditing virtually with our franchise," Michael Mohammed, CEO of Chronic Tacos, said at a panel discussion at the Fast Casual Executive Summit, held virtually Oct. 21 and 22. "This also keeps your distributor honest in terms of pricing as it can fluctuate, so you have to be on top of that.”
Maintain quality, flexibility
Seventy-nine percent of operators surveyed reported “quality” as the most important consideration when sourcing products. Rather than sacrifice quality when sourcing proves challenging, many smaller chains have leaned into being more flexible, nimble with their menus.
Independent restaurant owners like Ashley Lai of Dumpling Haus in Houston, Texas have suffered the pains of dramatic increases in produce, noodles, meat, and other essentials in the last year. To account for missing or no-longer-affordable ingredients she uses in her restaurant, Lai has made some tweaks to her menu and switched brands of chili powders or bamboo shoots, among other creative machinations.
“Instead of just taking something off the menu, we'll wake up extra early and go to three different stores to find the ingredients,” Lai said in a recent interview with The Leader News.
Some operators who aren’t interest in conducting early-morning searches or making substitutions are pulling resources with other small chains to source essential ingredients, such as high-quality fry oils.
“Groups of smaller restaurants should buy larger amounts through a local distributor that they all pull from with the intention of sharing it,” said Vincent Barcelona, director of national accounts and culinary for Stratas Foods. “It’s easier on everyone’s bottom line and gives restaurants a little extra buying.”
Exchange short-term pains for long-term gains
While the easiest way to deal with rising product prices is to pass the cost on to customers, doing so can also erode customer loyalty. Instead, some small chain operators are finding that it’s better to take a hit today to ensure customer loyalty tomorrow.
When lobster prices spiked, Luke Holden, founder and CEO of Luke’s Lobster, maintained the best quality and most affordable lobster rolls that are core to the brand’s value proposition by raising prices only by a few dollars — and letting his profit margin take a hit.
“As we [make] one tough decision after the next, we're just staying grounded in that and not making any sacrifices that would ultimately move us against … building momentum toward our brand mission, which is to become the world's most respected seafood brand,” Holden said in a recent video interview with Nation's Restaurant News. “So we’re definitely taking a long-term approach on this, but definitely feeling a lot of short-term pains.”
Get creative (again)
The pandemic pushed operators to shrink their menus and cut out creativity, but many of the operators surveyed said they are ready to get back to being creative in the kitchen.
According to the survey, 32% of operators report they are ready to return to menu innovation, and 19% said they’re already back at it.
Among the small chains innovating again is Noodles & Company a 410-unit chain, which reported same-store sales up 16.3% in the third quarter, driven by menu innovation (particularly its June introduction of a new Tortelloni pasta) and a healthy digital sales mix, the company reported in late October.
“We have seen ongoing success with culinary innovation that’s on-trend, resonates with guests and builds loyalty,” Noodles & Company CEO Dave Boennighausen said in an October earnings call. “[…] Tortelloni has been a great hit and we have a long runway ahead of us. As people get introduced to the brand and the rewards program, the time between visits continues to shrink.”
With uncertainty ahead, learn to deal
Sponsored by Stratas Foods
As restaurants continue to face a shortage of products and ingredients, higher prices, and inconsistent supplies — and consumers who are growing increasingly impatient with all of it — many chain operators are still figuring out how to deal. Not terribly optimistic about supply chain challenges ending anytime soon, these operators are taking approaches as many and varied as working with back-up suppliers to ensure product availability and consistency to tightening up fryer oil usage to reduce costs to eliminating menu items that have proved challenging.
Despite no end in sight to the disruption, some chain operators say they plan to expand their menus, and many say they are ready to return to the innovation they have had to forgo these last 18 months, in fact, some say they’re already getting creative again. Stratas Foods, along with Nation’s Restaurant News, conducted a survey to discover how chain operators are feeling about — and dealing with — the continued uncertainty and volatility caused by the ongoing COVID-19 pandemic.
