8
Power of generations: digital natives are shaping the future of dining Trends in quick service restaurants, Volume 1
Power of generations: digital natives are shaping the future of diningTrends in quick service restaurants, Volume 1
Executive summaryRight now, more than half of the American population was born after 1983. Demographers generally divide this group into Millennials and Generation Z. We can also call them, collectively, digital natives. This group, in their 30s and younger, have never known a world that was not rapidly adapting to digital connectivity and enablement.
For them, the story of technological innovation is less a story of disruption than it is a story of simply living in a digital ecosystem where every day, the things they need and want come to them with greater speed, less friction, more convenience, and better experiences.
Disruption, on the other hand, is a story for the brands that either struggle — or succeed — in keeping pace with the rate of innovation and change. As quick service restaurant (QSR) brands look to a future driven by the digital natives’ growing influence and buying power, they will need to adapt their thinking on service and delivery models, pricing, dining experience, supply chains, recipes, menus, and customer interaction. The very distinction implied in the label of QSR may even be up for debate.
1Trends in quick service restaurants, Volume 1 |
Frugal, but willing to pay
for quality
Environmentally and socially conscious
Connected and tech-savvy
Favor sharing
to owningValue
work-life balance
Prefer healthy
lifestyles
Appreciate flexibility and
mobility
Focus on convenience
Cherish being
creators
Digital natives
Meet the digital nativesDigital natives are rooted in the era of major technological change. They are comfortable with disruption and globalization. They accept political and economic uncertainty as the way of the world.
Research has shown they also share traits and behaviors that reflect a distinct set of values that may challenge many established ways of doing things.
However, it is the growing buying power of digital natives that should make any brand perk up and pay attention. They will soon share the highest purchasing power in the market. According to Accenture, Millennials alone wield about US$600 billion in annual buying power. As more and more begin and grow their careers, their spending will grow to US$1.4 trillion annually and represent 30% of total retail sales by 2020. The trend is bound to only increase further in the coming decades.
Power of generations: Digital natives are shaping the future of dining
2 | Power of generations: digital natives are shaping the future of dining
How quick service restaurants are adapting to digital natives While it is true that digital natives are the most frequent guests of QSRs, it would be misleading to label them the fast food generation. Some of the factors driving their choices — speed, service, location — have always been core to the QSR’s appeal. But that is no reason to be complacent. They also want more. A lot more.
This generation of consumers is already having its impact on other areas of the QSR’s business. These include new marketing strategies, menu items, the use of social media, and applying technology to change ordering, payment, and delivery models. In some cases, the change has been dramatic.
Do not expect the rate of change to slow down or stay constant. The future will be more demanding, focused on personal tastes, less loyalty, and lower tolerance for system errors. QSR operators will face a dilemma between being too big, and thus “uncool,” or investing too much in new niche or pop-up style concepts that become unprofitable.
Providing experiences that are customized, connected, convenient, and healthy are a few of the disruptive trends being spurred by digital natives’ demands on the QSR industry. Each will require striking the right balance between the customer’s desire and the business risks.
Fast food
Casual dining
Fast casual
Fine dining
Other
Fast-food segment dominates across generations Millennials prefer fast casual, while non-Millennials prefer casual dining.
Percentage spent by format
454035302520151050
Non-Millennials Millennials
3Trends in quick service restaurants, Volume 1 |
Customization — “I am unique. Just like the people I admire.”Digital natives reject being part of a mass market. They like to express their own individuality and tastes. At the same time, they can be heavily influenced by the “unique” tastes and ideas of Instagram and YouTube celebrities. This can be both an opportunity and a challenge for QSR brands.
Opportunity — Many QSRs have embraced the build-to-order ethos with custom-designed flavors and personalized meals. This takes a number of forms. Some brands offer a broad range of ingredients and let their customers build their entire dish. Some offer chef-created craft food options with the ability to make variations. Other options include meal package options built from two or more menu items, as well as a complete a-la-carte approach.
Risks — Providing guests with too many options also has its downsides. Managing a complicated product mix can eat away at efficiency and profit. Too many choices can also overwhelm customers and create confusion and lack of clarity on brand purpose. Complicated menus may also lead to unintended flavor combinations that detract from the intended experience.
Setting reasonable limits on the number of ingredients that guests can select for a dish saves time, labor and, ultimately, costs. A critical success factor for QSRs adopting more personalized menus is to employ the right technology, so the process can be streamlined and customers find it easy to operate.
Connection — “I swipe for control, value, and access.”With the inherent ability to glide through the digital ether on the wings of mobile devices, digital natives are nimble, demanding, in control.
A recent DMI Research consumer study of 2,500 diners found that:
• 63% of QSR diners have at least one quick service app on their phones.
• 73% have used mobile apps within QSRs.
• 35% use mobile every time they visit a QSR.
• Online ordering increases the frequency of store visits and spikes the average spend by 20%.
For QSR brands, the need for a seamless digital experience has evolved way past the abilities of a website, online menu, and Facebook page. It is now about ensuring convenience and good value-for-money dining through a dedicated app that supports ordering, payment, personalized offers, and quick delivery.
Furthermore, the systems that support all this functionality must be secure and reliable at all times. Customers will have little tolerance for failures, such as a system crash or cyber attack. Those types of events can deliver a big blow to customer loyalty.
This is where your brand’s connection to social media becomes vital to your success. Digital natives are constantly on platforms such as Facebook, Instagram, and Twitter, sharing pictures and reviews of both good and bad experiences, especially of their dining experiences. It is practically a law of nature that, eventually, something will go wrong. How your brand responds can mean the difference between being a pariah or a hero. Make sure you have the resources to be aware and respond quickly with authenticity. Customers will appreciate your candor and transparency and will forgive mistakes when you own them. In fact, your brand should learn to use reviews and feedback as a marketing tool to constantly refine and make improvements to guest experience.
