Friends of Branded!
Happy Saturday and I hope you had a great week.
In the category of self-interest, one of the many joys I get from writing the weekly Top of the Fold section is that my search for a title & image is done AFTER the theme & topic has been decided upon.
I consider it a brief moment where I get to be at least a little creative and maybe even amuse myself (with the sincere hope of amusing all of you as well). What’s my batting average on the title & image being amusing in the context of the theme & topic I write about? I guess that’s completely in the eye of the beholder (but I had some fun with this one, so let's see how it goes). 😊
I read an article this week about the National Restaurant Association’s sales forecast for 2024. Not to bury the lead, the NRA is predicting a record-breaking $1.1 trillion in sales for 2024.
The NRA provided this optimistic prediction in its annual “State of the Restaurant Industry” report (our industry’s very own “SOTU”), which uses a survey from both restaurant operators and consumers, which is then analyzed by the NRA’s economists to identify trends and projections within the segment.
Industry rockstar and President & CEO of the NRA, Michelle Korsmo made a statement in connection with this over $1 trillion prediction that I, as well as so many other people in the industry know well, that “the state of the industry is strong thanks to the agility of operators and employees.” I’ve long known and always try to share in this newsletter that the hospitality industry is comprised of the most dedicated, committed, gritty, creative, and agile workforce among any industry I’ve had the privilege of being part of.
Hit this industry with a pandemic and we’ll turn restaurants into delivery & take-only venues and we’ll even create grocery stores, c-stores and commissaries out of restaurants just b/c we can fill a need & void with a few moments notice.
Ms. Korsmo went on to say, “Restaurants are finding ways to adapt to the challenges of increased food costs and supply chain disruption. Restaurants have responded well to customers' desire to have more opportunities to enjoy restaurant meals, which continues to grow sales, create employment opportunities, and foster a strong sense of community.”
Yes and agreed! Michelle is on point! Mic drop!
So, with my enthusiasm for the above, you’re probably thinking that you’re reading a lot about Dr. Jekyll (the good), but where does Mr. Hyde (the evil) come from? Patience young grasshopper, you know I need to warm things up before really diving in!
Here we go, enter Mr. Hyde! I also read this week that over 75% foodservice businesses are currently unprofitable and restaurant bankruptcies have increased by almost 50% over the past year.
These hard-hitting numbers are consistent with the finding of our friends from the NRA. Only 25% of restaurant operators surveyed predict that their restaurants will be more profitable in 2024. The violent headwinds hitting the restaurant industry include a 30% increase in average labor costs since 2019 and a 20% rise in average food costs. One additional factoid that probably doesn’t get enough attention is the debt created during the pandemic. 43% of restaurant operators reported having debts that didn’t exist before COVID.
On the labor front specifically, I think what many people might miss is the knock-on effect that increases in the minimum wage or other regulated changes have on the overall labor structure of restaurants. Increase one piece of the labor-puzzle, and essentially every other piece requires a comparable adjustment. It’s this knock-on effect that really drives this 30% increase highlighted above.
And let me digress or maybe touch on a topic that most don’t want to talk about. Entry level jobs at restaurants are just that, entry level jobs. Think about your own industry and what an entry level job pays relative to the pay garnered as one climbs the ladder with respect to taking on greater responsibilities and being more value-added to the company.
My own take, I think the restaurant industry gets overly scrutinized and I dare say unfairly criticized when it comes to entry-level positions and compensation. Again, just one person’s opinion.
But back to the state of the industry and the enthusiasm around the prediction of record-breaking sales vs the lack of profitability.
The restaurant industry spends only 1.97% of its gross annual revenues on technology which for avoidance of any doubt, pales in comparison to the nearly 7% that the average US business spends on technology. I know you won’t but read that last sentence again!
You want to know why Branded Hospitality Ventures is excited about technology & innovation? The industry underinvests and is now embracing the need-to-have (as opposed to the nice-to-have) technologies & innovations for its very survival, which I define as its profitability.
Let’s keep rolling with some number b/c what’s more fun on a Saturday morning than reading a whole bunch of statistics and figures. 😊
Over 75% of operators believe leveraging technology represents a competitive advantage and 60% plan to make investments specifically in guest experience in calendar year 2024! I just had a vision of several of Branded’s portfolio companies CEOs yelling at their respective salespersons to turn those machines back on and hit the phones!
The restaurant industry continues to add jobs at a feverish pace and that includes the prediction of another 200,000 jobs to be added in 2024, but that’s again the Dr. Jekyll side of the coin. What does Mr. Hyde have to say?
Restaurant operators are still facing staffing challenges with over 40% reporting not having sufficient employees to support existing guest demand. Again, according to the NRA's State of the (restaurant) Union, 27% of operators said that employee recruitment and retention will be their #1 challenge for 2024.
