Restaurant C-Suite Magazine | Spring 2021 by Eatery Pulse Media

SPRING 2021

INSIDE: RESTAURANT ROBOTICS | INDUSTRY AFTER COVID | HIRING AND RETAINING WORKERS | THE BOBA TREND | AND MORE... RESTAURANTCSUITE.COM

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TABLE OF CONTENTS

SPRING 2021 04 Editor’s note 06 Robotics making an early mark on restaurant industry 09 Domino’s launches autonomous delivery with R2 robot 11 Protein consumption diversifying 13 Hiring and retaining staff for the recovery 22 The Boba trend 24 The permanent impact of COVID on restaurant operations

BUSINESS Executive Editor Rick Zambrano contactrick@eaterypulse.net Eatery Pulse Director of Photography Anthony Torres Assistant Editor Margaret McConnell Editorial Designer Ashley McCarty

About Restaurant C-Suite Magazine Restaurant C-Suite Magazine is distributed by Eatery Pulse Media. Eatery Pulse is a primary source of national restaurant industry news and content, providing information services, consulting and a creative, customcontent studio for business. This digital magazine was specifically created for multi-unit restaurant executives. It delivers the most highly-impactful news for the restaurant industry’s top leaders and visionaries. Today’s C-suite executives and their managers need information that is carefully selected, meaningful and delivered in a seamless, cohesive fashion. Stay updated with all our content at subscribe.restaurantcsuite.net.

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Robotics will play a large role in the near future of foodservice. Flippy is ready. Photo by Miso Robotics.

Editor’s Note The restaurant industry is well into the COVID-19 recovery phase. With more people vaccinated and more businesses resuming higher activity levels, eateries are seeing increased patronage. In addition to this increased commerce, the Restaurant Revitalization Fund (RRF) promises to pay $28.6B back to restaurants in the form of grants for eligible expenses. Restaurant operators are finding that a boost in on-premises dining along with continued focus on takeout can form a recipe for revival. The RRF has been oversubscribed, and as of last week, the Small Business Administration had received more than $23B in grant requests.

It helps that consumers are feeling more confident about being protected, due to vaccinations, while dining out. Spring has sprung, summer is on the way, and outdoor dining is on the rise. More customers are looking to enjoy on-premises dining, and restaurant operators are eagerly anticipating the opportunity to serve them. In fact, many restaurant operators around the country are already seeing a majority of their sales come from in-restaurant business. Looking ahead to the rest of 2021, we assess some key beverage trends that will help restaurant operators increase their sales during the balance of the year. In the longer view forward, we’re taking a closer look

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at some developing technology: we follow some beta testing that demonstrates the evolving future role robotics will play in how restaurant customers are served. Is there an industry issue or trend you’d like to hear more about? Feel free to suggest your ideas, or contact me with any questions. Sincerely,

Rick Zambrano Executive Editor, Eatery Pulse Media contactrick@eaterypulse.net

Diners are ready to resume on-premises dining, even if just outdoors. Photo by Louis Hansel.

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Restaurant robots By Eric Nomis

Robotics makes its way into the near future of restaurant operations The future of robotics in the restaurant industry is becoming closer to a reality each day. With Nuro’s R2 robot having started delivery for Domino’s Pizza in April and Flippy the Robot under agreement to flip sliders for White Castle, clearly advances in robotics will propel the restaurant industry forward in a variety of ways.

Kitchen help Flippy the Robot’s foodservice application is in the kitchen. Created by Miso Robotics, Flippy’s robotic arms are ideal for burger frying. Its advanced technology includes sensors, intelligence monitoring and predictive analytics in food demand, which will all contribute to RESTAURANT C-SUITE | Restaurant news that’s fresh, informed, inspired (by you) 6

Flippy fires up the grill at CaliBurger. Photo by Miso Robotics.

enhanced food quality. Specializing in sliders, White Castle plans to deploy any displaced back-of-house team members into more customer-facing roles with the expectation of improving customer service. While it attracts industry and public attention due to its prominence in the restaurant kitchen, the company behind Flippy touts its ability to reduce the spread of pathogens during cooking and perfect the cooking process so foods are not undercooked. Both goals will likely appeal to an array of restaurant operators who can afford the investment. The introduction of robotics and artificial intelligence in the kitchen holds a lot of promise, and the COVID-19 pandemic has accelerated this opportunity. Operators are grappling with difficulty staffing their restaurants, including securing kitchen staff. In addition, the promise of increased safety in the restaurant environment scores robotic applications an advantage as a potential longterm solution.

