Independent restaurants

After trimming worker hours and hiking menu prices to offset rising labor costs, many restaurants feel backed into a corner, labor experts said during a Restaurant Finance & Development Conference panel on Tuesday.  

But the solution isn’t more cash for hiring, warned Luke Fryer, CEO of hospitality workforce management firm Harri. Even if a chain has the money to bolster its workforce, the tight labor market may not be able to deliver the number or type of workers a restaurant needs. 

“We have a client partner with 700 locations that is opening 300 to 400 [new units] in the next 12 months — incredible growth," Fryer said. "There’s just not [enough] managers out there to be hired who are of appropriate quality. So they've got to home grow 60% of that talent base.” 

The solution? Creating employee retention and development strategies that work at scale, experts said. The return on investment could be key to a restaurant’s success, as employees that leave during their first 90 days on the job account for 12% to 15% of labor costs at casual restaurants, Fryer said. That portion rises to 22% for limited-service restaurants. 

“That is a huge margin opportunity,” he said. 

Restaurants may have come to accept sky-high turnover rates over the past few years, but this status quo is becoming more costly, Snooze CEO David Birzon said. At Snooze, labor costs today are 70% higher than they were in 2018, for example. 

“The reality is, if we could cut turnover to zero, we don't have a labor problem. We don't have a labor dollar problem. So, how do you connect with today's workforce? What is it that they want?” Birzon said. “It really is about leadership and development, and people want to feel like they work in a place where they're moving forward.”

Hiring new talent is significantly more expensive than retaining staff, Boshard said, pointing to a study by The Center of Hospitality Research at Cornell University that found the average frontline employee costs almost $5,900 to turn over.

“For most restaurants, that could end up costing around $150,000 [annually] in just turnover costs, in training new employees and getting them in the system and having store leadership walk them through the [company’s] process,” he said. “If you want to stop the bleeding and have your labor get in line, start focusing on your employees that are already in your system.”

Creating a work environment that encourages employees to put down roots is easier said than done, especially when operators are trying to keep spending in check. But if restaurants can identify talent, foster a culture of discipline and re-engineer labor practices to smooth operation wrinkles, they can reduce churn, panelists said. 

Map the average growth cycle of employees to alleviate pain points

To futureproof for turnover, it’s crucial to understand the inner workings of a restaurant from a new employee’s point of view, said Josh Boshard, COO of private equity firm Savory Restaurant Fund. 

“You start going through the process of sourcing, onboarding, hiring, scheduling, timekeeping,” he said. “All [employees] care about is that seamless system that allows them to understand what they need to be doing.”

Boshard named scheduling and the ability to easily switch shifts and plan for holiday time off, as top restaurant worker concerns.

“If you can put a system of scale around [scheduling], you are starting down the process of shaving labor,” he said. “It starts in the details, rather than just saying ‘financials are in for P12 and we need to shave 1% off labor.’ You’re never going to at that point. … It starts with systems of scale.”

To identify which elements of the employee experience could be most improved by company intervention — whether that’s worker-facing technology, training programs or opportunities for career advancement — restaurants need to map out the average growth cycle of their employees, Fryer said. 

“We’ve all worked very hard to map out our customer’s journey. But the employee’s journey is [just] as important, and understanding how our hiring and day-to-day workforce management grows, develops and maintains our employees,” he said. “These things need to be seamlessly interconnected to drive enduring value.”

Technology can help crack the code of employee satisfaction, Fryer said. Restaurants can use data they are already collecting — such as tip frequency and amount at a particular employee’s table, as well as consumer satisfaction scores on reservations — to establish a pattern of worker behavior. That pattern could indicate how invested an employee is in their role. 

“The final frontier is [figuring out] what the employees are really thinking about, and what can that help tell us about the short-term, future health of our business?” he said. “What is the correlation between employee sentiment and guest satisfaction … how does employee sentiment act as a leading indicator for revenue, for EBITDA?”

Operators can take the temperature of their staff the old-fashioned way, Birzon said, by working with them on the shop floor. Once a quarter, he works a full serving shift at one of his restaurants and asks questions like “What are the stupid things we’re making you do that you don’t like doing?”

This practice yields firsthand insight into systems and policies that may not be working efficiently, Birzon said. 

Nurture early signs of leadership

Retaining managers may be the most challenging labor problem that restaurants face today, Fryer said. Establishing clear career paths and scheduling small incremental pay increases help, but it’s also important to recognize and celebrate good performance, he said. 