Please don’t read any of this and think or conclude that I’ve changed any of my views or beliefs when it comes to the industry. The restaurant industry is a people business and it's about the food & beverage and the experience & value from the perspective of the guests. But it’s also a tech-enabled and tech-supported business and that’s what the data tells us. Investment in technology & innovation will be a major trend in 2024 and while front-of-house will continue to see meaningful investments, the back-of-house is most certainly getting a great deal of interest.
Branded’s initial investment focus was heavily weighted to order systems and specifically the growing demand for off-premise dining. Delivery and takeaway continue to represent an important trend for operators with greater than 50% of guests saying that food delivery is an essential part of their lifestyle. According to the NRA, these numbers are strongest with 67% of millennials and 63% of Gen Z highlighting the importance of off-premise.
Why did I highlight the enthusiasm from Millennials and Gen Z? B/c Millennials are currently the largest generation in the US and Gen Z’s spending is on the rise. Yes, Baby Boomers still rank as the group with the largest buying power, but restaurants are looking ahead and as young students and professionals command over $400 billion and rising in disposable income, all businesses, including the hospitality industry, are trying to figure out how to market to this generation. In the category of stating the obvious, Gen Z has spending habits that differ from previous generations.
For example, Gen Z is making it clear that the morals of a company matter to them a great deal and they will not only not buy from a company where they feel the morals aren’t aligned, but they will get their friends to do the same! Social media is the single best way to reach Gen Z and given this generation’s attachment to mobile devises, reaching Gen Z online is the very best thing a brand can do. Question: what percentage of digital orders are placed with mobile apps? Answer: 60%!
I’m absolutely excited to see 2024 be a record-breaking sales year for the restaurant industry, but seeing the industry become a most profitable one and optimizing margins and improving the value for restaurant operators & owners is what excites Branded the most. We focus on restaurant operators b/c we know if we help take care of them, they will be even better at taking care of their guests. This is the flywheel that we’re trying to create, and we see it as a most positive thing for everyone involved.
The year ahead will not be an easy one. The continuation of labor challenges along with higher operating costs and the continuation of supply chain issues all but make that certain. However, Branded will bet on this industry and specifically the people in it every day of the week and twice on Sundays!
This bet we’re making is highly correlated to the operator-centric technology & innovation companies that address the most pressing pain points as well as the emerging restaurant brands that are tech-forward thinkers and are building tech-stacks with more intentionality than we've ever witnessed.
It’s a fantastic time to be in the hospitality industry and again, while none of this is easy, it most certainly is worth it!
It takes a village.
Drawing from the Top of the Fold section, I want to use this week’s Shoutout section to highlight one of Branded earliest investments, our friends and partners at Spendgo, a best-of-breed loyalty program for restaurants.
Spendgo meets your guest where they’re at and that includes in-store, mobile and online guests.
A few things this week had me thinking about the continued importance of guest engagement, the role loyalty plays in this vertical, and therefore our own portfolio company, Spendgo.
Maybe it was the discussion with a tech executive that while crushing it with his platform focused on the back-of-house, is now considering crossing the Rubicon and exploring opportunities in the front-of-house. Maybe it was another executive that believes, as Branded does, that "best-in-suite" will beat "best-in-class" and the discussion we had about the key features that are mandatory for a restaurant’s tech stack. Maybe it was the article Spendgo shared this week with its network on the importance of targeted campaigns to boost adoption.
Whatever it was (spoiler alert, it was the combination of all of the above), Spendgo is an ally to restaurant operators and is always sharing best practices with them. This week they shared a piece about the importance of restaurants encouraging guests to actively engage with loyalty programs. Yes, it's challenging, but still must get done. To achieve high adoption rates and ensure your loyalty program is a resounding success, Spendgo recommends targeted campaigns that not only incentivize participation, but also enhance the customer experience and promote loyalty.
If you take away only one thing from this week’s Shoutout section, it’s this: restaurants HATE discounting but LOVE rewarding loyalty!
If you’re not familiar with the critical difference between the two, attracting guests with discounts will result in you giving a better deal to the 'discount shopper' over your loyal guests. Discount program platforms will tell you this is the cost of customer acquisitions and the importance of filling empty seats or addressing under-utilized capacity. As Matthew McConaughey said to Kate Hudson in the romcom, “How to Lose a Guy in 10 Days,” BS!
'Discount shoppers' will move onto the next discount. They're deal hunters and while that doesn't make them bad people, you don't need to pay for the acquisition of these customers, you need to reward your loyal ones!
Restaurant operators are competing for a greater share of a guest’s spend or wallet. To do this effectively, you need an effective loyalty program.
You can take a look at Spendgo’s strategy for driving higher adoption rates for your restaurant loyalty program with engaging campaigns here: Spendgo - Target Campaigns to Boost Adoption.
