Casual dining: innovating for the future

The casual dining sector is clearly facing significant hurdles; however, you need only go back a few years to see a very different, and far more positive, landscape. In 2014, sentiment towards the industry was bullish. Brands were openly talking of plans for ramping up expansion and proposing aggressive rollout programmes. London and the regions were seeing robust performance across the board. Like-for-likes were strong, supported by rising consumer disposable income, and M&A activity was high. This, in turn, drove a seemingly insatiable thirst for acquisitions within the private equity industry. Coupled with strong demand from consumers, this led to a proliferation of brands, evidenced today along high streets and shopping malls; whether in London, Manchester, Weston-Super-Mare or Milton Keynes, consumers can now choose from a vast array of familiar dining options.

The outlook for the next few years is less rosy. The perfect storm of growing cost pressures coming from the national living wage, business rates, food price inflation and the uncertainty created by Brexit are just some of the factors that have led to a more circumspect approach to expansion and a dampening of private equity’s enthusiasm for the sector. Competition is high, roll out plans are being put on ice and businesses are feeling pressure to increase prices. However, given that consumer spending remains strong, the perspective from within the industry is that, whilst daunting, these challenges are not insurmountable. To be successful businesses in the sector must recognise that a new approach is required - 2017 will be the year of survival of the fittest. So, in this context what does it mean to be the “fittest” and what can businesses do to ensure that they are best-placed for survival?

First and foremost, it is to do with an uncompromising focus on operational excellence. Hiring and retaining strong operators will be essential to ensuring a commercial and consistent focus is given to quality of service and food. Good cost management, smart procurement and a strong operating model remain fundamental ingredients for success. Secondly, agility, seen in the ability to act swiftly on consumer insights and execute propositions commercially, is essential. We have seen recent examples of large companies showing they can be quick off the mark by introducing new concepts such as grab-and-go, and they are subsequently reaping the rewards. This is a salient point particularly because the challengers in the industry are by nature better-placed to be faster in their actions thus enabling them to steal a march on the competition and take share. Finally, given the sheer volume of options that consumers now have, fitness will be determined by differentiation. This can be achieved by building brands that engender loyalty and executing effective digital strategies that personalise the relationship with consumers. But standing out from the crowd in an already cluttered market will ultimately hinge on innovation. Continued “traditional” innovation, such as menu changes, remains important; however, today’s consumer is seeking a great product and a great experience. Possessing the vision to identifying what kind of experiences consumers want, implementing effectively and shifting the paradigm of the in-restaurant experience is likely to be the game-changer.

 As the industry continues to evolve in the face of adversity, boards and investors are acutely aware that if the market can shift as quickly as it has done in the last three years, there is more change to come. Tapping into industries that have been through similar levels of change and disruption such as retail, media and consumer goods could help bring the conceptual thinking which in turn will serve to identify what shape the casual dining industry will take in the future, and how best to capitalise on the opportunities.  The order of the day is to recruit capabilities that are better-suited to the market of 2017 onwards, rather than the market of 2014.