Download the Industry Insights today to find out:
The primary supply chain challenges
Most popular approaches to operation modifications
The most common menu changes operators plan to make
Top considerations when sourcing products going forward
Greatest supply chain challenges ahead
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Delivering the Digital Restaurant: You can solve the labor crisis. Here’s how.
Justin Lindsey’s October 2021 LinkedIn post went viral with more than 1.5 million views. Many of us in the restaurant industry are talking about it. Lindsey was about to open his new Chick-fil-A location in Kendall, FL. He was facing the same problems as the rest of the industry: how to get enough employees to serve the consumer demand for his restaurant. Lindsey knew his location was perfect, and that his volume would be high. He estimated that he needed more than 250 workers to operate the location well. But everybody knows the industry is in the middle of a labor crisis. Was it even possible to recruit that many people?
“I started to go through our benefits — tuition support, healthcare, wages — and I thought, ‘How can I give team members two weeks off each month?’” he said. It sounds crazy. Most of us work 22 days each month. Many of us work every day — chained to the technology that is supposed to free us from our desks, working two jobs to make ends meet, working one paid job and then coming home to work another shift in the unpaid but crucially important job of raising our families. Restaurant owners are often labor backstops — covering shifts when employees don’t show up or can’t be found to hire in the first place.
Lindsey’s solution? A three-day work week that offers a reliable and consistent schedule, while rotating front and back halves of the week to create seven days off in a row after each three-day shift. The solution works because he is in Florida, where work weeks are capped at 40 hours before overtime kicks in. It might not work in California, where overtime kicks in after an 8-hour day. It also works because he’s a franchisee for Chick-fil-A, which has held sacrosanct a Sunday day of rest and therefore operates only six days a week. But the nugget of the idea should give all restaurant leaders pause to ask themselves, how am I contributing to this labor crisis? And what changes can I make to solve it?
The labor crisis is not new. The restaurant industry has seen staff turnover far higher than the rest of the private sector for many years. In 2019, the overall hospitality industry had a turnover rate of 78.9%, according to the Bureau of Labor Statistics. During the first year of the pandemic, that rate soared to 130.7%, with fast food restaurants experiencing 144% in 2021. These numbers tell us that retention is perhaps more important than attraction — especially considering the $6,000 estimated cost to replace an existing employee.
The debate around causes roars on — wage rates, government support, fear of illness, difficult customers. But what if the labor “shortage,” while exacerbated at this time, is just a chronic industry issue that needs fundamentally different solutions?
Jenn Lim, CEO of Delivering Happiness, a workplace culture coachsultancy, says happy employees need four things from work: Contribution, Progress, Connection and Autonomy. Aside from some stand-out cultures, the restaurant industry has struggled to offer all four of these factors to hourly employees. The good news is that new technologies make it easier for restaurants to offer what employees want.
Contribution
Employees want to know they are contributing to something larger than themselves. This starts with defining customer service as part of the culture, rather than as a transaction. While no technology can replace the initial welcome and shadowing that demonstrate the culture in action, technology can help consistently convey what that culture is and how it shows up in each task the job requires. A Learning Management System (LMS) like Wisetail or Articulate can provide a more interactive, engaging experience to ensure the team member is provided the right information at the right time. It can assess and evaluate a student’s progress and inform both the local manager and learning and development staff signals of progress or concern. The delivery of content can be mixed between “receiving information” and “applying learned information” in either a digital forum or in a practical assessment exercise. New employees feel confident that they are ready to contribute to the team.
Best of all, an LMS can consistently convey culture and valued behaviors, rather than leaving a local trainer to interpret. Or worse, a new employee alone in a breakroom with a 200-page book to interpret. Through a digital learning experience, a new employee can be greeted with recorded video messages from the CEO or owner about what it means to have them join the team and watch messages from other staff members about what they wished they learned on their first day. Videos can express how the values and ethics that stand you out as a restaurant and employer are demonstrated in the workplace through practical examples and share principles of what makes working at your restaurant fun and rewarding.
