U.S. Restaurant Industry: Current State, Trends & Outlook

By: Poonam Rao, Sr. Director POS Distribution Strategy & Execution / Global Sales Excellence, Global Payments Inc

The National Restaurant Association (2020) had projected the U.S. restaurant industry to grow from $833 billion in 2019 to $899 billion in 2020. In this oversaturated market, being a differentiator and long-term competitor is hard. Key industry trends like rapid changes in consumer behavior, the rise of the digital consumer, and the craving for unique restaurant concepts have dominated the market and shaped the industry (Hiner, 2020). The pandemic has further added to the complexity by radically changing consumer preferences, accelerating some existing trends. Mandated closings, consumer fears, and limited spending devastated the industry, dropping sales dropping by $240 billion to pre-pandemic forecast (National Restaurant Association, 2020). Presently, 25% of the restaurants are permanently closed, some of which were well established in communities. Of those open, 48% say they will pivot soon (National Restaurant Association, 2020). Despite this, the industry forecasts reaching pre-pandemic levels by mid-2021 and growing to $1.2 trillion by 2030 (National Restaurant Association, 2020).

There is significant research on the industry, its business model concepts, changing consumer behavior, current and anticipated trends in technology, service, marketing, workforce, food, menu, etc. The study extends the existing literature on restaurants and will address the following research questions:

  1. What are the different restaurant concepts in the U.S.?
  2. What are the trends disrupting, and shaping the US restaurant industry?
  3. How is consumer behavior impacting trends and restaurant concepts?

The primary purpose is to provide an overview of the industry, mainstream restaurant concepts, key trends, its influencing factors, and insights into how the industry will shape in a decade. Understanding these trends is critical for restaurateurs and the restaurant tech ecosystem to plan their business model and operating strategies.

Restaurant Industry overview
The restaurant industry consists of two primary concepts as full-service and limited-service. National Restaurant Association (2021) identifies full-service restaurants consisting of family dining, casual dining, and fine dining where patrons pay after dining. Limited-service restaurants comprise fast-casual, quick service, coffee & snack shops, cafeterias, grill-buffets, buffets, social caterers, beverage, and snack shops where patrons order and pay before eating.

National Restaurant Association (2021) shares other foodservice establishment types like on-site food service, food contractors, lodging paces, retail-host restaurants, taverns, bars & night clubs, store restaurants, gasoline-service station restaurants, food trucks, food carts, mobile catering, food courts, recreation & sports (bowling lanes, theatres, sports centers), restaurants operated by businesses/ institutions/ universities/ airports and governments. All these restaurant segments compete ferociously as the lines blur between concepts and convenience-driven consumer dining decisions.

  • Fast dining, quick service, and fast-casual ($240 billion fast-food sales in 2020)
    Thi (2020) explains limited-service restaurants as drive-thru, take-out only, or dine-in.
  • Single-location full-service restaurants ($193 billion sales in 2020)
    Le (2020) describes these as family-run or fine dining. Chen et al. (2015) expand that luxury operators provide high-end service, exotic ingredients, craft rare textures presenting a unique ritual. Diners at luxury restaurants are seeking novel experiences that cannot be easily replicated at home and want to break the unglamorous monotony of everyday routines.
  • Chain restaurants ($84 billion sales in 2020)
    Hiner (2000) describes these as franchised sit-downs that rely on service as a differentiator. Primarily dominated by traditional U.S cuisine it also caters to the diverse palate.
  • Coffee & snack shops ($47 billion sales in 2020)
    Thi (2020) describes these as serving specialty snacks, ice-creams, frozen yogurts, doughnuts, bagels, cookies, juices, smoothies, pretzels, cupcakes, and sodas consumed on-site, to-go, or delivered.

Key Industry Trends
Current and future operational, food, menu, and restaurant technology trends have been identified in this section.

Operational Trends
Conrad (2021), Beckett et al., (2021) and Kelso (2021) emphasize low-cost entry models for brand penetration. They share concepts like ghost kitchens and host kitchens that cater to the rising demand for online delivery without the need for brick-and-mortar presence. On the other hand, host kitchens are a slight variation of delivery-focused models that provide outside restaurants excess kitchen capacity strictly for delivery; with Ruby Tuesday being a pioneer launching this model to help with its restaurant economics. Cobe (2020) shares yet another pre-pandemic trending concept of food halls that are artistic, cultural & culinary destinations often set up in old mills/warehouses, and train stations. This concept brings diverse local chefs and start-up restaurateurs under one marketplace.

