2023 Reflections: The Year That Was in Restaurants, Part Two

Each year, Modern Restaurant Management (MRM) magazine asks experts for their views on the state of the industry. Here are some of their insights. Click here for the first part.

In 2023, the restaurant industry faced several challenges and made some missteps along the way. One significant issue was the industry's struggle to fully adapt to the post-pandemic world. While there was a strong desire to return to pre-pandemic norms, many businesses underestimated the lasting impact of COVID-19 on customer behaviours and preferences.

Notably, not enough investment in technology and digital transformation. Some restaurants were slow to adopt contactless payment methods, efficient booking systems, and other tech solutions, which resulted in missed opportunities to enhance guest experiences and operational efficiency.

Additionally, the industry faced criticism for not doing enough to address environmental concerns. With growing awareness of climate change and sustainability, some restaurants were seen as lagging in adopting eco-friendly practices and minimising their carbon footprint. 

– Corin Camenisch, Product Marketing Lead at SumUp 

AI is revolutionizing the industry, but we’ve only scratched the surface.

As with most other industries, the biggest talking point for restaurants in 2023 has been artificial intelligence. Leveraging AI tools to increase efficiency and productivity while automating simple processes was a major boon to the industry. Many dining establishments found ways to use AI to track and flag stock quantities, automate schedule-making for staff, implement customer service chatbots and process online orders. While these tools have so far proven revolutionary as time-savers, the months ahead will reward innovation-minded restaurant leaders willing to go beyond these entry-level AI uses and find new ways to leverage it for improved customer engagement, back-end data processing and more.

– Matt Elders,  EVP, Revenue, Cordial

2023 was a rollercoaster ride, we saw huge increases over the first quarter when compared to last year– by 400 percent. As we started summer, which is our busiest time of year in Ocean City, our revenue was 16 percent above compared to last summer. While that sounds amazing, Spain Wine Bar is not a mature restaurant yet and I expected it to be much higher than the previous year.

I had several restaurateurs in Ocean City tell me they were at a loss this summer. While we never had a declining week in the first half of the year, we saw that change starting in September. We have had a few weeks in the beginning of the fall in which we were below our numbers from last year when comparing week to week. We had to be creative and find opportunities to increase our revenue so that we could still compete. We initiated our bottomless brunch menu on weekends, which actually helped us finish our weeks stronger than before. As a resort town, Ocean City has also seen several new restaurants open this past year which has given the locals more options for year-round dining.

– Peter Elias, owner of Spain Wine Bar in Ocean City, Maryland

While we officially ended the pandemic this year, it still hangs over us. Many rules that held true prior to 2020 no longer apply, so restaurant owners are exploring new boundaries that resonate with the post-pandemic world. With diners looking for hyperstimulation after so much restraint – such as maximalist decor and creative flavor experiences that are grounded in our multicultural society and global pantry – chefs and restaurants are engaging in collaborations to maximize their audiences more than ever before. It's also a time for increased flexibility as restaurants are forced to do more, meet more needs, serve more audiences and create more compelling content. We covered a lot of these themes and different ways to address them in this year's annual Trends Report 

– Andrew Freeman, Founder & CEO, af&co.; Co-founder, Carbonate

Looking back at 2023, I witnessed a significant shift in how restaurants approach loyalty programs. Customers displayed a pronounced preference for flexibility, seeking the capability to modify loyalty programs in response to evolving consumer trends and demands. Restaurants, in turn, have increasingly adopted loyalty initiatives diverging from the conventional discount-based model, prioritizing the perks focused on exclusivity, status, and personalization.

Customers displayed a pronounced preference for flexibility, seeking the capability to modify loyalty programs in response to evolving consumer trends and demands. 

A rising demand for comprehensive access to and centralization of customer data emerged in order to better understand customers and personalize their interactions. Simultaneously, economic challenges have placed increased financial scrutiny on brands, compelling them to reevaluate their loyalty technology as a whole with a focus on how to do while ensuring  smooth transition for guests. As the result of disappointing ROI from expensive custom applications, many restaurants are actively seeking flexible branded alternatives.

– Zach Goldstein, Founder/CEO, Thanx

In 2023, the restaurant industry underwent a profound transformation driven by an increased focus on integrating cutting-edge technology to meet the evolving expectations of customers, especially Generation Z. This generation, characterized by their digital fluency and desire for convenience, propelled restaurants to prioritize the seamless integration of technology within their operations.

From intuitive mobile apps to streamlined online ordering systems and interactive digital menus, establishments adapted swiftly to align with Gen Z's preferences for a smooth and tech-driven dining experience.

– Andrew Glantz, GiftAMeal Founder/CEO

2022 marked a pivotal period of societal adaptation to touchless interactions, accelerated by the challenges posed by the pandemic. By 2023, what began as a convenience has evolved into a necessity, shaping the way businesses operate. The labor shortage played a significant role in propelling self-service into the mainstream.