Progress
According to the DeliveringHappiness.com blog, “people are happier in their jobs when they can experience a strong sense of growth in the work they are doing [no one likes to feel stagnant].” A great LMS can aid employees through their entire tenure. A line cook can learn on the job or have an easy reference if they forget something. Team members continue to learn without a huge time investment from supervisors. Benchmarking analysis of similar site profiles enable regional team managers to intervene where prompted. Through artificial intelligence, companies such as Quorso analyze the performance between locations and recommend changes that reflect the operational practices of those performing more effectively.
Gamification is another way technology can help team members experience growth in their roles. In addition to learning, gamification takes the everyday tasks that are required by well-run operations and turns them into accomplishments. Tools like Jolt track completion rates enabling restaurants to give rewards to team members or teams who continue to grow and progress.
Connection
Connection demands that each team member really feel like they are part of a team. A well-run restaurant often feels like a family.
Technology can increase this human connection through community boards, team communication, shift-swapping and recognition-sharing. Luna Grill coins their team members affectionately “Lunatics.” As COO Steve Holliday said recently, they seek out “moments to collectively celebrate their culture.” Moments may involve videos of the team members dancing and enjoying the culture, endorsements of in-store achievements like customer recognition comments and promotions, and even beyond-store achievements like graduations and weddings. Integration with customer feedback platforms like Ovation or Tattle, or ERP systems like Restaurant365 can make highlighting team member successes easy.
Great communication reinforces not only connection, but also progress and contribution. As organizations celebrate these factors, team members see opportunities to grow with the organization and contribute to its success.
Autonomy
Running a great restaurant requires that every employee execute well on the right tasks at the right time. This kind of minute-to-minute task assignment seems at odds with autonomy. Technology ensures task completion while allowing employees to make decisions about what’s most important at any given time. Platforms like Jolt and Prospr keep track of what needs to get done during a shift while giving employees the flexibility to prioritize based on what’s happening in the restaurant.
Autonomy can start with letting employees decide when they work. Platforms like 7shifts and Prospr let employees easily trade shifts to give the flexibility to manage their other commitments — whether jobs, education or children. Enabling your team members to accept, change and swap schedules is a common feature of most digital scheduling platforms, but the ability to converse with other team members or at least one-way message the team of a need to swap a shift is equally as important.
Setting a culture to reward and incentivize other team members to pick up shifts on behalf of others through gamification is also an option. Badges, collectibles and celebrating team members through community boards championing those supporting others are great ways to corroborate your acceptance toward flexible scheduling while celebrating those that help make it possible.
Lindsey’s three-day week accomplishes the same thing through the opposite approach. Instead of flexibility, employees can use the consistency of their schedule to plan around. They no longer need to fear having their hours cut when they ask for time off, or of being fired when they call out to care for a child. But even Lindsey’s approach needs tech enablement: “We use Slack to hand off a red-book between Team A and Team B,” he said. “Communication is critical to ensure nothing gets lost between the two teams.”
Solving the labor crisis
Leaders that have a finger on the pulse of technology solutions to service consumers and employees have an advantage in addressing the most difficult restaurant labor environment in a generation. The chief technology officer may be best positioned to address labor challenges through their understanding of Saas-based software solutions and integrations to create a seamless and frictionless employee experience. Working with operations and HR to improve recruitment, onboarding and culture building initiatives throughout their organizations may not be easy. But it’s a task that should be tackled with both hands — before it’s too late.