Human workers are still highly in demand, even in industries in which robotics have been widely-used. In manufacturing, there has been a dearth of skilled workers, to the tune of more than half a million open positions, according to Reuters. There’s little reason to believe that robotics will displace workers. Restaurants that are forward-thinking will see that human labor is best utilized in the front-of-house, interacting and engaging with customers.

Autonomous delivery Self-driving cars that can transport food from point A to point B will be a common sight in the future. The pandemic has accelerated consumer desire for uber-convenient food delivery. Companies like Nuro, which created the R2 robot that Domino’s operates in Houston, Texas, are betting on such a future. “What we’ve seen over the last few years is that people want everything delivered, faster and more affordably; hence Domino’s pilot with robotics firm Nuro,” said a Nuro spokesperson. “What was once snail mail shifted to 2-day delivery, then same day RESTAURANT C-SUITE 7

Nuro’s R2 robot brings a futuristic twist to delivery. Photo by Nuro.

delivery, and increasingly even that isn’t fast enough. Historically, speed comes with cost, but Nuro is changing that. We believe that you should be able to get the things you need when you need them—whether it’s your groceries, pizza, produce or prescriptions— quickly and affordably.” Restaurant diners will win in this new future. With on-demand restaurant food so desirable, but increasingly elusive as a profitable, human-delivered commodity, the restaurant industry will certainly be open to advances offered by robotics. Autonomous delivery offers a future of precise and speed-focused food at consumers’ fingertips. A question looms: is this solution scalable to independent operators, or an advancement that only the largest restaurant chains can afford? Nuro’s R2 has a significant and diverse range of applications. In 2020, the company deployed R2 to transport medicine, supplies, and food to COVID patients and medical staff in Sacramento and San Mateo at the height of the pandemic. Nuro has also entered into an agreement with CVS to deliver prescriptions. RESTAURANT C-SUITE | Restaurant news that’s fresh, informed, inspired (by you) 8

Dish assembly Boston-based Dexai Robotics is offering a solution for assembling dishes, including salads, in the restaurant kitchen. Alfred the robot can assemble food dishes in a highly hygienic manner, while tracking inventory in real time, according to the company. The device also stops operating when in close proximity to staff members, which helps promote employee safety in the kitchen. Alfred has arisen as a viable solution for restaurant kitchens due to its pay-per-demand business model. A product of Anthony Tayoun and David Johnson, Alfred originated in Draper Laboratory, a research institute in Cambridge, Mass., and came into the spotlight, with a debut at the 2019 Web Summit in Portugal. Consumer demand for speed, restaurant labor shortages and concerns for food safety are driving robotics to the top of the solution list. Whether for food preparation or food delivery, robotics is the next big presence in restaurants worldwide.

Domino’s launches autonomous delivery By Rick Zambrano

Houston’s Woodland Heights target of new AI-powered program Domino’s Pizza has partnered with tech company Nuro, to launch self-driving deliveries in Houston as part of a beta program. Nuro blends robotics and AI to power autonomous delivery through its R2 robot. The Woodland Heights neighborhood in Houston is the target of the new pizza fulfillment program.

How Nuro’s robot delivery will work with Domino’s In this new Domino’s Pizza delivery experience, customers who order from Houston’s Woodland Heights store at dominos.com can choose the Nuro R2 delivery option. Select customers will receive occupantless delivery in the first vehicle with regulatory approval by RESTAURANT C-SUITE 9

R2’s partnership with Domino’s pizza shows that robots will help large restaurant chains with touchless and contactless delivery. Photo by Nuro.

the US Department of Transportation. These customers can track their robot delivery’s location by receiving text messages, or by checking a confirmation page to follow their order on R2’s GPS. Upon arrival, a PIN can be used to open the compartment holding the hot pizza order. Dennis Maloney, Domino’s senior vice president and chief innovation officer, commented, “There is still so much for our brand to learn about the autonomous delivery space. This program will allow us to better understand how customers respond to the deliveries, how they interact with the robot and how it affects store operations. The growing demand for great-tasting pizza creates the need for more deliveries, and we look forward to seeing how autonomous delivery can work along with Domino’s existing delivery experts to better support the customers’ needs.”

