3 Challenges Facing Casual Dining - And How to Solve Them!

As consumer preferences shift, and a new generation rises to maturity, casual dining faces several challenges.  Whether it’s the rise of fast-casual options, guests who choose to stay home and order in, or a disconnect between a brand and how it’s viewed by the public, all is not lost.

In this free 30-minute webinar, you will hear an overview of three of the challenges facing casual dining and tips on how restaurants are tackling these issues head on.

Here are a few of the insights you'll take away from this presentation:

  • An overview of three challenges affecting casual dining today
  • The ways some in the industry are adapting to keep up
  • What all restaurants from QSR to fine dining should know about how these same challenges can influence them as well

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Read the Webinar Transcript

To today's webinar, three challenges facing casual dining and how to solve them.

Paytronix serves more than 350 brands in the restaurant space, and that number is growing all the time. We provide tools and services for restaurants and convenience stores to engage with their guests through loyalty programs, gift card distribution and redemption, mobile application development, messaging services, data analytics, and online ordering and delivery. 

We’re going to talk about three of the challenges that casual dining is facing today, and the way some of the industry is adapting to catch up. And then what all restaurants from QSR to fine dining should know about how these same challenges can influence them, as well.

There was an article out in QSR Magazine earlier this month around some ways to be prepared for a potential restaurant recession. There have been experts saying that one is on its way. Whether it comes in 2020 or 2021, and it's definitely something on the minds of people within the industry and something to be thinking about how to prepare your brand and really weather the storm. And many casual dining brands have already felt some pain, especially those located in shopping malls or shopping plazas, where a lot of empty storefronts are reducing foot traffic.

In some ways, this article proposes that a recession could help some of the challenges faced, such as a tight labor pool, as well as rising rents and real estate costs.

And in this article, the hypothesis is that people won't stop eating out completely, but rather they may adapt their behaviors.

And this is not the challenges that casual dining would face in this situation. It’s that some customers may “trade down,” or rather move to what they view as more affordable options. So, casual banking customers may trade down to fast casual. And fast casual may trade down to a QSR. And you might also start to see a change in behavior as far as delivery. Right now, customers are willing to pay for convenience. Delivery fees range to as high as $10. And you might start to see this shift as we start to go into a recession where people may still place the order, but start thinking, “You know what, I'm going to go pick that up myself, rather than pay $8 in delivery fees.”

While all this is going on, you also want to appeal to Millennials and Gen Z. Millennials are currently the biggest spenders, so drawing them in is critical. With Gen Z, a high proportion of their disposable income they spend on food. And so there's a real opportunity by targeting the key demographics and bringing them into your restaurants, and it will provide benefits for you later.

Thinking about these three challenges that casual dining is facing: One is a rise of automation that is touching a lot of restaurants in the industry and creating an expectation of seamless, frictionless service that doesn't necessarily translate into full-service restaurants quite as easily as it does fast casual and QSRs.

Also, appealing to Gen Z, again, like we mentioned, what is this generation looking for, and how can brands appeal to them? As well as changing consumer preferences as far as order and delivery.

Diners are really moving off premise, and how can casual dining brands navigate those waters as well.

So, looking at the first challenge we're going to talk about automation. We do a lot of webinars here in our webinar series that talk about ways to reduce friction. And a lot of those ways are automation, especially in QSRs and fast casual restaurants. But there are some things that casual dining brands can do as well. 

We've seen some brands shifts to placing tablets on tables, so guests can order without waiting for a server. Guests place their order whenever they're ready. So that's one way we've seen some restaurants embrace this.

And while the rise of automation is one thing that is appealing to many people, it might not be what everyone wants. We're starting to see a little bit of pushback from the rise of automation and what people are interested in, as well.

Throughout 2019, we really saw human interaction take a quick decline. People are always plugged into their headphones. In a lot of restaurants, people are ordering by kiosk and not even interacting with staff. So mobile ordering has been a huge rise over the past year and whether people stay at home and have food delivered or order ahead for pickup. And many restaurants now have shelves, where you can come in, grab the bag with your number or your name, and head out, even without speaking to a person. And while this was a huge leap forward for many people, for others it starts to make them feel isolated. And you almost start to crave that human interaction where you thought maybe life is easier, but I kind of miss talking to a person. And so we're starting to see a growing segment of the population that chooses to pay what we're referring to as a “people premium” for human interaction.

Engine Insights asked people whether they would pay for this type of experience, and 64% said that they would pay something for the privilege of interacting with a human in at least 1 of 8 dining categories. And even in Fast Food, 21% said that they would pay more to work with a human over a kiosk.

In fact, such assistance is worth adding 9% to the check. What was even more promising is that people aged 18 to 36, Gen Z and millennials are most open to paying, especially when it comes to places like a fine dining or sit-down restaurant.

So, while in some ways automation is a challenge, the growing push back to a fully automated world could also provide opportunity for those people that are really starting to miss human to human interaction.

