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Restaurants and bars have long served as community hubs - places for friends and family to meet and celebrate a life event, for a first date, or just to see and be seen. And cities have often been tied to their culinary scenes, which serve as more than just meeting spots, but can draw tourist crowds, reflect a local culture, or provide a space for emerging chefs to develop their identities.
Restaurant chains realize that, with the plethora of online reviews, comparisons, and ratings, they may need to offer something beyond just their product. Some are turning to enticing loyalty programs, while others are focusing on building their community presence. Many are taking a deep look at their business model, identifying their strengths to better capitalize on them, and finding their weak spots to try to improve on them.
We identified five trends redefining the restaurant space and examined how this sector is evolving, tapping into community resources, and adapting consumer desires – and looked at challenges the industry may be facing. This report dives into the restaurant industry’s recovery from a location analytics perspective to explore how the field is adapting to consumer needs, community desires, and post-pandemic realities.
The restaurant industry has long been one of the most challenging ones to break into. As many as 61% of restaurants fail within three years of opening, as razor-thin margins make it difficult for new restaurateurs to succeed. And the pandemic only made things more difficult, with many restaurants forced to shutter permanently since the beginning of COVID-19. Others, however, pivoted and have successfully adapted to the new reality, including offering enhanced drive-through and pick-up services, expanding delivery options, and taking public health safety measures to allow diners back indoors.
These efforts are reflected in the industry’s dramatic recovery. In the spring of 2021, visits to restaurants grew closer each month to their pre-pandemic numbers, and July 2021 marked the first month where restaurant foot traffic matched or exceeded pre-pandemic levels. And even though Delta and Omicron’s emergence during the latter half of 2021 sent visits on a downward trend again, the year-over-two-year (Yo2Y) visit gap in January and February 2022 did not grow as wide as it had in early 2021. For example, overall dining visits were down 28.6% in a Yo2Y comparison in January of 2021, and down only 18.4% in January of 2022.
So despite Omicron, cold weather, and rising inflation and gas prices, dining visits are still on a recovery path. As the weather warms and customers can dine outdoors again, there is hope that the sector’s impressive recovery will continue its upward climb.
As a whole, the industry is looking well positioned for a healthy recovery – but visit patterns still varied across different dining subcategories. Full service restaurants in particular (reflected below in purple) have struggled, with in-house dining heavily restricted for much of the past two years. Meanwhile, the coffee and bakery space (green in the chart) outperformed all other categories, with visits in July, August, and October ‘21 exceeding 2019 levels. Perhaps the ease of grabbing a cup to go, or coffee shops’ position as a “third place” serving hybrid and work-from-home (WFH) consumers helped boost these venue’s foot traffic.
Bars and pubs (in yellow) have been recovering almost as well as coffee shops, with foot traffic in July and October ‘21 higher than in July and October ‘19. The relative success of coffee shops and bars when compared to overall dining trends may be due to the relatively low-pressure socializing environment these types of venues create, and the wider array of ‘needs’ they can satisfy - from an early morning coffee to a midday meeting or an afternoon break from the home office.
In its simplest form, a coffee shop gives people their morning caffeine fix, but it can also provide so much more than that. As a place where the same people tend to gather at similar times during the day, there is plenty of opportunity to use coffee shops as a springboard for developing relationships between locals, and as the perfect venue for a community meeting space.
To quantify the boost coffee shops can receive by also serving as community hubs, we compared some Starbucks community stores to nearby non-community Starbucks venues. Starbucks currently has around 150 Community Stores, and the company has stated it intends to open 1,000 Community Store locations by 2030.
The Starbucks community stores are dedicated spaces with the stated goal of serving their communities by emphasizing local hiring, partnering with farmers and artists in the area, and extending disability inclusion and access. The concept was first introduced in 2015 as a way for Starbucks to enter lower-income neighborhoods in a way that would benefit both the neighborhood and the Starbucks corporation. Over time, the concept has grown and expanded to reflect each location’s unique needs. For example, one store in Trenton, NJ, has organized open mic nights. In other stores, youth mentorship programs and the hiring of local artists to paint murals generate community engagement.
We looked at two of these community stores, in Seattle, WA and in Dallas, TX, to see how the foot traffic patterns compared to visits to neighboring Starbucks stores. We also analyzed the performance of Starbucks community stores against Starbucks’ performance in the larger DMAs (Designated Market Areas) and states where these stores operate. In both cases, the community store outperformed relative to all the control groups.