Fast-food chains, grappling with economic pressures, embraced self-service kiosks, while the rise of secure mobile payment platforms responded to the imperative of enhancing transaction security. The increasing threat of fraud, especially through spoofing, is also anticipated to drive the widespread adoption of secure mobile payment methods in the future. As a result of these changes in 2023, we’ll see an increased spotlight on implementing cellular connectivity solutions to ensure retail mobile applications, QR codes, mobile payment methods, and self-service kiosks work properly to enhance the customer experience.

– Stephen Kowal, Chief Commercial Officer at Nextivity

In 2023, the restaurant business as a whole still seems to be in flux. Cost of goods have risen across the board, but I and other operators seem to have made the necessary adjustments. Staffing is still incredibly difficult, and I think we're in a new normal now for the availability and nature of available workforce. 

– Chef Bin Lu of Blue Rock in Washington, VA 

In 2023, we saw steady consumer spending until the end of Q3. Currently, and into 2024, some indicators demonstrate that there will be continued consumer retraction, putting pressure on restaurant operators. We also will see more shuttering of restaurants.

– Mark Lyso, SVP of Brand Development at East Coast Wings and Grill

The restaurant industry at large was undoubtedly plagued by the weight of the economy’s ever-increasing inflation this year. As restaurant owners had to turn to costly alternatives to surviving operation obstacles such as rising food costs and staffing shortages, increased menu prices, added service fees and sales taxes made dining out more expensive and less appealing to the average consumer.

– Patterson & Company CPA Founder & President Bob Patterson

As I reflect on the restaurant industry's journey in 2023 and look ahead to 2024, it's evident that the demand for cutting-edge tech in the restaurant sector is on a steady rise. I can predict that the need for advanced technologies in the restaurant industry will only continue to grow. 

I can predict that by 2030 Face and finger IDs will be used in every second restaurant.

In 2023, Syrve MENA's research indicated a high demand for cutting-edge technologies in the restaurant industry, with Face ID technology gaining significant traction in a short span. The data showed that in less than three years of the Face ID technology's launching and the start of its operation in the UAE, more than 15 percent of all restaurants working together with Syrve MENA have implemented the solution into their business. Each year, approximately five percent of new restaurants choose to leverage Biometrics ID technology. I can predict that by 2030 Face and finger IDs will be used in every second restaurant.

Another Syrve MENA's research unveiled the most used digital solutions in the food and beverage sector in 2023: UAE's restaurants identified API integration, waiter ordering apps, real-time restaurant reports, and Face ID as the most useful new technological tools, in addition to traditional POS (point of sale) terminals. These advanced technologies will continue to be widely used to increase the level of automation in the restaurant industry.

– Alex Ponomarev, CEO of Syrve MENA 

2023 was the year of reset with third-party delivery.  

Delivery growth slowing: Third-party marketplace transaction growth is slowing.  And by the time Q4 is reported in January 2024, it will likely be down.  The most recent public data available as of writing – Q2 growth – was most likely in the low single digits, although both Uber and DoorDash make it nearly impossible to see same-store transaction growth for US restaurants only.  Their commentary, however, was telling.  Calling US restaurant growth “stable” is not what one would write if it were strong.  What growth the platforms have been seeing has been among loyalty (DashPass and UberOne) members who are being bought with discounts.  Non-members are declining in frequency or going away altogether.

2023 saw the industry bifurcating into a 'barbell' – where consumers want either convenience or experience.  This will continue with those in the middle getting squeezed.

Restaurants taking back power: At the Food on Demand Conference in May 2023, the restaurants all looked at each other and realized the platforms were nowhere without them.  Restaurants had all independently decided to increase platform pricing, tentatively at first and then more boldly when consumers didn’t push back.  DoorDash sent everyone a letter telling them to knock it off, and when the restaurants compared notes, they realized if they ALL took pricing, DoorDash couldn’t punish them all.  As of midyear, platform menu pricing was 19 percent above first-party menu pricing.

The FTC is noticing: The recent FTC anti-trust lawsuit against Amazon was regarding the very same issues restaurants complain about with DoorDash and Uber – platforms punishing higher prices on platform vs. other channels and platforms punishing use of alternate delivery logistics.  This lawsuit is early days, but if the FTC prevails, this would send a strong message to DoorDash and UberEats.

The marketplaces are responding: DoorDash is rumored to be creating their own POS.  UberEats sees a future of blended first-party and third-party ordering.

2023 saw the industry bifurcating into a “barbell” – where consumers want either convenience or experience.  This will continue with those in the middle getting squeezed.