And one way to balance the two worlds is to automate what could be a major pain point, while preserving human interaction and other aspects. After all, when people come to a full service restaurant they are expecting an element of human interaction, but there could still be parts of the experience that might frustrate them. So, one option is introducing ‘K’ by mobile. The waiting period between when a customer is done eating and when they leave a restaurant can average up to 12 minutes.

And sometimes that period can feel like a really long time. Maybe you have kids with you and they're starting to get antsy, and you're really just ready to head out. With mobile payment options, guests can look at their bill through the mobile app and pay as soon as they're ready. By eliminating that waiting period, the guest can have better experiences. The restaurant can turn the table over more quickly during peak times, and we also find that servers receive higher tips as well.

So this can be an option that does provide an element of automation. It does make the experience a little bit more frictionless, removes a pain point, but it's something that full service restaurants can do and still provide a human to human interaction for the rest of the experience.

And thinking about Gen Z. What does Gen Z want? Each year, they're spending power continues to grow as they move from adolescence into adulthood. But what they're primarily spending money on at this point is food and social experiences with friends. So, in the scenario where perhaps a recession is on the horizon, they don't have as many financial responsibilities as the older generations. They most likely are still going to go out with their friends, are probably still going to spend the majority of their money on food. So there is an opportunity to really target that group of customers and make sure that they are loyal guests in your database now.

There are 5 things that we know about Gen Z, and the first one is that density is entirely made up of digital natives. They have never known a time when the Internet and their lines have largely included smartphone technology.

They're used to being very interactive with their phones, with social media, and they expect brands to have apps that can really do it all. And so, if you do offer online ordering they want to be able to do that right within the app without having to open a web browser and navigate to somewhere else.

So they just really expect super seamless integrations compared to previous generations. They also have a shorter attention span, so they tend to communicate more through images and video versus text.

And they're also focused on their individuality, and they want to be marketed to on a 1 to 1 basis because they really understand what technology can do.

They understand the concept of AI much more intricately than older generations, so they expect personalize and insightful messages and offers, and they view technology as a really natural, standard tools, and consider their smartphones to really be an extension of them.

The second thing is that they're super brand conscious.

They're plugged in and they know what is going on with brands, as well as their perceived stance on any political and social issues. Gen Z really cares about people, and they will react with pretty strongly to any negative impressions they have about how your staff is treated or how they feel about their jobs. Especially since your employees are often the first line of communication with their customers. It's important that they're well informed and happy within the company. Because a little employee displeasure can actually go a lot further than you might think.

They also expect businesses to have as high of standards as they do when it comes to ethically sourcing food. Being eco friendly, and treating their workers and customers ethically and with respect.

When we look at some of Gen Z’s top 25 brands, this is a study by Morning Consult. These are the top 25 brands for Gen Z consumers. And you can see some of their youth reflected in the presence of a lot of gaming platforms and entertainment brands, and you can also see a restaurant that do get into the top five, are ones that are affordable for teens with an allowance or a part-time job. And you do see that IHop sneaks in there down at number 25, as well. But a lot of their favorite brands are also snacks that you would pick up at a grocery store or convenience store like Oreos, Doritos, Sprite, and Skittles also all making an appearance. So it's interesting to see what brands are resonating with this audience and kind of what you can do to target this group as well.

Gen Z is also really value conscious. And members of Gen Z are three times more likely than millennials to have taken a financial education class. So they're very value conscious and understand the value of their money. And so they're driven by discounts and are willing to adapt their purchases if a discount is offered for an alternate option. And 93% of respondents said that they're more likely to dine at a restaurant that offer student discounts. And 91% of Gen Z members would be willing to eat at off peak times for a discount.

So in the past, you know, early bird specials have often been used to appeal to older audiences. But off peak promotions targeted at students could also be an effective way to reach this group.

They're also health conscious. 47% of Gen Z weighs health benefits when making food purchase decisions. And they feel that this is extremely important when choosing food. And not only is this what they want, but it's also something they're willing to pay for. 41% are willing to pay more for food that is healthy.

So, this is something that can also help you appeal to Gen Z. They really want those healthy options. And they're willing to not only dine out for that, but pay a little bit more for it as well.

They're also big fans of convenience. It's driving their food orders. Not only just ordering food when they don't have the time or energy to cook, but also they’re big fans of grab and go options. They just want everything to be quick and easy, so again, that they don't have to meet. They are really a generation that's not used to waiting for very much, everything is on demand for them, whether it's videos that they watch or rides that they share. So for food, as well, anything that causes them to wait is something that isn’t welcome. So whether it's reducing pickup times for to-go orders or the time spent waiting for a check. Anything that makes that process more frictionless is going to be something that appeals to them, as well.

And one thing we are seeing some brands do actually spin off their self-service brands into kind of a fast casual spinoff. We know fast casual brands are booming chains, like to portray and sweet green, continue to appeal to customers. But brands like Applebee's, I have outback and Cheesecake Factory have all either open fast, casual spinoffs or are planning to do something in the near future. And so in some instances, the spinoffs can be used to break into new markets, are just to increase delivery capabilities. And some are kind of express versions of their main concept, while others are trying to do something a little bit different and kind of appeal to new markets as well.