Spendgo’s playbook includes the following:
- Double Points Promotions
- Surprise and delight Rewards
- Personalized Birthday Campaigns
- Next Visit Incentives
- Campaign Tips
I’m not hiding the fact that Spendgo is an important portfolio company to Branded, but what you need to know is that we made them so b/c of the value they bring to operators. Spendgo’s strategy here is to help operators not just incentivize guests to return, but to help create lasting relationships and loyal guests.
How on-brand is Spendgo for Branded Hospitality Ventures?
Spendgo’s goal is to help its customers create a loyalty program that benefits both the restaurant’s customers and business and it does this by fostering a community around the restaurant’s brand that thrives on appreciation and recognition.
That statement makes me think of my own ethos, it takes a village (and it truly does!).
Readers of the Hospitality Headline, that are interested in learning more about Branded’s portfolio companies, investment strategies and future opportunities, are invited to explore becoming part of our Access Hospitality Network.
In today’s episode of Hospitality Hangout, Michael Schatzberg “The Restaurant Guy” and Jimmy Frischling “The Finance Guy” are joined by James Vitrano, Chief Executive Officer of Sucré.
This episode of the Hospitality Hangout was recorded, live in a front a studio audience (I've always wanted to say that), at the ICR Conference.
Our new friend, Mr. Vitrano, was an awesome guest and is doing something special with his company, Sucre. Branded believes we’re all going to see a lot more of this emerging brand and VERY sweet boutique!
Sucré is a New Orleans founded luxury brand patisserie, renowned for its macarons, gelato and unique handmade, French inspired desserts and sweets. The company is focused on true customer service and elegant ambiance for its guests.
We all need places that make us feel like we’ve been taken somewhere or maybe a place that represents a simple escape (if even for a few moments).
Sucré offers its guests a special experience or even a loving gift.
If you’re reading this and thinking how much I enjoyed this podcast, meeting James, and that includes his wife down at the ICR Conference, you’d be 100% correct. I also respect James’ love of the legendary Gayle Benson and her commitment and love of all things New Orleans.
You can tune in on Spotify, Apple, Amazon, iHeart, or your favorite listening platform!
Make your drinks go viral!
Craft personalized drinks for an unforgettable guest experience!
Digital Restaurant Association
We champion restaurants to thrive in a digital world
TECHNOLOGY
National Lampoon's Alaskan Software Adventure: Navigating the Wilds Without a Map
By: Seth Temko, Solutions Services Partner at Branded Hospitality Ventures
Ever take a vacation without a map? Adventure can be fun but not for developing software products. Welcome to the wilds... holiday road!
Imagine embarking on an Alaskan tour, National Lampoon style, where the promise of seeing Glacier Bay, Ketchikan, Denali, Kodiak Island, and Skagway is about as reliable as a weather forecast in the Bermuda Triangle. That’s the chaotic adventure a software company sets itself up for when it decides to navigate the wilds of the tech industry without a product roadmap. It’s a journey where the only certainty is uncertainty, and the main attraction is a guessing game of where you might end up next.
Welcome to the new IFMA
The future of food-away-from-home is evolving—and so is our membership structure.
MARKETING
5 Biggest Takeaways from NRN's The State of Independent Restaurants
By: Rev Ciancio, Head of Revenue Marketing at Branded Hospitality Ventures
It's no secret, 2024 thus far has been a struggle for restaurants, especially the independents. Rising cost of goods, inflation and continued strain in the labor pool are some of the top battles we are all up against. And no one is fighting it harder than independents.
About ACG New York
Founded in 1954, ACG is the premier M&A deal-making community with a mission of driving middle-market growth. ACG’s global network operates within 61 local markets worldwide and comprises more than 100,000 middle market professionals who invest in, own and advise growing companies. ACG provides events, conferences, bespoke meetings, deal-sourcing forums, unique experiences, educational seminars, and numerous benefits to non-members and members alike.
ASK THE HEADLINE
🔍 Got Questions? We've Got Answers! 🌟
Satisfy your thirst for knowledge? Look no further! It's time to dive into our brand-new segment: "Ask The Headline"! 🎉
📅 We'll be answering YOUR questions every week. And here's the best part: you can choose to stay anonymous or receive a fabulous shout-out when we feature your question!
That’s it for today!
See you next week, (about the) same bat-time, same bat-channel.
It takes a village!
Jimmy Frischling
Branded Hospitality Ventures
jimmy@brandedstrategic.com
235 Park Ave South, 4th Fl | New York, NY 10003
Branded Hospitality Ventures ("Branded") is an investment and advisory platform at the intersection of food service, technology, innovation and capital. As experienced hospitality owners and operators, Branded brings value to its portfolio companies through investment, strategic counsel, and its deep industry expertise and connections.
Learn more about Branded here: Branded At-A-Glance February 2024