“Turnover has increased from mid-to-high 30s [percentile] into the 50s [percentile] over the last couple of years,” he said. “The best leaders are getting very strategic about building a legacy,” he said. 

Ensuring longevity can start with comparing the length of time an employee has spent at other jobs to how long they have worked at your restaurant, Boshard said. 

“Did they have three years at this past restaurant … and they only [stayed] one year with us?  Why? How is our system failing?” he said. “[But] you can also go back and say, ‘hey, they spent three years there and then they came to us and they’ve been with us for five years.’ That’s absolutely winning.”

Growing management talent in-house and keeping them happy can save a restaurant money and create a positive, trickle-down impact on store culture, the panelists agreed. That process starts early, Boshard said. He suggests that restaurant operators schedule frequent check-ins throughout a worker’s onboarding to mirror the kind of check-ins they would organically have with a personal hire, like the child of a friend. 

“What did you do to ensure [a personal hire’s] success in your brand? You call and make sure your managers know that they’re going to be onboarded. … You text them on the first day and say, ‘How did it go?’”

Boshard said that once a hire has made it past the first 90 days on the job, it’s time to start thinking about how to grow them into a leadership position. 

“[Do] the best you can to get them to that next level,” he said. But the development doesn’t stop there — if a manager is struggling, it’s more profitable to identify their weak spots and train them up than phase them out of that position, he said. 

“If we get all these employees saying ‘This GM is horrible,’ we can go back and train that GM to be better. Instead of being punitive, we come in and help them become more because our internal talent is so important,” he said. “Say, ‘Let’s help you grow. Let’s help you become a leader.’”

To facilitate this development, it may be worth creating a specific corporate role to manage employee growth, Birzon said. Snooze hired a senior vice president of training and leadership whose “sole responsibility is to put in programs to develop our people at the hourly levels, at the management levels and even at our mothership, which is what we call our corporate office.”

“Great leaders build great teams, and that starts from the top down,” Birzon said.

Off-premise traffic — including drive-thru, takeout and delivery service — remains a major business driver for restaurants as diners prioritize convenience, according to three recent industry reports.  

Nearly half of restaurants said off-premise business made up a higher percentage of business last year compared to 2019, according to the National Restaurant Association’s State of the Restaurant Industry 2024 report emailed to Restaurant Dive. Of the surveyed restaurants, 43% of full-service restaurants and 55% of limited-service restaurants said off-premise accounted for more business than it did five years ago. Just over one-third of operators said they expect off-premise sales this year to be higher than last year, while 55% said they expect this channel to be about the same. 

According to TouchBistro’s The State of Restaurants in 2024 report, 46% of operators are planning to add more off-premise ordering options, like takeout and delivery, as a way to boost revenue. A bakery and cafe general manager cited in the TouchBistro report said that they are still offering third-party delivery, but now allow customers to pick up food directly from the restaurant, which can help save on costs, given the fees third-party platforms charge consumers and operators. 

Online ordering platforms continue to be a key part of operators’ strategies despite ongoing concerns over the cost of third-party commission fees, and 95% of operators said they are using at least one online platform, per Touch Bistro. Uber Eats was the top platform, with 68% of operators reporting they partner with the delivery aggregator, while 36% said they were using a direct ordering platform. On average, operators use three online ordering solutions, per TouchBistro. 

“As businesses become more profit focused, they’re going to look at where they’re giving away margin,” said Bryan Solar, chief product officer of SpotOn. “Having a great self-owned ordering experience is going to be really important.”

Use of direct online ordering rose to 36% in 2023 from 34% in 2022, which TouchBistro said suggests that operators are using this method as a way to save on commission fees. While commission fees average about 15%, a plurality of operators (34%) tend to pay 6% to 10% and 27% say they pay 11% to 20%. Only 24% of operators say they pay commission fees of over 21%. 

“Undoubtedly, consumer demand for takeout and delivery has subsided since the height of the pandemic. However, it has never flatlined in the way some experts predicted,” TouchBistro said. “In fact, restaurants still report doing nearly a quarter (23%) of their business through online ordering platforms, on average.”

Consumers still like takeout and delivery

Diners continue to prefer off-premise ordering as well, with 52% saying that takeout is “an essential part of their lifestyle,” according to NRA's report. More than half of consumers also said they would supplement a home-cooked meal with a prepared item from a restaurant, such as an entree, side or dessert. 

Similar observations abound in William Blair’s The Dining Download report, which highlighted various digital trends. Convenience and time constraints represent the top reason for 69% of consumers choosing to order delivery or takeout, according to William Blair’s report. 