Tech companies are a hot ticket in restaurant space In March, Chipotle Mexican Grill took an equity stake in Nuro as part of its Series C RESTAURANT C-SUITE | Restaurant news that’s fresh, informed, inspired (by you) 10

round of funding. Details of that transaction were not disclosed. Technology companies in the restaurant space are rising in value and prominence as they create solutions for restaurant operators. As an example, Yum Brands’ acquisition of marketing tech companies Kvantum and TicTuk comes to mind, along with Squarespace’s recent purchase of the Tock restaurant ordering and reservations platform. “Nuro’s mission is to improve everyday life through robotics. Now, for the first time, we’re launching real world, autonomous deliveries with R2 and Domino’s,” said Dave Ferguson, Nuro co-founder and president. Nuro has previously tested autonomous delivery in Houston. In addition, Phoenix and Silicon Valley have also seen Nuro’s self-driving vehicles at work in beta runs. Ferguson added, “We’re excited to introduce our autonomous delivery bots to a select set of Domino’s customers in Houston. We can’t wait to see what they think.

Protein consumption becoming more diverse By Eric Nomis

Breaded chicken on the rise; burgers, pizza top protein foods ordered at US restaurants Protein, always a significant and desired macronutrient for United States consumers, is being sought from a more diverse array of sources. Vital building blocks of the body, proteins can be derived from numerous foods, among them seafood, meat, poultry, eggs, legumes, and vegetables. Although still attracted to these sources, consumers are also embracing trendy protein foods like fungi, according to The NPD Group’s Eating Patterns in America report. RESTAURANT C-SUITE 11

Protein consumption at home Proteins that have historically seen high consumption in the US include beef, chicken, and pork; however, animal protein consumption is down slightly from ten years ago, notes NPD. Chicken has long been a top entree in the American diet. Now chicken is being mixed with other proteins, like beans, quinoa or other ancient grains, mushrooms, and high-protein veggies such as spinach. These mixed dishes now account for 9.6% share of at-home eating occasions. By comparison, animal protein entrees represent 10.3% share. Protein snacks such as nuts, yogurt and cheese, are the second most popular snacks consumed after fruit according to NPD data.

Protein consumption at restaurants Beef burgers are the top animal meat protein ordered in US restaurants. According to NPD, burgers are included in 10% of restaurant orders. Pizza rates a close second, appearing in 7% of restaurant orders. Breaded chicken is rising in menu popularity as quick-serve chains battle in the “chicken sandwich wars,” and now makes up 3% of orders, or 2.6B servings ordered in 2020. Plantbased burgers, made with meat alternatives, have been getting a lot of attention, yet they represent less than 1% of all restaurant orders. Protein has functional attributes that appeal to consumers and engender health-halo sensibilities. Restaurant marketers can embrace the importance of protein in the diet when communicating with American customers. “Consumers got the message loud and clear that protein is important for their wellness, and, for the most part, subscribe to the theory that more is better,” says David Portalatin, NPD Food Industry Advisor and author of Eating Patterns in America. “With this in mind, any callout a food marketer or restaurant operator can make in terms of protein content in a product or menu item will be considered a plus by consumers.” RESTAURANT C-SUITE | Restaurant news that’s fresh, informed, inspired (by you) 12

Beef burgers are in 10% of restaurant orders, making it the top protein entree served at restaurants. Photo by Louis Hansel.

Coming Soon SUMMER-FALL A hot summer Diving into plant-based trends Global flavors Barbecue spotlight AI

HOLIDAY Hot drinks for fall Chicken preperations Top 2022 food trends Top 2022 restaurant trends

Finding workers By Rick Zambrano

Hiring and retaining staff for the recovery After laying off and furloughing many restaurant team members as a result of the COVID-19 pandemic, many restaurant operators now find themselves in an odd position: they can’t find enough employees to meet the pent-up demand for on-premises dining and continued takeout business. Countless news announcements, press releases and classifieds attest to the shortage of labor across the country and paint a picture of an understaffed industry. In response to this staffing crisis, restaurant company executives are raising wages, enhancing benefits and attempting to address the needs and wants of employees so they can not just recruit them, but retain them. Amid a lengthy period of reflection about the treatment of people of color, restaurant companies are also taking steps to diversify their staff, executive ranks and boards, and bolster diversity & inclusion departments. RESTAURANT C-SUITE 13

Darden Restaurants paid a one-time bonus totaling $17M to retain employees and has started increasing wages to reach certain minimum targets. Photo by Darden.