And another thing that we're seeing is embracing the on-premise experience as well. So, we're seeing some other casual dining brands focusing in on their bar area as an opportunity to bring in traffic, and that might be something that they either have either forgotten about, or not getting the attention recently that it deserves. So, going out to socialize with friends is always going to be something that will get people out of the house. So, if your brand does have a bar area, it could be an opportunity to introduce new specials that will draw people in to hang out and spend their money with your brand as well.


Along that line of bars -- but not available in all states or cities based on local legislation -- is offering beer and wine for delivery with a meal can be an attractive way to boost your order tickets.

Brands like Pizza Hut and Buffalo Wild Wings have tested beer delivery, and some others have tested wine to customers to offer a one-stop shop for that entire meal from the comfort of their own home. And so, if you don't do that, that same customer might order from a delivery service, specifically for alcohol delivery. And so kind of trying to bring that in under your umbrella can boost your ticket to target size, rather than that sale going to someone else. So, people had first tested alcohol delivery in 2017, and the success of that pilot led to an announcement last year that they're going to continue expanding the service to more locations.

And that's something that is likely to become more common, especially as some of the state legislations catch up to what customers are interested in, and kind of figuring out how to regulate best. But, you know, it's important that if this is something you're interested in, that employees are trained on ID verification and proper handling of the product as well. According to Nielsen Data, the average ‘Happy Hour’ check in the United States is about $69, which is about $8 more than the average check.

So as alcohol delivery sales do pick up across the industry, it's really a no-brainer that people wouldn't want to include this as a major part of their business as well.

So again, if you are thinking about introducing that, you really have to check with any local legislation. In some states where this is permitted, they require delivery drivers to be W2 employees rather than independent contractors. So you want to make sure that you have the right drivers in place for that, as well as the procedures, to check identification, and make sure that you're completely compliant with any permits or restrictions that you would need to know about as well.

Again, how can you tackle these things head on? So one way is to take a look at your loyalty program, and make sure that you have the right strategy in place to reach your goals. More than ever, it will be important to provide guests with rewards that they find valuable and to encourage behavior with promotions that are going to result in a positive ROI. So by focusing on your program now, you can kind of defend against people who might be tempted to trade down, because you'll know when these customers are in danger of becoming lapsed guests and then you can send them really targeted offers to draw them back in as well.

So whether you're thinking about creating a loyalty program from scratch, if you don't already have one, or thinking about the program you do already have, there are three tips that you would want to consider. And these are just three of our best practices, but the first one is to have a core program value between 4% to 5%.

And that could be possibly the most important element of your program because this is the value of your program for members relative to the amount that they have to spend in order to earn their reward.

You don't want to feel like you're giving too much away, but it still has to be enough that your guests see the value in your program.

So, let's say for every $100 of in-store spending your reward should be worth roughly $4 to $5 in retail value. And if your program gets back less than that, your rewards may not seem worth the effort. But if you give back more that could be too much.

The next question to ask is whether your program is designed for your silver customers.

Even if you don't necessarily think about your program with these labels, and if you were to sort your customers by how often they visit and how much they spend, you could create different tiers for segmentation.

And your top 4% to 5% of customers are likely your Platinum members, and they probably account for 20 to 30% of spending. The next 5% to 10% are your Gold members. And then the next 40% after that are your silver members. So these are people who maybe visit once or twice a month, and they're your loyalty program sweet spot because they've indicated some preference for your brand. But you might need just one of several in their consideration set. So having a well designed loyalty program can act as a tiebreaker to drive them to your locations over your competition.

The more you learn about the silver customers, the more insights you'll have regarding your program's ability to cater to them. So if your program isn't built for your silver customers, it might be time for a change.

And, finally, you want to consider your customer behavior. Are you encouraging good behavior and discouraging bad behavior?

Definitions of good and bad behavior will vary for each concept, but good behavior typically involves visiting more often and buying more on each visit. Your program should reward this, and your best customer should be rewarded for the best.

You definitely don't want to reward bad behavior. So that might be if people would get rewarded by splitting their bill to every individual person and getting credit for four visits instead of one visit. That's the kind of behavior that wouldn't be considered good behavior. And so you don't want to incentivize your guests to do that.

To summarize everything, if a restaurant recession is looming taking action now to address any of those soft spots can help you get through it. You want to focus in on Gen Z because they're not accustomed to waiting for service and they want those experiences to be easy. So anything that you can do to make your on-premise experience that much better for them, they're going to appreciate. And since they do appreciate that element of human interaction, kind of balancing how much you automate versus how much is human to human is going to be an important line to straddle.

Some brands are spinning up new concepts to appeal to different customer segments, but in the end just knowing who your guests are and if they start to change their visit cadence can help you know when is the right time to send an offer as well.

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