Over one-third of respondents in William Blair’s 2023 survey said they order more delivery and/or takeout since 2019, compared to 23% who said their ordering decreased.

“Off-premises eating … remains more frequent than in-person eating, and our survey supports that the pandemic may have structurally changed consumer behavior,” analysts at William Blair said. “Once again, more respondents said that over the last year their frequency of ordering takeout had increased than decreased.” 

Younger generations continue to be the top demographics regularly ordering takeout, with 67% of millennials and 63% of Gen Z adults saying they do so, according to NRA’s report. 

Roughly two-thirds of consumers said they used third-party delivery in the past six months; the channel remains popular among young cohorts, as well. More than seven in 10 Gen Z adults said they used third-party delivery, compared to about one-third of Baby Boomers.

However, consumers ordering preferences do not favor third-party platforms. Consumers of all ages said they prefer to order takeout (32%) and delivery (30%) directly from a restaurant's website or app compared to 22% who prefer ordering on a third-party marketplace for delivery and 7% for takeout, according to William Blair’s report.

However, one thing remains popular for takeout: ordering by phone or in person is a preference for 48% of all consumers. For demographics under 60, 40% said they still prefer this method for takeout,the highest percentage among any other method. Chains like Del Taco, Checkers & Rally’s and White Castle have been testing voice bots for phone orders, while others like Burger King, Taco Bell and Shake Shack have been deploying kiosks to free up in-store labor.

“We continue to believe that demographic shifts and growing comfort with digital channels will drive an ongoing mix-shift toward digital ordering by consumers,” reports William Blair.

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By Upserve

In the wake of COVID-19, pivoting has taken on a whole new meaning, and few restaurants represent success in this "new normal" like Bywater in Warren, RI. For their cozy, upscale casual restaurant, takeout was "a steep learning curve," said co-owner Katie O'Donnell. "It was a lot of trial and error. The reason Online Ordering has taken off for us is we've tried to stay a step ahead."

Bywater's best practices for pivoting your restaurant in a pandemic:

• Use email and social media to establish trust with your customers and guests. 

• Keep your menu and offerings interesting: partner with other restaurants, chefs, and businesses to keep your customers ordering every week.

• Pay attention to your Pmix (product mix) on a daily basis, people want different food on different days of the week.

Building and optimizing an online ordering menu

When setting up their first online ordering menu, Katie looked at her Upserve Menu Magic Quadrant. "We went into Upserve to pull our best sellers that we knew people would come back for," she noted. "We set up our online menu so we could keep labor costs low, streamline our menu, and sell the crap out of everything to keep revenue high and costs down."

As the pandemic dragged on, Katie kept an eye on her Pmix to make sure they were constantly iterating on their menu to improve revenues. She noticed that guests preferred to buy cocktail mixers at a lower price point vs. to-go cocktails which had a smaller revenue margin. "People have vodka in their house," she said with a laugh. "So even though we can sell the whole cocktail, it made more sense financially to just sell the mixer. The profit margin is so different when you have to think about packaging."

She's also constantly testing the order and organization of her Upserve Online Ordering menu. "We run the Pmix in Upserve every night to see what's selling and look at the graphs," Katie said. "We refine the graph to just show the top five things and break it down, so I'm using the Upserve Menu Quadrant more than I ever used to."

Katie has found that they need to be more nimble because take out is different than dine-in in terms of attention span. "You get more direct feedback with to-go, especially with a pared-down menu," she said. "If you don't have the thing they want, you won't make the sale. They'll click over to a different restaurant."

Katie and her staff are using Upserve analytics to take a hard look at who their regulars are, who the highest spenders are, and how to keep both engaged through a mix of hard data and anecdotal feedback. One insight she has uncovered is that they may be switching up their menu too quickly. "We keep underestimating how popular things will be," she said. "Last week we took our fish and chips off the menu and we had a 40% drop in sales and non-stop calls about it. People want what they want! So we brought it back and sales were back up. If we were open for dine-in we'd never run a single menu item for this long."

No restaurant owner would choose to be in this predicament, but focusing purely on Online Ordering has shifted how Katie plans to run dine-in at Bywater going forward. "We're so focused on changing it up, that we've overlooked the long-term audience for certain dishes or specials," she said. "Now, only when sales start to drop organically do we take things off the menu."

Diversifying revenue and finding new customers

Looking at models from restaurants like Canlis, Bywater put together a box of local produce, wine, and treats that could be tacked-on to a to-go order. They sold out of their first run and made $13,000 in the first week – all money that stayed in her small community of business owners. 