Darden Restaurants announced in March that it would pay a one-time bonus to employees totaling $17M. In addition, it began a graduated raise to the blended rate of pay for tipped and non-tipped associates. A minimum wage at the Orlando, Fla.-based restaurant company of $10 per hour (inclusive of tip where applicable) has already gone into effect. In 2022, that rate will increase to $11, and in 2023, to $12.

Taco Bell also announced enhanced benefits for managers, as it pushed to hire 5,000 team members and launched Hiring Parties. General managers will now be able to accrue four weeks of vacation per year. At Taco Bell company locations, general managers also receive four weeks of paid “baby bonding” time for new parents and guardians, as well as eight weeks of fully-paid short-term disability after the birth of a child.

Also in March, Whataburger paid out $90M in bonuses to employees as a thank you for their hard work during the pandemic. In appreciation for their leadership, general managers received the new title of “operating partner,” and the quick-service chain also committed to maintaining a culture that includes a work-life balance. Operating partners now have a clear path to making six figures and can earn bonuses equal to 150% of target incentives.

At Rusty Buckets Restaurants & Taverns, executives are providing signing bonuses and zoom interviews to engage potential candidates, notes Kristen Hinshaw, director of human resources and operating partner. “We are now facing a challenge that we’ve never seen of this magnitude: we simply are struggling to find people to work,” she said. “We’ve always offered flexible schedules and great benefits, but we have had to get creative with our hiring practices.”

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Creating a safe environment Improved compensation isn’t the sole requirement to lure employees back. Currently, many are hesitant to work in a perceived higher-risk environment, while other former restaurant employees have transitioned to other job sectors. Safety continues to be a pressing factor for those working inside restaurants. “Your first priority should be to ensure the safety of all employees,” says Rick Camac, dean of Restaurant & Hospitality Management at the Institute of Culinary Education. “Employees want to know you’ve taken all precautions to make the environment safe for them. This can include having proper sanitizing stations, HEPA filters, temperature monitoring devices, contact tracing and properly spaced out tables or screens installed to separate diners.” During the COVID-19 crisis, quality of life has intersected with safety, suggests Hinshaw. She says Rusty Buckets staff have been appreciative of their employer’s stance on wellness and the protective measures the 22-unit chain has put in place. They have also implemented schedule adjustments so managers can be at home a few more days per month. Hinshaw adds, “Quality of life was a challenge we were focused on prior to COVID-19, and the pandemic certainly boosted that effort into overdrive. Our main concern has been the health, safety and well-being of our associates and managers. Providing the safest work environment possible in these times is providing quality of life.” Mary Hamill, vice president, Sales Solutions at Fourth, a provider of supply chain, human resource outsourcing and workforce management solutions, agrees that restaurant employees are looking for safety, and that operators should ensure staff are comfortable as they perform their duties in the restaurant environment. “This means maintaining extra sanitation

Taco Bell has enhanced benefits for managers and corporate staff. Photo by Taco Bell.

stations and practices, as well as continuing to practice social distancing and daily health check ins—which are made easy through Fourth’s in-app health survey, a tool that prevents potentially sick employees from coming in to work and exposing other team members,” added Hamill.

Supporting personal development Large restaurant companies are offering personal development benefits as a way to attract and retain employees. Employees may appreciate the possibility of advancing through the ranks, but many understand RESTAURANT C-SUITE 15

that education will make them even more competitive, particularly as they venture into other sectors and corporate positions. Chipotle Mexican Grill has been augmenting this part of its benefits package under its Cultivate Education program. In 2020, the fastcasual chain paid out $13M in tuition costs for eligible employees. This year, it added free degree programs in Agriculture, Culinary and Hospitality, and expanded the list of accredited partner universities in which employees can pursue such degrees. Chipotle has also added new elements to its Supply Chain Education program. A total of 85% of those enrolled in the Cultivate Education program are crew members. “We’ve seen a retention rate that is 3.5 times higher among employees enrolled in the program, and crew members participating are 7.5 times more likely to move into a management role within the organization,” said Brian Niccol, Chipotle chief executive, when discussing education assistance benefits during a Q3 2020 earnings call with analysts.