AUTHOR BIO
Meredith Sandland and Carl Orsbourn are co-authors of “Delivering the Digital Restaurant: Your Roadmap to the Future of Food.” After each spent 20-plus years in corporate strategy and retail food, Meredith and Carl each concluded that food in America was changing. They left their corporate jobs in search of innovation that would transform the restaurant industry. Ghost kitchens, virtual brands, digital marketing, the gig economy and lean operations are at the heart of the future they envision. For more information, visit DeliveringtheDigitalRestaurant.com or email carl@learn.delivery.
The Consumer Playbook: How restaurants are tackling 4 key demands
From the definition of cleanliness to the need for hyper customization to the rise of convenience culture, the COVID-19 pandemic has recalibrated consumers’ expectations around their dining experiences.
But while the pace of change has no doubt resulted in a tumultuous year and a half, many forward-thinking restaurant brands have successfully adapted to meet guests’ high expectations in order to thrive during the pandemic — and hopefully long after it’s gone.
Here’s how restaurants are tackling four key consumer demands that have seen massive change during the pandemic.
Cleanliness: Safety first
If there’s one thing that majorly shifted during the pandemic — besides the price of chicken wings and to-go packaging— it was consumers’ expectations around cleanliness and safety.
“QR codes, safety lids, Lysol spray — it’s so much more than that,” said Aaron Allen, founder and chief strategist of global restaurant consulting firm Aaron Allen & Associates.
Now more than ever, Allen said, brands need to look through the lens of all of these points of contact and make improvements — quickly.
Vancouver, Wash.-based take-and-bake pizza chain Papa Murphy’s is among the brands that have been successful at pivoting on this issue. Shauna Walker, Papa Murphy’s senior vice president of franchise performance and engagement, said it was a result of paying close attention to what customers wanted.
While the pizza chain has always been pick-up only, the pandemic pushed the brand to add quick-pickup stations in stores and to launch online ordering and third-party delivery.
“Today, consumers want to pay, place orders and receive orders in a very different way than we were accustomed to,” said Walker.
Though the chain’s business model of take and bake at home has a built-in sense of quality and safety, it was no longer enough for consumers, so Papa Murphy’s layered on additional, more visible, safety measures, such as in-store sanitation stations and tamper-resistant packaging.
“It’s been a year of change,” said Walker. “We’ve been quick to adapt and elevate everything around that heightened guest experience, cleanliness.”
Similarly, Culver’s, the Sauk City, Wis.-based fast-casual burger chain, quickly evolved to meet customers’ new demands around safety, cleanliness and convenience by launching online ordering, delivery and curbside pickup, and adding a new double drive-thru, as well as options for drive-thru line busting and outside order-taking that uses a contactless credit card payment device.
“[Our customers] know that every time they visit our restaurant, they are going to enjoy that fresh, never frozen beef when they bite into their ButterBurger,” said Dale Ballweg, Culver’s vice president of operations. “And most importantly, they want this delivered to them safely.”
He added, “As long as we consistently deliver Culver’s exceptional service and high-quality food that our guests have come to expect, they will keep returning, pandemic or not.”
“[Our customers] know that every time they visit our restaurant, they are going to enjoy that fresh, never frozen beef when they bite into their ButterBurger,” said Dale Ballweg, Culver’s vice president of operations
Quality: From boring to bold
The monotony of pandemic life left many consumers less satisfied with the everyday, and increasingly craving bold flavors and entertaining experiences.
“We really took advantage of our messaging, as well as hacks,” said Kim McBee, senior vice president of guest experience and brand marketing at Papa Murphy’s.
Among those “hacks” are innovations culled from user-generated content on the chain’s social media channels. For example, the chain had success promoting how to roll dough to make pizza pinwheels, how to grill pizza and how to create star-shaped pizza bites with cookie cutters.
“It’s about allowing you to have fun with your food, play with your food,” said McBee.
According to McBee, these hacks have been some of the pizza chain’s best-performing, most-engaged-with social media spots.
Meanwhile, San Antonio, Tex.-based Whataburger is creating craveability with bold flavors and fresh takes on its standards.