In January 2022, the community store on 16th Ave in White Center, Seattle, WA, (shown in purple in the graph below) saw its Yo2Y foot traffic up by 11.6%, whereas Yo2Y visits to the neighboring Starbucks and average Yo2Y foot traffic in the DMA and state were down by double digits.
Interestingly, although visits over-performed relative to the surrounding locations, the Seattle Community Store’s True Trade Areas (TTAs - the geographic area from which a community generates the majority of its customers) was also the smallest. The Starbucks community store in White Center had a TTA of only 7.36 square miles, while nearby locations on 25th Ave SW and 4th Ave S had TTAs of 16.49 square miles and 31.24 square miles, respectively.
This indicates that the vast majority of visitors to the community store are neighborhood locals as opposed to commuters or residents of the next town over. The remarkable foot traffic coupled with the relatively small trade area shows that coffee shops do not have to cast a wide net to be successful – instead, investing in the immediate surroundings and community can also yield healthy returns.
Another case study is the Starbucks community store in Dallas, Texas, which has seen consistent growth in foot traffic since its opening in 2018 – including maintaining this performance throughout the pandemic. This growth is particularly impressive in context. Analyzing the change in Starbucks visits against the same December 2018 baseline for the community store, the nearby locations’ average, the Dallas DMA, and Texas as a whole shows that Starbucks foot traffic is down in all the control groups – even as the Dallas community store thrives.
The relative strength of these stores shows just how much value a business can get out of focusing on the local level. Prioritizing collaborations with local businesses, providing employment opportunities, and consciously cultivating community engagement does not just benefit the locals – it also sets the coffee shop up for business success.
Inflation rates have recently begun to rise worldwide, and the United States is feeling the impact. Gas prices have also hit historic highs over the past few months, and consumers have been adjusting their dining habits accordingly. These changes may not only impact how often people go out to grab a bite, but also how far they are willing to drive for their meal. We took a closer look at the data to see how these factors may be driving dining trends.
While many restaurants suffered due to pandemic restrictions and shutdowns, one chain’s mode of operation proved very successful. As their name implies, SONIC Drive-In offered customers the best dining experience by COVID standards – with many people reluctant to potentially expose themselves to COVID when dining out, eating in one’s car suddenly proved highly appealing. But as people have gotten used to life with COVID and with the new challenge posed by rising gas prices, the draw that once brought in customers may now be keeping them away.
February 2022 saw the smallest Yo2Y increase since 2020. And it’s not just overall visits that have fallen – Q1 2022 also saw a dip in the distances customers are traveling to reach SONIC Drive-In venues. This is illustrated by consumer behavior data from the top two SONIC Drive-In locations in New York, which shows a significant rise in the share of visitors driving less than five miles to reach the venue.
In Q1 2022, 41.1% of visitors traveled less than five miles to reach the East Meadow, NY location – up from 38.4% in Q3 and Q4 of 2021. In North Babylon, NY, 44.8% of visitors traveled less than five miles to reach the restaurant in Q1, up from only 38.2% of visitors in Q3 2021. And in both locations, the share of visitors traveling 10 miles or more has dropped significantly. This means that the drop in overall visits is likely coming from SONIC Drive-In patrons living further away who decided to forego their trips to the drive-in until prices level out.
The fast food category is not the only one feeling the impact of high gas prices – full service restaurant visitors are also driving shorter distances to get to their destinations. For example, The Cheesecake Factory in Pittsburgh, PA saw the share of visitors traveling less than five miles increase to 25.6% in Q1 2022, compared with just 22.4% in Q3 2021.
Similarly, the number of visitors driving less than five miles to reach The Cheesecake Factory in Cleveland, OH has risen from 20.4% in Q4 2021 to 22.5% in Q1 2022. At the same time, the share of visitors who had previously been willing to drive over 30 miles to dine at The Cheesecake Factory declined from 35.7% to 31.1% for Pittsburgh and from 33.3% to 25.6% for Cleveland between Q3 2021 and Q1 2022.
These numbers seem to indicate that more and more, customers who are looking to dine out are opting to stay local when choosing where to eat.