Tackling diversity and inclusion Over the years, the restaurant industry has certainly been a launching pad for people of all races and origins to make a living and pursue their dreams. Heightened awareness of minority underrepresentation in restaurant C-suite ranks, boards and management teams has led to a call for change. Restaurants have responded by allocating increased funds to diversity & inclusion initiatives and beefing up departments that support such work. Starbucks, for example, included diversity goals tied to executive compensation last fall and set up a goal of having 30% Black, Indigenous and People of Color inclusion in its corporate ranks and 40% at its retail outlets. In August, Bloomin’ Brands promoted Sheila Henry to group vice president, Diversity & Inclusion, reinforcing equity initiatives across the restaurant company’s brands. And earlier this year, Wendy’s hired Beverly StallingsRESTAURANT C-SUITE | Restaurant news that’s fresh, informed, inspired (by you) 16

Johnson as chief diversity officer. Her role began in March, and she will help provide momentum to Wendy’s diversity goals within the employee, franchisee and supplier stakeholder communities.

Evolving perspectives A Johnson & Wales University (JWU) virtual symposium gathered some great minds in the culinary world in March. The perspectives of several chef alumni pointed to a brave new world in which labor shortages would be a reality and culinary graduates would have greater opportunity to pinpoint their careers and not burn out. Champe Speidel, chef/proprietor of Persimmon restaurant and James Beard Award Semi-Finalist for six years in a row, said that he’s come to the realization that restaurants need to pay people what they are worth and that they can’t work chefs and cooks 16 hours per day. As a recommendation to JWU students, Chef Aarón Sánchez, chef, TV personality and James Beard Award winner, said, “You can go into so many different areas. Don’t feel the pressure of being a restaurant chef. You can do so many things.” The pandemic has recast priorities and perspectives, and it’s possible that foodservice leaders and restaurant operators will also change business practices to invite and encourage new candidates to thrive inside their restaurants. With greater attention to quality of life and a renewed respect for employees, restaurant operators are embarking on their most aggressive push to hire back and build back their industry. Their enhanced focus on pay and benefits, creative recruitment, employee development through tuition reimbursement, and of course, expanded worker safety form a blueprint for how they’ll both attract and retain workers for the recovery.

LABOR

RESTAURANT COMPANIES TACKLE THE SHORTAGE • During a Q1 2021 earnings call, Fiesta Restaurant Group, parent of Taco Cabana and Pollo Tropical, reported reduced hours at some locations due to labor shortage. Fiesta temporarily increased hourly wages for workers $1 across the board.

• Wendy’s expects labor costs to be inflationary this year as it manages its margins during a period of labor shortage—an announcement made during its Q1 2021 earnings call.

• Independent restaurants are paying hiring bonuses to employees as the labor shortage intersects with the busy spring and summer seasons. In Miami, some staff are being lured with bonuses of up to $2,000, reports the New York Times.

• McDonald’s plans on hiring 3,000 restaurant workers in Alabama, with 1,500 of those coming from the Greater Birmingham area.

• KFC and franchise partners announced they would hire 20,000 workers. Yum’s KFC has touted career growth for team members and the help that its foundation provides associates in the areas of education, hardship assistance and personal finance programs.

• Chipotle Mexican Grill indicated it would raise wages to an average of $15 per hour for team members during the spring, after rolling out tuition-free online degree programs. Team members will have a clear path to “Restaurateur,” the top restaurant management position in stores, in 3.5 years. This position pays about $100,000 per year. Photo by Simon Karemann.

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OFF-PREMISES

TREND

ALL SEGMENTS ARE INTO ALCOHOL-TO-GO To-go alcoholic beverages may be a trend that’s here to stay, notes the National Restaurant Association in its State of the Restaurant Industry report. According to its research, 35% of off-premises customers over the age of 21 say they would be more likely to order food from a restaurant if adult beverages can be included.

68%

72%

73%

% of operators* who say their restaurant started offering alcoholic beverages for takeout or delivery since the beginning of the outbreak in March

53%

52% 44%

Family dining

Casual dining

Fine dining

Quickservice

Fast casual

Coffee & snack Source: National Restaurant Association, Restaurant Trends Survey, December 2020. *Base: Restaurants that currently serve alcoholic beverages

Photo by Louis Hansel.