Jennings (2017) mentions the rise of indoor urban farming technology like aquaponics, hydroponic and aeroponic, and farm-to-fork concept with a focus to source produce locally. On the other end, Thomas (2020) highlights that bars and nightclubs are diversifying by offering niche concepts like wine bars, gastropubs, cocktail lounges, and brewpubs. Hiner (2020) observes that carry-out orders of alcoholic beverages were a pandemic trend, likely to continue. Besides, Beckett et al. (2021) see increased M&A of struggling establishments by powerful chains, few divesting to focus on core products, and added interest from private equity to reinvent brands.

Food & Menu Trends
Hiner (2020) shares that growing awareness of health-risks and rising obesity has encouraged restaurants to cater to various lifestyles. Kraak (2020) and Hiner (2020) both share insights that consumer preferences have leaned towards diversified dietary menu options like keto, paleo, gluten-free, vegan, fresh salads, meat alternatives, etc. with restaurants offering these at a premium sometimes. E.g. Applebee’s Under 550 Calories option (Hiner, 2000; Kraak, 2020). The authors observe supermarkets offering salads, comfort meals, and prepared food (Hiner, 2000). Meal delivery services like Blue Apron Inc., HelloFresh, etc. are further influencing make-your-own meals, providing gourmet options and the convenience to eat at home (Hiner, 2000). On the alcoholic beverage industry end, Thomas (2020) points that bars are introducing organic wine, cider, craft beer, specialty cocktails, and high-end products as consumers lean towards at-home alcohol consumption.

Technology Trends
Beckett et al. (2021) observe that off-premises taking-off, curbside pickup, drive-thru, and delivery have become a norm. Restaurants are teaming with third-party food aggregators for delivery. This has led to upgrades in delivery packaging (National Restaurant Association, 2020). The author notes that technology adoption of online and in-app purchases has been a sharp increase, complemented by contactless channels and technologies like QR code payment, self-service ordering, and handheld payments. The digital consumer is also leaning on online reviews like Yelp! and Google Reviews ratings (Hiner, 2020). On the in-house tech front, innovations in surface cleaning appliances and innovative air filtration systems are making diners feel comfortable eating out (Beckett et al., 2021)

The Road Ahead
Changes in the restaurant industry in the U.S. are rapidly accelerating. The National Restaurant Association (2021) in their “Restaurant Industry 2030 Report” predicts hyper-competition, accelerated speed of change, the emergence of new business models, growth in off-premises businesses like ghost kitchens, food halls, and takeout-only models. The study notes that 60% of the restaurant food is consumed off-premises and expected to be 80% of the industry’s growth by 2025. Additionally, with 110K restaurants closed, shifts in real-estate site selections, smaller chain footprints will prevail. Kelso (2021) states that franchising models could have substantial alterations to the virtual kitchen concept.

Beckett et al. (2021) predict that in an industry with thin margins, an anticipated rise in food prices will further cut profits. To fight supply-chain costs, Kelso (2021) thinks that future restaurants will tap into local farmer networks and transform their communities by creating job opportunities with urban farming by reactivating old mills and warehouses. Sustainability will be a key focus; larger players will adopt creative strategies to reduce their environmental footprint by installing vertical kitchens.

Kelso (2021) indicates that changes in demographics and multicultural customers will have a direct effect on restaurant menus. The global ethnic market will grow 12% by 2024. By 2018, the number of 65+ will be higher than teenagers by 11M, leading to labor shortages in the restaurant industry that mostly hires 16–24-year-olds. The author elaborates that wages will remain a significant expense though and potentially drive advanced automation.

Thomas (2020) projects that wine-specific bars could pop up in addition to cost-efficient, convenient offerings like wine subscription delivery services. Technology will be more dominant in supply chain logistics with the use of blockchain technology.

Kelso (2021) shares that as domestic opportunities shrink, major restaurant chains will look to have an international presence in emerging economies. They will need to adapt local tastes and cultural norms in marketing, menu, staff training, and restaurant design. Despite these disruptions, National Restaurant Association (2021) projects the overall industry sales to reach $1.2 trillion by 2030. Differentiators will tap into data-driven technologies to have staying power.

Hiner’s (2020) and Kelso’s (2021) research indicates that new digital technologies, delivery platforms, kiosks, apps have been disruptions that the industry has adapted well. The industry continues to face intense price competition, pressure from health-conscious consumers, rise with on-demand convenience-driven technologies, and increasing labor costs. Despite these disruptions, hospitality, and service as cornerstones of the industry are here to stay. Further research needs to be conducted on menu design for a diverse America as multicultural demographics grow and influence menus. Additional research involves areas of strategy formulation and a playbook for restaurateurs to pivot.


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