“We meet that demand with limited-time offers introduced quarterly, and including the best of those offerings as All-Time Favorites to our regular menu,” said Rich Scheffler, Whataburger senior vice president and chief marketing officer.
For example, for the fourth quarter the burger chain is bringing back its Green Chile Bacon Burger and introducing new Hatch Green Chile Bacon chicken sandwiches. Whataburger will also appeal to night owls and early birds with the return of its popular Breakfast Burger, and for dessert or a snack, it’s launching a Chocolate Mint Shake for a limited time.
While these approaches are different, foodservice experts say one factor these successful brands have in common as they drive toward higher-quality offerings is their limited menus.
“A simple concept with a limited menu [is the solution],” said Dean Small, founder and CEO of Synergy Restaurant Consultants. “It’s a lot easier to be focused, to train [employees].”
Convenience: A convenient culture
The meteoric rise of convenience culture forced many operators to make dramatic changes to their business models over the last 18 months. Restaurant brands that will survive going forward will need to accept — and continue to adapt — to the fact that consumers have no intention of going back to the old ways.
“When you’ve had it easy, you never want to have it any other way again,” Allen said of consumers’ changing expectations around convenience.
Not only do consumers want to continue having it “easy,” but they also want it faster than ever.
“How people order, and their experience of convenience, is off the charts,” said Papa Murphy’s McBee. “Consumers’ expectations are high [around] convenience — what, when, where and why they want it, quickly, and it better be good.”
She added, “That’s not going to change. It’s only going to get more competitive.”
Additionally, the speed at which operators make improvements is directly related to whether or not their business comes back, said Allen.
“[Brands] that decide to lead will be rewarded,” he said. “The laggards will be out of business.”
Value: Emotional rescue
Whether financially flush or struggling, consumers continue to be more cost-conscious. That’s made the value of their restaurant purchases more critical than ever.
Restaurant loyalty apps have become a key way restaurants offer value while also complementing the convenience culture. But to stand out among the competition, experts said, operators need to offer far more than hot deals and deep discounts.
“Consumers want to feel emotionally connected to the brand,” said Synergy Restaurant Consultants’ Small. “[They] want a little love, some recognition.”
Whataburger is among the brands that amped up its app in an effort to make more customer connections.
“We’ve evolved our app from being a sales channel broadcasting offers to a loyalty program that personalizes interactions,” said Scheffler.
This shift has led to a more than doubling of loyalty subscribers in the past 18 months. Additionally, the chain reports that Whataburger’s app users have higher overall satisfaction, order more frequently, and have higher check averages than customers in any other channel.
“It’s clear that guests value the new app features [and] pickup and delivery options introduced during the pandemic,” said Scheffler. “We’ll continue to evolve our app where customers can order their favorites, customize pickup and delivery options and take time to develop their dream-burger build with all the options on display.
Shortly before the onset of the pandemic, White Castle launched Craver Nation, its first systemwide loyalty program with benefits that are customized to its users.
“During the pandemic, it heightened [consumers’] feelings of connection,” said Jamie Richardson, vice president at White Castle. “[We are all] craving comfort, things that make us feel good.”
The 100-year-old slider chain had anticipated its new app would have some positive impact on business, but it has been pleasantly surprised at the high performance so far.
“It’s done double what we expected around average check,” said Richardson.
But in these trying times, it’s not always about money or meals ordered. “It’s about life in general,” he said. “We think our role is to be there for our communities. It’s been a horrible time, but it’s been fun to be able to connect.”
Meeting consumers’ new expectations isn’t always easy or cheap. But taking care of their needs doesn’t have to be complicated. And there are plenty of things operators can do free of charge as a start.
“The best thing an operator can do — and it doesn’t cost a dime — is to learn their customers’ names … and use them,” said Small. “That goes a long way.”