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TRENDS

TO WATCH

RTD COCKTAILS AND SCREW-CAP WINES

REAL WINE

RTD (Ready-to-Drink) cocktails and portable wines are top beverage trends already, and continuing to gain popularity, according to trend-tracking firm WGSN. Grand View Research, a syndicator of market research and producer of customized business intelligence, notes that the market size of RTD cocktails will total $1.63B by the year 2027, growing at a CAGR of 12.1%. Their practical format enhances their popularity,

says Kara Nielsen, Director of Food & Drink at WGSN. New York City’s Picnic Brunch, which offers Bloody Marys and mimosas, is now creating outdoor-friendly versions that are perfect for the season. Two producers to keep an eye on are California wine brand Line 39, which has put out its first varietal-based Line 39 wine Spritzers packaged in screw-cap bottles, and Hungarian winery Font Pincészet, which has released its sparkling wines in cans.

Photo by Line 39 Wines.

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TRENDS

TO WATCH

RANCH WATER MAKING A SPLASH AS SUMMER APPROACHES Ranch Water is a trend that bars, restaurants and grocers should be watching, according to trendtracking firm WGSN. The traditional drink and refreshing cocktail of tequila, lime juice and Topo Chico is being emulated, and sometimes reinvented as the hard seltzer category evolves. In the ready-to-drink category, convenience is at the forefront, and beverage producers are diving into creativity. Low sugar, low calories and low carbs make Ranch Water ideal as consumers seek lower-than-tequila ABVs with the same sour and zesty profile, notes WGSN. Especially for spring and summer, consumers will enjoy these drinks’ graband-go appeal.

Photo by Ranch Rider Spirits Co.

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Here are notable examples: • Ranch Rider stays true to form with reposado tequila from Jalisco, Mexico, and real lime juice. • Lone River Ranch Water replaces tequila with organic agave nectar and combines it with real lime juice. • WGSN also identified Ranch Water Hard Seltzer from Karbach and Ranch Water Hard Seltzer Classic Lime as examples of the trend.

ON THE MENU

PLANT-BASED PROTEIN

DESCRIPTORS AND OPTIONS MATTER In choosing how to menu protein substitutes, descriptors matter. Consumers pay attention to the words that are used. They are also looking for choices, notes consultancy Technomic, Inc. The Chicago-based consulting firm suggests restaurant operators choose a variety of protein substitutes for customers, from meat alternatives to “vegetable-forward dishes” to appeal to consumers across age groups. Vegetable descriptors are preferred, especially by older consumers.

Preferred Protein Substitutes Which of the following descriptors for vegan and vegetarian options/substitutes in a dish would you be most likely to order at least occasionally? 45% Vegetable-based

37% 48%

18-34 35+

40% Plant-based

Overall

50% 35% 31%

Meatless

23% 35% 20% 23%

Meat-free

19% Imitation meat

16% 20% 13%

Base: 1,032 consumers who ever eat vegetarian or vegan dishes Source: Technomic Ignite consumer data and the Technomic 2021 Center of the Plate: Seafood & Vegetarian Consumer Trend Report

Photo by Impossible Foods.

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The boba trend By Rick Zambrano

Popular drink style poised to become an even larger influence Exciting and differentiated beverages at quick-serve restaurants are set to explode as restaurants reopen and consumers seek out new taste experiences. Few beverages are poised to benefit from this trend as much as boba. Its popularity can be traced back to a tea shop called Chun Shui Tang in Taichung, Taiwan. From there, boba made a mercurial rise, from East to West. RESTAURANT C-SUITE | Restaurant news that’s fresh, informed, inspired (by you) 22

