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The relationship between customers and the restaurant industry has long been in flux, even before Covid-19 hit, so any analysis and future recommendations for the sector cannot be solely a response to the Covid-19 crisis. With that in mind, in this first instalment of our four-part restaurant sector analysis, we will set the stage of how digitalisation has been shifting the industry as a whole and separating those with long-term success from one-off winners.
The advent of digitalisation had a significant impact on consumer behaviour in the past decade. Previously, customers kept coming back to the same restaurants they grew used to expecting familiarity in a world where culture was shaped slowly with radio and television as the main methods of influence along with word of mouth. Nowadays, however, the driving force for customers is their digital environment which helps shape their tastes in real time. Young consumers, particularly millennials and centennials, are especially digitally savvy. They are in search of differentiation, innovation, and customisation[1].
Considering the shift in customer expectations, the foodservice industry had no choice but to embrace the trends of digital transformation. Those who were unable to shift their mindset to keep up with these trends -along with other reasons- failed to reinvigorate themselves and struggled greatly both financially and commercially. Over the last few years, we’ve seen formerly popular restaurants such as Jamie’s, Wagamama or Byron Burgers flounder and eventually crumble, which we will get into detail in the following instalment.
Here are the four key trends that have been prominent in the industry:
(1) They might not notice you on the street but they’ll see you on the screen.
Increased digital presence became a must-have to reach customers. Not only do restaurants use their websites to entice potential customers, but they also benefit from active engagement in social media. Businesses leverage their online communities on Facebook or Instagram pages as they create a sense of belongingness[3]. In addition to these channels, platforms that facilitate leaving reviews and recommendations such as Yelp have increased customer-business engagement. When there are direct and immediate responses to feedback, customers report higher levels of satisfaction with the services they received[4]. Evidence also shows that electronic word-of-mouth of customers and the volume of their reviews can significantly increase the online popularity of a restaurant[5].
(2) Allow your customers to have the best experience at their homes.
Even before the outbreak of COVID-19, customer behaviour was shifting towards eating in the comfort of our homes. That is why home delivery and take-out options became much more popular among customers. Fast food restaurants spearheaded this practice by creating their own home delivery networks, but it became possible for other restaurants by collaborating with delivery service platforms such as UberEats, Deliveroo and JustEat without going through the hassle of setting up a delivery unit. When the food provided by the restaurant is of high quality and the delivery service itself has a high e-service quality (i.e well-designed), customers tend to repurchase and recommend the food in the future.[6]
(3) Let them split the bill and value their loyalty.
Furthermore, consumers are looking for alternatives when it comes to paying their bills. They especially prefer paying by phone with drive-through and take-out services[7]. Even in restaurants, flexible payment options are replacing payment by cash or cards. Some services such as Venmo enable splitting the check. Additionally, by setting up profiles on mobile applications of restaurants, customers are listed in the database allowing restaurants to offer tracking of loyalty points for frequent consumers. These points reinforce customers to revisit and recommend their service.
(4) Virtual assistants are customers’ best friends.
Lastly, many quick-serve restaurants began to introduce mobile applications and self-service ordering kiosks to allow customers to control their own ordering experience in-store. These virtual assistants not only decrease wait times but also reduce the error rate at the counter and provide customers with the opportunity of customising their meals in accordance with their wishes. They also paved the way for measuring their customer satisfaction level on the virtual ordering system. This way, at the end of a meal, these services often provide a short survey about the service and receive immediate feedback.
Given the benefits of these digitalisation trends, most businesses strive to prioritise them: According to a 2019 survey conducted among restaurant CFOs, 65% of respondents say they are planning on increasing investments in technology significantly or slightly[2].
To sum up, positive customer perception of innovations leads to more loyalty and satisfaction[8] as consumers believe that restaurants that adopt digitalisation increase the level of convenience. These trends have been strengthened even more under the new reality of Covid-19; therefore, it is not a matter of choice but of necessity to survive that the foodservice industry owners should adopt digitalisation fast.
In our second instalment of the restaurant sector analysis, we will cover several success stories and failed examples of digitalisation in the foodservice industry. In doing so, we aim to better illustrate the positive impacts of these trends. Subscribe to our newsletter or follow us on LinkedIn or Twitter if you’d like to be notified.
By Navivest Research and Analysis Team
References:
[1] KPMG. (2016). An appetite for change. https://advisory.kpmg.us/articles/2017/an-appetite-for-change.html
[2] BDO restaurants CFO outlook survey. (2020, January). BDO. https://www.bdo.com/insights/industries/restaurants/bdo-cfo-restaurant-outlook-survey
[3] Gruss, R., Kim, E., & Abrahams, A. (2019). Engaging restaurant customers on Facebook: The power of Belongingness appeals on social media. Journal of Hospitality & Tourism Research, 44(2), 201-228. https://doi.org/10.1177/1096348019892071
[4] Leung, D., Law, R., Van Hoof, H., & Buhalis, D. (2013). Social media in tourism and hospitality: A literature review. Journal of Travel & Tourism Marketing, 30(1-2), 3-22. https://doi.org/10.1080/10548408.2013.750919
[5] Zhang, Z., Ye, Q., Law, R., & Li, Y. (2010). The impact of E-word-of-mouth on the online popularity of restaurants: A comparison of consumer reviews and editor reviews. International Journal of Hospitality Management, 29(4), 694-700. https://doi.org/10.1016/j.ijhm.2010.02.002
[6] Suhartanto, D., Helmi Ali, M., Tan, K. H., Sjahroeddin, F., & Kusdibyo, L. (2018). Loyalty toward online food delivery service: The role of E-Service quality and food quality. Journal of Foodservice Business Research, 22(1), 81-97. https://doi.org/10.1080/15378020.2018.1546076
[7] Restaurant of the future: Technology, strategy, CX. (2020, April 24). Deloitte United States. https://www2.deloitte.com/us/en/pages/consumer-business/articles/restaurant-future-survey-technology-customer-experience.html
[8] Kim, E., Tang, L. (., & Bosselman, R. (2019). Customer perceptions of Innovativeness: An accelerator for value Co-creation. Journal of Hospitality & Tourism Research, 43(6), 807-838. https://doi.org/10.1177/1096348019836273