A number of dining concepts have scaled back their physical footprint over the past couple of years, with the pandemic and the ensuing labor shortages accelerating this phenomenon. Many leading restaurant chains have closed hundreds of locations over the past two years. In 2020 for example, Dunkin’ closed around 700 underperforming locations, half of them shops inside Speedway gas stations.
McDonald’s is closing hundreds of restaurants located inside Walmart stores, which will leave them with about 150 sites inside Walmart by the end of this summer, down from a peak of about 1,000. Restaurant Brands International (RBI) intends to close approximately 700 underperforming locations across three of its four brands: Burger King, Popeyes and Tim Hortons.
Rightsizing – closing underperforming stores to focus on ones that are doing well – can be a powerful tool in a corporation’s playbook, as long as the company successfully identifies the locations that need to close. Accurate rightsizing a store fleet with dozens – or hundreds – of stores requires a deep analysis and understanding of restaurant performance at chain, regional, and individual store levels.
Burger King’s store fleet consolidation offers a good case study of successful rightsizing. RBI has closed hundreds of Burger King locations since 2019, and the decision proved to be a savvy one on a chain level. Between Q4 2020 and Q1 2022, Burger King closed over 100 branches and saw the average number of visits per location rise from 14.6K in Q4 2020 to 15.6K in Q1 2022.
A closer look at some of the locations that Burger King chose to close shows that these locations were underperforming in terms of foot traffic, underperforming in terms of visits per venue, had overlapping trade areas with other Burger King locations, or both. We examined several Burger King locations in Brooklyn, New York including one recently closed branch –1940 Linden Boulevard – to see why the chain chose to shut down this particular branch.
As shown on the graph below, the closed location (in purple) was not only consistently underperforming compared to its neighboring branches in terms of visits – it also had a significant trade area overlap with the remaining venues in Brooklyn. By choosing to close that store, Burger King freed up space for more customers to visit fewer locations, lowering overhead costs and increasing revenues for the remaining locations.
Another location, in Dothan, Alabama, was also significantly underperforming relative to neighboring branches and had large overlapping trade areas with two other Burger King locations. Given the branch’s low foot traffic and small trade area – over half of which overlapped with the trade area of neighboring locations – the closure seems strategically sound.
In the past, omnichannel was a concept most commonly associated with retail brands, but recently, dining concepts began experimenting with this idea. Diners today expect maximum ease and speed, which means ordering their food and picking it up wherever and whenever they want. And combining digital platforms with in-store pick up or dining can give customers the convenience they crave. Providing a seamless and connected customer experience is not simply a nice bonus, it is quickly turning into an essential part of running a food service business. Allowing customers to access a menu by scanning a QR code or to use an app to order food and book a table, omnichannel dining offers a way to integrate the efficiency of technology with the benefits of in-house dining.
In hopes of strengthening their omnichannel presence, many restaurant chains have launched new concepts – from ghost kitchens to virtual brands – with the goal of combining online and offline dining.
In Q4 2021, IHOP launched a pilot to test its two virtual brands – Thrilled Cheese and Super Mega Dilla – at nine locations. These brands allow diners to order food quickly through apps such as DoorDash and Uber Eats. The initial pilot was a success, and IHOP announced that it is now expanding the pilot into a “beta test” that will include 50 IHOP locations.
As the chart below shows, IHOP seems to have chosen to launch these virtual brands at their best-performing locations. But the fact that those locations are continuing to perform as well as they are into Q1 2022 proves that having a strong digital presence does not mean that fewer consumers will visit in-person. Instead, digital and brick and mortar channels can work together to create a whole that is greater than the sum of its parts.
Much ink has been spilled about the ways in which the COVID-19 pandemic caused consumers to change their habits, and one noticeable area that shifted was consumer loyalty. Now, going into this third pandemic year, it seems that many consumers have returned to some aspects of their pre-pandemic routines and this is bringing restaurant loyalty rates back up.
Several fast-casual and sit-down restaurants saw their Q4 2021 loyalty rate reach within 1% of their Q4 2019 rates. For example, Jimmy John’s boasted a loyalty rate of 15.8% in Q4 2021 compared to 16% in Q4 2019, and The Cheesecake Factory saw its loyalty rate grow to 14% in Q4 2021, just under the Q4 2019 rate of 14.1%.