Bubble tea, a $2B market, is a reflection of boba’s widespread appeal. Tasty, sugary, squishy bubbles float in this traditional drink. When prepared with tea, milk and tapiocainfluenced boba balls, bubble tea is not only an explosion of flavor, but also a visual experience. One can see the different elements of the drink, a “deconstructed” food experience consumers are after. After months of pandemic lockdown and social distance, many consumers have been constructing and deconstructing their own food and drinks at home, and are eager to continue the trend when dining out. Del Taco has demonstrated repeated creativity and initiative in the boba trend. Last summer, the Sprite Popper manifested an opportunistic take on the bubble tea trend. Instead of tea, the drink base was a soda, and cherry-flavored boba replaced traditional boba. This year, Del Taco has offered the Lemonade Popper for a limited time. Building on the concept of the Sprite Popper, it combines Minute Maid ZeroSugar Lemonade and round bursts of blueberry or peach flavored popping pearls, served over ice. Drawing on the creaminess of traditional bubble tea with milk, the Del Taco Mini Shake Popper, also introduced this spring, combines the QSR’s premium vanilla shake with bursts of blueberry or peach popping pearls. The exciting influence of boba on American quick-serve eateries isn’t a given for the near-term. Shortages in the United States of tapioca due to a lack of labor may upend the supply well into the middle of summer, according to NPR. But boba is here to stay, according to the Culinary Edge, powered by the influence of Asian-American culture, pop culture and Instagram. The original bubble tea is a multibillion dollar market already. With the innovation of suppliers and large restaurant chains, boba will take new forms and provide momentum for drinks in both the indulgent and health-centric categories. Restaurant chains will benefit by including boba in their drink innovation during the pandemic recovery and beyond.

Photo by Orimi Photograph.

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COVID’s continuing impact By Eric Nomis

The permanent impact of COVID on restaurant operations With restaurants facing losses in sales of over $255B, the Restaurant Revitalization Fund program has come at an opportune time. The RRF grants are providing $28.6B in relief to eligible bars, restaurants and related foodservice businesses, and signal a long-awaited turning point for the restaurant industry. As restaurants enter the recovery phase, signs abound of the gradual resumption of business-as-usual; however, there are also indications throughout the industry that some aspects of restaurant operations have changed permanently. RESTAURANT C-SUITE | Restaurant news that’s fresh, informed, inspired (by you) 24

With so many delivery and online-ordering channels, managing tickets is a challenge for many eateries, including fast-rising South Block Juice. Photo by Eatery Pulse Media.

Delivery brings operational challenges Restaurant delivery had already taken hold pre-pandemic, as more consumers adopted technology and the convenience of food delivered at home. Complexities have arisen as restaurant workers have judggled order fulfillment from several different channels and third-party providers at one time. Managing the queue--balancing tickets from both off-premises and on-premises orders--can be a challenge. While delivery has proven to be a salespreserving “pivot” as potential diners stayed away from restaurants during 2020 and the initial recovery that began in 2021, it’s also fraught with challenges. For one, it is not fully tethered to profitable business models: thirdparty restaurant delivery companies haven’t proven to be fully profitable. Even marketplace iterations (that help restaurants self-deliver) are losing money. Grubhub, for example, lost $52.5M on revenue of $550.6M in the quarter that ended March 31, 2021 (Q1).

The third-party delivery model can also be prohibitively pricey for restaurant operators, with commissions paid to third-party fulfillment companies sometimes exceeding 30%. Many restaurants are not at break-even currently, and fulfilling orders—some of which are not incremental to existing channels—can be unprofitable. DoorDash recently changed its commission structure, reducing delivery commissions to as low as 15%, and pickup order commissions to 6%. Notwithstanding the pizza and Asian-style eateries that have been delivering hot food for decades, self-delivery of food to consumers within minutes of their order or requested delivery time--while their food is still hot-can be an elusive task for restaurants. Many restaurant operators find delivering an unprofitable venture, as did Panera Bread, when it quietly discontinued self-delivery, according to Restaurant Business Online.

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Is delivery here to stay? Restaurant chains sought to capitalize on consumers’ desire for convenience in the recent past, but the COVID-19 pandemic brought a new sense of urgency for convenience. Consumers all across the country demanded quick trips and no contact with other diners. This accelerated adoption not only of digital ordering (via mobile devices or online), but also of on-demand pickup or delivery of food. Delivery constituted 43% of all off-premises sales in the latest quarter. Gross domestic product (GPD) increased 6.4 percent during the first quarter of 2021. In addition, 379,000 jobs were added in February, 916,000 in March and 266,000 in April, according to the Bureau of Labor Statistics. The recovery is underway, albeit tempered. More employment plus economic stimulus payments equals more discretionary income, and restaurants will be among the benefactors. Although consumers may well return excitedly to on-premises dining, many during the past year-plus have also become more skilled at and accustomed to ordering for delivery. The largest restaurant chains are quite bullish on off-premises sales continuing at a mix similar to what has been trending during COVID, and are framing on-premises dining as a layer of sales on top of that. The Cheesecake Factory is one such chain. On a recent earnings call to discuss Q4 2020 financial results with analysts, David Overton, The Cheesecake Factory chairman and CEO commented, “We also see that for example, the average delivery guest’s order rate in the quarter is twice what our historical average onpremise guests was coming in for. And so, the stickiness there is also clear. I mean, two times the level is pretty strong. So, I think that we are seeing data points again, I am not saying that we keep all of it. But there’s definitely a stickiness to a good percentage of it.”