4 | Power of generations: digital natives are shaping the future of dining
Convenience — “I just ordered. What’s taking so long?”QSRs practically invented convenience when it came to providing diners with fast, inexpensive, and easily accessible meals. But with new concepts such as meal kits, grocery delivery, food trucks, online ordering, and heat and eat grocery options, the rest of the food service industry is making inroads into convenient dining.
QSRs are responding with innovative digital automation of ordering, food prep, payment, and delivery. These new concepts constantly shorten the path between customer desire and consumption.
Take a concept such as Eatsa, for example. Through digital automation, customers can place their orders over their mobile apps or touch screens in the store. Nothing new there. But when the order is ready, they pick it up from one of a series of pick-up windows in the store, to dine in or carry out. Payment is already taken care of in the app. Eatsa has eliminated the need to line up at a cashier to place an order, pay, and wait for a person to deliver it to them. No cooks or servers are ever in sight.
In addition to incorporating payment methods into apps, the use of biometric scanning and device recognition is also a growing way to process secure payments at retail checkout.
QSRs are also further enhancing quality and efficiency by using robotics to automate repetitive and tedious tasks in food prep itself. One of the chain restaurants, operating mostly in the US, Middle East and Asia, is already grilling burgers using a robot called Flippy, developed by California startup Miso Robotics. Using sensors, cameras, robotic arms, and artificial intelligence, Flippy drastically cuts down food waste, labor costs, and brain drain resulting from high-turnover jobs. This technology can also be potentially employed to perform other kitchen tasks in time.
Digital natives also want their food to come to them without a significant increase in cost compared to what they would pay in-store. According to Datassential’s Foodservice @Home Keynote Report, 37% of consumers order delivery or pick up food to take home at least once a week. At least 40% say they have increased their rate of food ordering in the past year. This trend is likely to continue, posing a challenge to QSRs that offer only dine-in, drive-through, and pick-up to go.
Zume Pizza has innovated a way to consolidate production and delivery using AI and robots in vans equipped with ovens. When the pizza is delivered to a customer’s location, it literally comes right out of the oven.
However, it is a lot to ask a company that invests all its expertise into being a successful restaurant, to all of a sudden scale on delivery service expertise. This requires a completely different knowledge set on issues such as liability insurance, training, scheduling, and other administrative details that come with delivery service.
One solution is to find the right outsourcing partner that specializes in food delivery. Sites such as GrubHub and DoorDash, as well as partnerships such as McDelivery and UberEats, even handle the technology side of things, making it possible for customers to place orders through their digital experience.
However, outsourcing also bears the risk of relying on an external partner who may or may not deliver the right quality or speed of service expectations, thus tarnishing brand reputation and losing customers. QSR operators who partner with external delivery sources must constantly monitor these systems and work to prevent such errors.
In the end, it all comes down to striking the right balance between automation and personal touch. Eating out will still remain a social interaction and experience. You cannot have every gadget and gizmo in your restaurant and expect people to come in purely based on that. People want good food, first and foremost. If they can eat food they like, prepared the way they like it, and pair it with an impeccable experience with seamless ordering and delivery, then you will be winning.
5Trends in quick service restaurants, Volume 1 |
Healthy eating — “I am what I eat.”The younger generations definitely have a more informed opinion about the food they put into their bodies. They generally try to eat more healthily and stay in tune with their wellbeing. This is about more than making low-fat, high-fiber choices. The trend is toward more natural, organic, whole foods that are sustainable, local or ethically sourced, non-GMO and without additives. They want to know what they are eating.
QSRs that are both fast and healthy display everything from ingredient sourcing lists to calorie counts, and make their philosophy the cornerstone of their brand. Food prep areas showcase ingredients where customers can see the quality of the food as its being prepared.
In summary, digital natives are more demanding and very vocal of their likes and dislikes. They think ecologically and are less tolerant of mistakes. In order to stay in the game, attract and retain young customers, QSR operators need to offer seamless experiences, both online and onsite. Their menus should be fresh, healthy, and ecologically sourced. Customers should feel their experience is personalized. At the same time, QSRs have to balance appealing to this more demanding customer against the associated outlays to make sure their business is still profitable. In some cases, this could prove challenging.
EY Innovation Realized practices are seasoned in helping clients create, incubate, and activate new ideas that anticipate or create disruption in their markets. EY teams welcome the opportunity to collaborate with QSR brands on scaling new business models, experiences, products, services, or processes that sustain growth well into the future.
EY | Assurance | Tax | Transactions | Advisory
About EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.
EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.
© 2018 EYGM Limited.All Rights Reserved.
EYG No. 011745-18Gbl CSG No. 1808-2841692 ED None
This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice.
ey.com
For more insight into the sector, please contact:
Michael B. Gottlieb Assurance Partner Global Leader Restaurant Services Ernst & Young LLP United States +1 949 437 0290 [email protected]
Thomas G. Brown Partner, Assurance Services Southeast Region Real Estate, Hospitality and Construction Segment Leader Ernst & Young LLP United States +1 404 817 4241 [email protected]
Serena I. Wolfe Partner, Assurance Services Central Region, Real Estate, Hospitality and Construction Segment Leader Ernst & Young LLP United States +1 312 879 2283 [email protected]
Michelle Vopni Partner, Assurance Services Southwest Region, Consumer Products Retail Ernst & Young LLP United States +1 214 969 8907 [email protected]
Robert Lehman Partner, Assurance Services Northeast Region, Real Estate, Hospitality and Construction Segment Leader Ernst & Young LLP United States +1 212 773 4505 [email protected]
Minsoo Pak Partner, Advisory Ernst & Young LLP United States +1 404 817 5481 [email protected]