Where the virtual-restaurant trend might be headed
Virtual restaurants — online-only establishments with no public-facing outlets — have long existed alongside third-party delivery aggregators like UberEats and DoorDash, but the pandemic has radically expanded their reach and changed the dominant business model. Previous virtual restaurant concepts were often vertically integrated, with now defunct startups like Maple and Green Summit owning and operating their own ghost kitchens and, in some cases, operating their own apps and even providing delivery. However, 2020 saw an explosion of interest in businesses like Nextbite and Franklin Junction, which connect existing virtual brands with independent restaurants with extra kitchen capacity, with the latter often fulfilling delivery orders for a range of different virtual brands. Much of this spare capacity was driven by the pandemic, of course, with restaurant operators looking to new brands as a means of survival.
Many of these new brands are extremely straightforward in presentation and are centered on QSR favorites that travel well, with chicken wings in particular exploding in popularity across the major U.S. delivery apps. They are designed to be easily searchable within the app, recalling the multitude of commodity product manufacturers found across Amazon for items like phone chargers, selfie sticks and so on. In theory, virtual restaurants allow for more experimentation, given lower startup costs and easier menu optimization than a brick-and-mortar restaurant. The virtual brands that took off in 2020 were overwhelmingly built around highly popular items — often no more than one or two signature items per brand — which can be easily sourced and produced across a range of different kitchens. These brands were designed to serve hungry customers using apps to find and order specific items — such as wings, pizza, burgers or dessert — rather than a specific brand.
These types of virtual brands have dominated much of the discussion around delivery over the last year and a half, but it is not yet clear how durable this trend is, or whether it represents a real shift in restaurant business models or more of a transitional phase. Consumer demand for delivery is not going away — this is less a question of whether consumers will stop craving delivery wings, for instance, and more about where and how those wings are being prepared. Dedicated ghost kitchen facilities are still being built, and these could prove significantly more efficient in the long term for most kinds of “commodity” delivery production, particularly as investments in automation expand.
In any given city, the question is whether it is more efficient — in terms of price and delivery time — to produce wings, pizza, pad thai, etc. through dozens of small kitchens or through a smaller number of larger, more centralized, automated facilities. As the pandemic eventually passes, the pool of spare kitchen capacity found across independent restaurants could contract, and the amount of money available to any individual restaurant could shrink as more independent restaurants look to produce for virtual brands.
To understand where the restaurant industry might be headed, a look at the broader retail industry is instructive. Over the last 10 years, dozens of online-only, direct-to-consumer retail brands — such as Modcloth, Warby Parker and Glossier — have emerged, with many shutting down or being acquired. The remaining leaders have pivoted to a more omnichannel approach, combining apps and delivery with a select number of physical stores. These stores in particular serve as an important component of brand marketing, creating compelling and memorable experiences that drive repeat business — not unlike a good restaurant. There has also been an increase in online-only manufacturers producing essentially unbranded consumer goods, with price and search engine optimization the primary differentiators.
A similar continuum could emerge in the restaurant industry as ghost kitchens and virtual brands grow and expand to become part of most restaurants’ competitive toolbox. What we think of as premium, fast-casual brands could give way to omnichannel operators combining highly effective in-store presentations with dedicated apps and activities like shoppable recipes, cooking classes and other means of fostering long-term engagement. Meanwhile, a host of daily delivery occasions could become increasingly commodified, with highly optimized facilities producing a range of fast, low-priced favorites.
AUTHOR BIO
Michael Schaefer is the global lead of food and beverage at Euromonitor International. He provides insight on consumer trends, product innovations and the evolution of eating and drinking from around the world. Michael is the primary driver for design, development and promotion of Euromonitor’s global restaurant research program, as well as its coverage of the global non-alcoholic drinks industry. He has been quoted in Bloomberg, Nation’s Restaurant News, The New York Times and The Wall Street Journal, among others. Michael holds a Master of Arts in Russian and East European Studies from Stanford University and has been at Euromonitor since 2005.
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