Space allocations Some restaurant companies have set their sights on smaller-footprint stores, projecting RESTAURANT C-SUITE | Restaurant news that’s fresh, informed, inspired (by you) 26

that the historical consumer gravitation toward off-premise dining will continue. Fast casual restaurants have been advocates of this movement. In New York, Chipotle Mexican Grill is working on a smaller, digitalonly store that is built on order-ahead and pick-up. In Washington, DC, Chinese-Korean fusion chain Chiko installed a pick-up window in a restaurant built in DC’s Dupont Circle neighborhood. But some industry observers note that COVID has generated the opposite outcome for some operators. Amir Mostafavi, chief executive of South Block Juice notes that due to COVID, stores like his Old Town, Alexandria, Va. location, which was built for the true sipand-linger experience of a coffee house, will be well-suited to the future of the consumer on-premises experience. “More space will be better,” he says. Thus, the days of the chic, trendy, elbowto-elbow crowded new restaurant in the neighborhood may be numbered. In the same way that restaurants with outdoor dining space—patios, terraces and decks—have been at a premium during the pandemic, larger restaurants, bars and eateries with a more expansive design may see more customers, as they emerge to dine on-premises.

Sanitization Restaurants that have focused on cleanliness and sanitization during the pandemic have engendered the goodwill of customers, forming a symbiotic relationship. Customers have been looking to patronize restaurants that focus on keeping customers safe. Data from research firms Datassential, Black Box and consultancy Technomic all identify safety as something that will add to the value proposition of restaurants. Proper food handling, employee cleanliness and environmental sanitization have been hallmarks of the business during COVID. Now, these same attributes will help restaurant operators build up their businesses and elevate their brands in a post-pandemic world.

As off-premises meal consumption grows, Saladworks is expanding into non-traditional locations, including Walmart stores and the dark kitchens of independent restaurants. Photo by Saladworks.

Expansion models With so much at stake, large restaurant chains are looking beyond the traditional franchise to grow their businesses. The ghost kitchen model has surfaced as a platform to accelerate restaurant chain expansion. For Saladworks, this was an easy answer: last May, it partnered with REEF Kitchens to use turnkey, digital, mobile hubs, expanding its presence in key markets: Miami, Atlanta, Houston, Austin, Dallas, Chicago, New York, Nashville, San Francisco, and Los Angeles. By tapping into REEF Technology, Saladworks can expand capacity at a “fraction of the cost,” said Kelly Roddy, the chain’s then chief executive. Over the following year, the fastcasual chain partnered with Ghost Kitchen Brands and franchise development firm Combo Kitchen. The Ghost Kitchen Brands Agreement will put Saladworks locations in Walmart and expand its non-traditional locations. The deal helped it enter South Carolina, Iowa, Idaho, Kansas, Louisiana, Missouri, Oklahoma, Oregon, and Washington. In Canada, Saladworks will debut in Ontario, Quebec, and Alberta.

Through a new agreement, Saladworks will expand through a virtual model that franchises the brand with independent restaurants. Combo Kitchen allows franchisees to use underutilized kitchen capacity to serve food from well-known brands, as in the case with Saladworks and Frutta Bowls. Franchisees can maintain or reduce expenses while adding revenue from these concepts by utilizing their dark kitchen space. Steamed-dumpling chain Wow Bao adopted a similar franchise model last year. It now serves its product in 24 states and Washington, DC, helping independent restaurants increase revenue at a time when they might see reduced demand for their own menu items. By the end of 2021, Wow Bao plans to have 1,000 of these dark-kitchen powered locations operational. COVID has impacted the US restaurant industry in numerous ways, both temporary and permanent. As they move forward during the recovery, restaurant executives, operators and analysts will need to reevaluate and reassess frequently.

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