– Meredith Sandland, Empower Delivery CEO

Music is an important aspect of a restaurant’s ambiance and can determine whether customers choose it as a must-go destination time and again. We’ve found that the restaurants that are highly rated for their customer experience pay close attention to what they want their brand to convey and incorporate this into the music they play.

– Ola Sars, CEO of Soundtrack Your Brand

We are going to look back on 2023 as a year of slight improvements toward normalcy in terms of scope and expectations. Our labor markets improved slightly, our supply chains became more consistent, our margins edged towards a predictable model and our guests returned to a place of expectation in order to earn their business. 

– Mike Sebazco, Famous Toastery President

In 2023, the restaurant industry was projected to hit $997 billion in sales, mostly due to the increase in menu prices as a result of increased cost of goods. Consumer goods have risen by 13 percent, vendor goods have risen by 15 percent and the average menu pricing has risen by 8.5 percent.

There is currently a 10-percent rise in growth of new bars and restaurants compared to 2022. This is interesting considering that post-pandemic, dine-in popularity has decreased and delivery and carry-out popularity has increased.

– Russ Spencer is the Senior Director of Restaurant Success at Craftable

This past year, staff were frustrated by service interruptions: Tork recently found that 77 percent of restaurant employees agree service interruptions affect guest experience and 3 out of 4 kitchen staff would be happier if their workplace was more organized. In 2024, it will be critical for leaders to leverage simple hygiene solutions that can help them to improve staff retention, minimize costs, and do more with less throughout their restaurant while improving overall guest experience in all areas of the restaurant.

– Marissa Tekirian, Tork’s Regional Marketing Manager, Professional Hygiene, HoReCa at Essity

In 2023, the cost of food become more expensive, putting more pressure on consumers as they watch their spending more closely, ultimately resulting in going out less or trading down. Some establishments benefited from the “trading down” trend, while consumers chose cheaper options like neighborhood pizzerias over upscale dining. This allowed more fast casual restaurants to expand and adapt in new ways, for instance building out a more robust drink menu or introducing more locally sourced ingredients to cater to those customers coming from a more upscale setting. 

This year, labor became more expensive and spending around $17 an hour on restaurant staff wages became the norm. 

In 2023, we saw more costs pushed to the consumer but in transparent ways. Restaurants communicated more with their customer base to explain higher taxes, credit card fees and delivery charges, thus making dining out more complex for the customer.  

Restaurants started to make a push toward pick-up orders. What changed with delivery is the understanding that third-party delivery services costs more for both the restaurants and the consumers, driving restaurants to start offering their own delivery service or incentivizing pick-up orders to save money both for themselves and for their customers. 

Product quality matters and the need for quality hasn’t gone away. While inflation pulls the purse strings of most consumers, as they trade down, they are looking for the same quality at a cheaper price. During the pandemic, consumers learned to cook more at home, so if quality options are not available, they’ll choose to stay home altogether.  

– Bob Vergidis, Chief Visionary Officer,  pointofsale.cloud

In 2023, I think many restaurants, Velvet Taco included, focused on establishing the "new normal," considering we are now over two years past the initial impact of COVID-19. It was a year dedicated to learning, understanding how our Guests continue to engage with our brand, and how we can best fulfill their needs. We also invested significant effort into bringing our supply chain systems back into a manageable state, enhancing the consistency of product availability. Innovation has always been a hallmark of our brand, and this year was no different. We introduced innovations like those in our Weekly Taco Feature (WTF) offerings, continuously improved our core menu, and even launched several experimental menus to select cities.

–  Chef Venecia Willis, Velvet Taco Director of Culinary 

In 2023, higher prices became a dominant topic of conversation, especially towards the end of the year, as customers started to notice. After the lockdown period between 2020-2022, diners flocked to restaurants without much concern for the prices. They wanted to return to everyday routines, and the restaurant experience played a significant role. 

However, in 2023, things took a different turn. Consumers started to pay attention to the 40 percent increase in the average QSR check (compared to 2019). A survey conducted by Revenue Management Solutions in Q3 revealed that nearly 70 percent of respondents believed that restaurant prices had increased and they were taking necessary steps. A significant 41 percent of the respondents reported that they had reduced their restaurant spending, a 23 percent increase compared to 2022. Those who are spending less are either visiting restaurants less often (52 percent), ordering fewer items (41 percent), or choosing less expensive restaurants (37 percent). 

Not surprisingly, QSR traffic remained consistently down throughout 2023, ending Q3 at -0.8 percent YOY and down 20 percent compared to pre-pandemic 2019. 

However, it's not all bad news for operators. Net sales are still positive, and in RMS’ Q3 survey, there was a slight increase in reported dine-in usage compared to the previous quarter. Younger generations, especially Gen Z respondents (31 percent) and millennials (18 percent), intent to dine out more in the future.

 – Jana Zschieschang, Chief Brand Officer, Revenue Management Solutions