Food for Thought: 3 Key Digital Challenges Facing the Food Industry

We were privileged to recently host a dinner for leading figures within the hospitality and foodservice industries, with the topic for the evening being ‘Food for Thought: Recipes for Digital Transformation’. Following on from this, we thought that we would share some of the key topics of discussion so that others in the market can benefit from the knowledge shared.

What factors are affecting the food and restaurant sectors?

Transformation was certainly a pertinent theme for the evening, with those in attendance pointing to an array of factors currently affecting the market. The key factors driving change were identified as:

• Pressure on consumers - growth within the sector is slowing post-pandemic and it is reasonable that this can be at least partly attributed to rising cost pressures amongst consumers. Rising inflation has resulted in a notable squeeze on people’s discretionary spending as both the cost of living and interest rate rises have been felt. The ongoing war in Ukraine has compounded this, particularly as a result of the impact on oil and gas prices.
  
  

• Heightened competition - an increasingly competitive restaurant market has resulted from a proliferation of new entrants and expanding operators, which in turn has led to a high degree of churn amongst restaurants. In the food delivery sector, the entrance of newer disruptors like Getir and Gorillas is having a notable impact, particularly as the established brands in this space have recognised that there is a limit to the fees that they can charge restaurant partners.
  
  

• Investment appetite - it was noted by numerous attendees that there has been a pivot away from the sector amongst investors, most likely as a result of the heightened competition and consumer pressures identified above. For existing operators with solid investment backing this may not be an immediate issue, but is likely to act as a barrier to entry for fledgling operators. Those who are investing into the sector are prioritising profitability today over growth tomorrow, and are seeking sustainable businesses that can weather any tough times that may be ahead.

What are the key issues driving digital transformation in the restaurant industry?

The discussion began with the recognition that restaurants have long been recognised as places of culture, with quick service restaurants in particular acting as a ‘third-space’ -  somewhere for people to hang out away from home or work/school at an affordable price. The lesson for operators being that establishments with higher quality, more comfortable internal fit-outs tend to see higher levels of repeat custom.

A number of other positive impacts from the quick service sector were highlighted including the fact that operators in the space strive to make customer experience consistent - with the phrase “make every experience a first class experience” being used. Differentiating the customer experience has allowed operators to reverse the race to the bottom that was taking place when price was the only differentiating factor.

The most successful operators have recognised that an exceptional, and experiential customer experience needs to take place wherever consumers are located, and whatever their consumption preferences. By adopting this mindset many restaurants have successfully increased dwell time, average spend, and customer loyalty.

Challenges were also high on the agenda for many attendees, with ongoing supply chain issues being highlighted as problematic - particularly where it is forcing operators to make menu adjustments on the fly when key ingredients are unavailable, this issue is compounded when menu changes also have to be reflected on multiple delivery platforms.

The use of delivery platforms also raised discussion around the challenge of brand consistency, it was noted that whilst the major delivery platforms do a great job of branding themselves they don’t provide much opportunity for restaurants to do the same, certainly not in the same way that a branded app would for example.

Regulatory compliance was also highlighted as an ongoing challenge, in particular Natasha’s Law which was introduced last year and compels operators to more rigorously display allergen information on labels and menus.

Branding aside, many of the difficulties raised can be mitigated by implementing an effective Product Information Management (PIM) system. The implementation of a PIM system typically yields additional benefits including the ability to quickly adjust and relaunch a menu, along with the resultant sustainability benefits of reduced waste. 

When it came to exploring the role that technology plays in the restaurant industry, a number of salient points were raised. It was pointed out that renovating restaurants is immediately measurable - particularly amongst more traditional operators - but that the impact of tech can be harder to evaluate, particularly where there is a demonstrable digital skills gap. The lesson here for restaurateurs seeking to undertake digital transformation is to establish a clear framework for what success looks like for your brand, and then put in place measurable goals. It’s important to remember that the definition of success can shift in a changing marketplace, if something isn’t working don’t be afraid to iterate.

This tied neatly into the fact that the restaurant industry as a whole has not elevated people with a lot of industry experience into the most senior positions - with many CEOs (particularly amongst the delivery platforms) having come from a finance background. A lack of tech talent is something that the industry as a whole will need to address in order to be truly competitive, and this will be especially pertinent for smaller restaurateurs who are grappling with how to bring improved tech and data literacy to their businesses. The first step in tackling this challenge is for operators to examine the skills they already have in-house then map those against where they want to be in the future. This will provide a useful framework for deciding where to upskill your existing team members, and where to hire in new talent or training resources.

How are delivery platforms aiding restaurants with digital transformation?

It is widely appreciated that delivery platforms have been helpful for restaurants in terms of unlocking new markets and customers that they would have otherwise struggled to reach, but our discussion also highlighted that they have unlocked a wealth of data and insights. The insights that were outlined as being particularly useful for operators included: feedback on which dishes were popular/unpopular with consumers so that menus could be adjusted accordingly, insights into churn, repeat order volumes, and order density within a given area, plus end of year analytics which allows restaurateurs to better plan for the year ahead.

In addition, there was discussion around the technology that some delivery providers have deployed to optimise performance within dark kitchens, and how this could be applied to regular restaurant kitchens. Insights were shared around both hardware and software solutions that could be used to make the best use of available kitchen space, serving to reduce inefficiencies during food preparation and minimise food waste by giving operators actionable data on layouts and processes that could improve efficiency. Whilst dark kitchens remain a contentious topic for some, it is becoming clear that more traditional kitchens could benefit from adopting some of their approaches.

In terms of talent, it was interesting, but perhaps not surprising that the view from delivery platforms was similar to that of restaurateurs. Both the attraction and retention of talent - particularly tech talent - is a challenge. The view from the room was that cultural transformation was critical to training and developing people who could unlock the full growth potential of both delivery platforms and restaurants who want to succeed in an increasingly competitive digital environment. Amongst those in attendance, there was acknowledgement that hospitality is competing for talent against numerous other sectors that are more attractive, and that a collaborative approach to attracting talent to the sector, and retaining talent within the sector is the only viable approach. 

What are the 5 key takeaways from the discussion?

1. The industry is currently at a crossroads between tradition and innovation. This is a massive opportunity for those who are yet to embrace digital transformation, as they stand to benefit substantially from the differentiation that it can unlock.
   
   
2. Though tech adoption within the hospitality industry is still in its infancy, adapting to change is now critical for survival. Those who fail to adapt will be left behind by shifting consumer preferences and more nimble competitors.
   
   
3. The full impacts of the a post-COVID and post-Brexit operating landscape are only just beginning to materialise. Lasting changes to consumer behaviour and ongoing supply chain issues are likely to be felt for a long time to come.
   
   
4. The unpredictability of the pandemic gave many operators a taste of what’s possible, encouraging those in the industry to fail fast and learn on the job. There are now enduring questions as to the impact of this. How will the lessons learned from the pandemic be carried forward to drive further innovation and transformation amongst digitally savvy operators?
   
   
5. The right combination of technology, data, and digital talent is needed to unlock the full benefits of digital transformation. Everyone in attendance agreed that these are tackled much more effectively together - whether that’s an industry level or at a network level where peers come together to share thoughts and insights, and learn from each other.

What’s next?

If you’re already on your journey to digital transformation, or if you’re about to embark, find out how we’ve helped our clients in the food and restaurant sectors increase customer satisfaction, drive customer loyalty, improve profitability and unlock growth.

Alternatively, if you would like to explore how implementing a Product Information Management (PIM) system can benefit your business, get in touch today.