Five Things To Look For In 2014
We are not blessed with a crystal ball. In fact, you'd be hard-pressed to find anything made of crystal in our office at all. But that won't keep us from taking a stab at forecasting the restaurant industry, and trends to keep an eye on, this coming year.
Let's start with the most blindingly obvious: Sales will increase. They'll increase at a decent rate overall, as the economy improves, but the sales increase won't be felt broadly because there's just so much competition out there and income growth remains concentrated among only the wealthiest consumers. Fast casual chains will improve the most, family dining chains the least, and everybody will keep wondering when customers will come back to casual dining concepts.
Service will improve. For years, McDonald's increased sales by adding new menu items and product lines and by extending hours. And many of its QSR competitors have followed suit. The result: a typical fast-food restaurant is a far more complex operation than it was a decade ago. But now QSRs, led by McDonald's, are shifting their focus toward improving service. This will mean fewer new products and limited time offers, but it could also mean more customer-facing technology designed to speed the ordering process. Customers have numerous choices when they eat out, and they're not choosing restaurants quite as much as they used to, so when they do go out their expectations are high and they're punishing concepts that don't meet them. This means service improvements will be vital this year.
Touch screens will be everywhere. We're currently working on three different stories on different topics for our sister publication, Franchise Times, but all three have something in common: touchscreens. Consumers will see more touchscreens at their tables, at the counter of their local QSR, and when they get their drinks. As it is, iPads and the Coke Freestyle have put touchscreens in many restaurants, but expect this trend to surge in 2013. Chili's and Applebee's are adding tabletop ordering systems. Pepsi is testing a new drink machine with a touch screen to match the Freestyle. And McDonald's and White Castle are testing out touch screen kiosks. These touch screens are all giving customers something they're increasingly expecting nowadays: more control over their restaurant experience.
Investors will punish restaurant stocks that don't perform. 2013 was an odd year. Restaurants routinely struggled with sales amid economic weakness, and yet only five restaurant stocks declined last year; many stocks doubled and several are at or near all-time highs. This can only mean one thing: Investors have the same sky-high expectations for stocks that customers have for restaurants. And so they'll punish the stocks of restaurants that don't perform up to expectations. That's already happened with a few stocks this fall, but we don't expect that will change anytime soon.
Food prices will ease. Many franchisees we spoke with recently are somewhat bullish heading into 2014 in part because they fully expect food costs will ease this year, which should enable them to be more profitable. Commodity prices are easing, thanks to lower corn prices, and when corn prices decline it's cheaper for farmers to raise pigs and chickens and cattle. While beef price relief is still a way off, many restaurateurs are expecting this to be a more profitable year.