While managing expenses remains important, there's another side to the unit economics equation: driving revenues. Oddly enough, though, operators from all segments will need to look for opportunities outside of their own four walls and traditional dayparts. "When you think about restaurant sales per square foot the real metric that will make or break a brand is off-premise dining opportunities," Tristano says. "Off-premise can significantly impact your return. Any time you can create drive-thru or grab-and-go or catering opportunities you are able to enhance your brand's performance. And off-premise dining percentages are, in general, on the rise."
One chain seemingly doing a good job of balancing on-premise and off-premise sales is Buffalo Wild Wings. "They have full-service, fast-casual and take-out components in their restaurants," Tristano says. "Fast casual is still fast food. All fast casual did is raise the bar to become more competitive with full service. All QSR is doing is raising the bar to compete with fast casual."
The drive to better manage expenses will continue to affect foodservice equipment purchases. "The integration of technology within equipment has become increasingly important," Tristano says. "The ability to run off-site diagnostics or be able to integrate equipment into a smaller space is important. Equipment also has to be easier to use and maintain and do more things. Factories have to be more innovative with equipment and the supply chain has to push the value in equipment."
Like consumers who have kept their cars longer than usual, the operator community held off on big purchasing decisions for as long as they could. Of course, operators can hold off only so long and this has resulted in some pent up demand for foodservice equipment and other capital expenditures. In fact, 52 percent of operators participating in the NRA's June Restaurant Performance Index study said they made a capital expenditure in the past 6 months and 56 percent of operators plan to make expenditures in the next 6 months. Those are fairly high rates, according Riehle, who adds, "With the environment better than it was a couple years ago, they are more willing to make those expenditures."
Of course, that's not to say dealers and other members of the supply chain can simply knock on their customers' doors expecting to sell a product for a price. "If I am a restaurant, you have to convince me there is some real over-arching reason to make a change from my existing equipment package," Tristano says.
Indeed, as equipment becomes more complex, education will become a key part of the sales process moving forward, at least with savvy operators. "Educating the operator community about the importance of recapitalizing their equipment and in other areas becomes paramount," Riehle says. "It is really important to highlight how that purchase decision plays out month after month and year after year in terms of recouping the cost of that initial expenditure. In some cases, there might be some sticker shock initially but you have to be able to spell out the metrics of that specific investment."
The Impact of the Affordable Care Act on Operators
Three years since it was passed into law, restaurant operators continue to look for more clarity about what the Affordable Care Act means to their businesses in terms of costs, reporting, what they will have to offer and more.
"I do think the cost of health care and the impact it could have is taking the operators' eye off what their job is, which is to prepare food for the consumers," says Darren Tristano, executive vice president for Technomic. "And taking your eye off the prize could be a negative impact for the industry. And then price points could increase, too."
A few months ago, businesses got a small reprieve when the deadline to comply with the plan's employer mandate component (and the penalties that go along with failure to do so) were postponed for one year.
"If you are running a business of a certain size and nature you need to have an open enrollment period, time to decide what insurance to offer and more. Accomplishing all of that takes time," says Scott Defife, executive vice president for policy and government affairs for the National Restaurant Association. "And the timeframe for doing that in a working market was compressed because not all of the regulations had been finalized. The government had developed some temporary guidance on how to make judgments about full-time and part-time employees. But the extra 12 months will give us the time operators needed all along to do this."
Restaurant operators were lacking key pieces of information, including how many of their employees would actually want health insurance from their employers, which would affect the scope and cost of the plans the business would offer; how the state-run exchanges would work and how to direct employees to use them; and the government's reporting requirements in areas such as employee census and how to document the fact a business made a qualifying offer, to name a few. Employers in the restaurant industry will now have the time to address these issues and more.
"In the restaurant industry we have a lot of young employees or even shift workers who are part time," Defife says. "Many restaurant operators have experience offering healthcare that their employees have not taken them up on. And there are other places for them to get insurance other than their employer. Or they may not stay with their employer long enough to get insurance. So a lot of the concern was centered on understanding how the workforce was going to react. Not knowing this made it hard to plan for the worst case scenario. We will get greater clarity in the fourth quarter of this year on the reporting requirements and the way the exchanges will operate. So next year we should have greater understanding about how the population is reacting and so on."
While the extra time to prepare for the healthcare mandate is helpful, it does not eliminate operators' cost-related anxieties. "The restaurant industry is a tight margin industry that responds to consumer demands and market forces quickly. But you can't change your menu prices every day, the way a gas station does. So any short-term spike in costs, that's a make or break situation for a restaurant. If you know certain costs will go up at a certain time you can plan for it," Defife says. "At first, people were having a real difficult time understanding what the potential costs will be. The initial costs from the accountants were quite alarming. While the costs are coming down, they are coming down from alarming rates. So the costs could still be rather difficult to manage."
While the law affects all businesses, exactly how each restaurant company will respond remains to be seen. Lots of chains have discussed their plans to a certain extent but how this will affect the industry overall will need to shake out further and will depend on each company's demographics. "It's common sense that dictates there will be a variety of methods and models for operators," notes Hudson Riehle of the National Restaurant Association. "It is definitely not a one size fits all scenario."
For additional information on the impact of the Affordable Care Act on the restaurant industry visit: http://website healthcare.restaurant.org.