Despite the weak economy in the first quarter of 2015, the restaurant industry has been able to sustain the positive momentum from the latter half of 2014. This is raising hopes that even better times are ahead for group. Overall, restaurateurs have been able to bring their best to the table, right from customizing their offerings to suit consumer preference to using technology to save customers time.
Given the scenario, there are plenty of reasons to be optimistic about the broader restaurant industry over both the short and long term, despite certain challenges. Below we have highlighted some of the positives for the restaurant industry going forward:
Improving Comps and Traffic Trends: With improving consumer sentiment, a number of restaurant companies like Darden Restaurants (NYSE:DRI) and Domino`s Pizza Group Plc (NYSE:DPZ)are witnessing improved comps and traffic trends since the second half of 2014. Sales initiatives coupled with economic recovery have aided improvement in these metrics.
Improving U.S. Economic Growth: An improving economy and employment picture and growing consumer confidence have led to a slow but steady recovery since the second half of 2014. Even though the U.S. economy faltered a bit in the first quarter of the year, it was mostly due to a stronger dollar and a harsh winter. It is generally believed that the U.S. economy should sustain the growth momentum seen since the second half of 2014 and do even better in 2015.
There are several reasons to support this optimistic outlook. Lower energy costs, rising consumer confidence, encouraging economic conditions, improving employment trends and further easing of credit conditions indicate faster economic growth in 2015.
Sales Initiatives: Restaurants strive to improve sales by targeting higher footfall and focusing on delivering something unique. Having stabilized their financial positions, operators are constantly striving to add new offerings to their menu in order to cater to the ever-changing palates of customers while making food presentation better. Fiesta Restaurant Group Inc (NASDAQ:FRGI), The Wendy`s Co (NASDAQ:WEN), Ruby Tuesday Inc (NYSE:RT), Noodles & C (NASDAQ:NDLS) and Jack In The Box Inc (NASDAQ:JACK) are focusing on this strategy.
Food chains are responding in different ways to address heightened competition in a somewhat over-supplied domestic market. One of the initiatives taken by the food chains is re-imaging of stores, which has received an overwhelming response from guests. Wendy's Company, Domino's Pizza, and Bob Evans Farms Inc (NASDAQ:BOBE) have been working along these lines.
Restaurateurs like Brinker International Inc (NYSE:EAT), Red Robin Gourmet Burgers Inc and Panera Bread (NASDAQ:PNRA) are offering loyalty programs at their units to enhance value dining. This is a ploy to encourage sales at a time when customers are spending moderately on dining and need added incentives.
Some industry players like Brinker International, BJs Restaurants Inc (NASDAQ:BJRI), Buffalo Wild Wings Inc (NASDAQ:BWLD) and Chipotle Mexican Grill (NYSE:CMG), are rolling out prototypes and smaller restaurant chains to augment value and drive traffic, thereby reducing construction and occupancy costs but enhancing returns on capital.
Also, these smaller prototype restaurants help to accelerate growth in non-traditional locations. Companies such as The Cheesecake Factory (NASDAQ:CAKE), Darden Restaurants, Panera Bread and BJ's Restaurants are busy investing in kitchen equipments to improve capacity and speed.
Modern Technology, Digital Ordering, & Delivery Gaining Precedence: The digital wave has hit the U.S. fast casual restaurant sector as more and more restaurants are deploying technology to enhance guest experience. While smartphone apps lure consumers to restaurants, video menu boards in quick-service restaurants and tabletop devices are some of the tools used to push sales.
Panera Bread, Buffalo Wild Wings and Brinker International are some of the restaurants that use tablets to drive traffic. Meanwhile, the world’s largest coffee-shop operator, Starbucks Corporation (NASDAQ:SBUX), last year launched its “Mobile Order & Pay” initiative in the Portland, OR area and thereafter expanded it to over 600 stores across the Pacific Northwest. It is scheduled to be launched nationwide by year-end. Also, it is planning to introduce food and beverage delivery in collaboration with on-demand delivery service, Postmates, in Seattle and through its own employees in specific office buildings of New York City like Empire State building in the second half of 2015.
Chipotle too is prioritizing its e-commerce program. Besides re-launching chipotle.com for its mobile users, the company has begun delivery of online and mobile orders in 67 cities using the Postmates delivery app. Chipotle has also launched an app for Apple (NASDAQ:AAPL) Watch to allow guests to order before they step into its restaurants. The chain is also testing new mobile payment methods, including Apple Pay as well as Google (NASDAQ:GOOGL) Wallet. So far, Domino's Pizza has been a huge beneficiary of this digital trend with approximately 50% of its U.S. sales coming via digital platforms.
In order to capitalize on the increasing demand for their products, a few players in the industry like Panera Bread, BJ's Restaurants, Chipotle and Noodles & Company are providing off-premise catering programs. These programs are especially designed to serve a large number of customers at their homes, offices or at any other venue.
Restaurant operators also rely on social media for promotions and incorporate Facebook (NASDAQ:FB), online review sites, Twitter (NYSE:TWTR) and blogs aggressively into their marketing mix.
Adapting to Changing Consumer Preference: The latest trend at U.S. eateries is to serve a healthy menu, owing to consumer preference for fresh, organic, nutritious and low calorie food. Rising health concerns and increasing awareness about obesity and related diseases have led to the shift in consumer preference toward healthy and “good for you” products. Companies that are working on these lines are Noodles & Company, Chipotle and Panera Bread. These companies are coming up with low-calorie offerings to improve their revenues and profits. Focus on child nutrition is also a priority.
Consumers these days also prefer a leisurely breakfast, which is not at all difficult for the restaurants to offer as it costs comparatively lower. Players in the industry that have capitalized on the demand for breakfast include Yum! Brands (NYSE:YUM), McDonald's Corp (NYSE:MCD), Starbucks Corporation (NASDAQ:SBUX) and Dunkin Brands Group Inc (NASDAQ:DNKN).
To Sum Up
We cannot deny the fact that restaurants are striving hard to impress customers and augments sales, which will eventually contribute to the growth of the restaurant industry as a whole. Investors can definitely take advantage of the near-term opportunities to cash in on the turnaround in the restaurant sector.