Many restaurants and QSR chains launched loyalty programs during the pandemic to drive more traffic to their restaurants and also as a way to hold onto the pandemic-induced digital sales gains. Although these loyalty programs exist primarily in the digital world, they also have a real impact on foot traffic – after all, whatever is ordered through the digital app will be eaten in the physical world.
Wendy’s, which debuted its loyalty program in July 2020, was one of the first major burger chains to launch a rewards program. Following the launch, Wendy’s saw a loyalty rate jump to 55.2% in Q3 of 2020 - a major increase from the 27% loyalty rate the previous quarter. While the excitement appears to have worn off rather quickly – Q4 2020 saw a sharp decrease down to 28.9% – the loyalty rates climbed steadily after. By the end of 2021, Wendy’s seemingly returned to its pre-pandemic loyalty numbers, with a rate of 33.3% in Q4 2021, compared to 33.9% in Q4 2019, and 75% growth in their loyalty program membership.
Taco Bell (re)-launched its rewards program in July 2020, and the loyalty rate in Q3 2020 shot up to 51.5%, compared to 28.4% in Q2 2020. Like for Wendy’s, the initial foot traffic surge was short-lived, but Taco Bell also saw its loyalty rates steadily increase since. And the foot traffic decline in Q4 2020 is no indication that that rewards program is cooling down. In fact, since the program’s launch, app sales have increased by 90%.
The dining sector is still recovering from the impacts of the past two years, and newfound inflation struggles may yet hinder this process. Taking all that into account, there is plenty of reason to be optimistic, as QSR chains continue to introduce innovative programs to retain their customers.
The dining sector has rallied impressively during two extremely challenging years. While many dining venues did permanently shutter as a result of the pandemic, and some dining brands are still struggling to return to their pre-COVID visit levels, the sector as a whole has shown remarkable resilience and agility.
Moving forward, restaurant concepts will likely continue integrating technology into the dining space, and brands that were once staunchly opposed to take-out or delivery will seemingly continue embracing omnichannel strategies to meet their customers’ expectations.
Now, to add to the COVID-related difficulties, inflation and the rise in gas prices are keeping some consumers close to home. But if the past two years have taught us anything, it’s that people want to socialize in the physical world – and socializing usually includes grabbing a coffee, breaking bread, or hitting a bar. As Starbucks community stores have shown us, perhaps the most potent tool in a restaurant’s recovery belt is giving back, creating relationships, and fostering a sense of community.
Community is key.
Community engagement is proving to be worthwhile for Starbucks, whose community stores outperform comparable stores in terms of visit numbers, even if the visits come from a much smaller trade area. By tapping into local resources, restaurants can build their presence in a way that feels meaningful and useful to the neighborhoods and communities they serve. This approach is especially interesting as it allows large chains to create local roots and establish deeper relationships within specific communities.
Gas prices may change how we dine.
Worldwide, gas prices are hitting historic highs, and consumers are shifting their attitudes accordingly. As SONIC Drive-In and The Cheesecake Factory’s foot traffic patterns indicate, customers may choose to stay close to home when dining. Restaurants should consider how to accommodate these changes and attitudes to position themselves more effectively in a changing economy.
Rightsizing continues to prove its worth.
Brands can maximize their profits by focusing on the best-performing stores in their fleet and ensure that their existing branches do not cannibalize each other. By strategically closing certain stores, dining concepts can optimize foot traffic and increase profits. A focus on quality, not just quantity, may be the way forward for dining chains with a large and dense store count. Critically, it also pushes brands to reevaluate how they judge a location and its potential.
Omnichannel dining may be the future of eating out.
Virtual dining and ghost kitchens are positioned to grow and to continue to complement physical dining. As online and in-person dining become increasingly common, IHOP’s virtual brands may serve as a model for how the digital and physical channels can work together to drive both online and offline growth. Allowing customers the flexibility of choosing their meal with the push of a button is increasing in popularity and we will likely see these trends continue to grow as our on-and-offline lives become ever more intertwined.
Loyalty pays off.
With so many new loyalty programs around, brands that want to stay in the game may need to offer the customers an incentive to keep them coming back. Looking at Wendy’s, we can see that the introduction of a rewards program can increase customer loyalty significantly. The ability to tap into customer loyalty can play a significant role in driving foot traffic and hungry mouths to restaurant chains.