"The first CSA boxes were huge," Katie said. "We let it be an organic, social media-driven thing which was good because we reached our bandwidth in terms of what we could produce." They quickly pivoted to special occasion boxes for Mother's Day, which quickly sold out and generated press and buzz for the restaurant. Now, they're formulating a subscription box service that would provide a curated box every month with different partners. 

Katie suggests restaurants trying on this tactic focus on an on-brand theme for each box and then work around that theme to fill it. For their Father's Day box, Bywater went for a grilling theme. They worked with a local butcher to provide prime cuts of meat, packaged alongside classic Bywater sauces. "What great wine goes with that? Is there a book about grilling that fits? It all builds around what we would do at Bywater," she says, ideally making the boxes an extension of their dine-in experience. They also promote the boxes with social media components: a video from a local pasta maker, preparation suggestions for the vegetables, or even a live wine tasting on Instagram. 

"We're trying to recreate normalcy but have fun with the fact that it's not normal," she said. "If people want Bywater in their lives, but takeout gets boring, the boxes create a way to bring Bywater in peoples' homes."  

Next year, Chipotle plans to continue improving personalization through its rewards program, relying on research and customer data to “deliver relevant experiences that will motivate future purchases in a fun way,” said Jason Scoggins, senior director of customer activation at the burrito chain. 

Chipotle isn’t alone. A growing number of restaurant chains have recently launched rewards programs — or overhauled existing offerings — to offer targeted incentives to loyalty members. 

Building loyalty is crucial in today’s environment, said Stephen Zagor, principal of Steve Zagor & Associates and an adjunct professor of business at Columbia Business School. Technology has sanitized the customer point of contact process and competition for the dollar is strong, he said. Loyalty programs provide companies with a massive opportunity to connect and build a relationship with their customers amid these pressures.

“Loyalty programs are great at showing company love and appreciation,” Zagor wrote in an email. “They instill a feeling of — I matter — in the customer. It’s like joining a club.”

But not all rewards programs are, or should be, the same. Brands that keep the same rewards without measuring the emotional connection they forge with loyalty members will ultimately lose value and customers, said Rick Camac, executive director of industry relations at the Institute for Culinary Education.

In 2024, restaurants need to better understand their demographics and offer rewards tailored to those groups.

“You need to figure out what the customer will respond to,” Camac said. “How do you make your guests feel wanted, understood and valued?​”

Chipotle, for example, has employed a personalized decision engine to determine freebies rewards members can receive through “Freepotle”, a rewards perk the chain debuted at the start of 2023. The loyalty offer gives members in the U.S. and Canada 10 free “food drops” — including beverages, guacamole, double protein in a meal, or chips — throughout the year. 

The company has also introduced several real-time interactions and enhanced gamification, including achievement badges diners can earn, to deepen diner engagement, he said.

Chipotle’s rewards program grew almost 14% to more than 36 million members in 2023, Scoggins said. Membership previously grew 20% in 2022, reaching 31.6 million users.

“The rapid growth of Chipotle Rewards is a key indicator that consumers see the massive value in engaging with the program,and we’ve been able to increase purchase frequency among our user base along the way,” Scoggins said.

Tailored experiences can deepen engagement 

Loyalty programs have become an increasingly important strategy element for full-service restaurants, coffee shops, and fast casual chains.

Gaining customer loyalty is critical for companies today, as consumers are identifying with brands at decreasing rates. According to a recent Salesforce survey, the portion of customers who feel emotionally connected to brands has fallen from 62% in 2022 to 54% in 2023. 

Cracker Barrel launched its rewards program in September in an effort to boost stagnant traffic and sales. Through the platform, customers earn a point, or “peg,” for every dollar spent at the restaurant — allowing customers to redeem items such as prepared take-home meals, sides, desserts or retail discounts. 

Sweetgreen in April launched a two-tiered loyalty program, which allows diners to sign up for either a free or paid subscription. Through the program, customers can earn rewards, access new menu items and purchase merchandise. The paid service gives members $3 daily discounts on orders, among other perks. The company later allowed members to redeem rewards on in-store orders, as well. 

In most cases, loyalty customers make up less than half of a restaurant’s overall customer base — meaning that half, give or take, are not swayed by the perks most programs offer to stay loyal, Camac wrote in an email. Starbucks has one of the most successful programs, he said, with loyalty customers accounting for just under 60% of the coffee chain’s total revenue, the chain shared in November. 

Still, fostering loyalty with customers yields higher diner spend among members at a modest cost to a company, Zagor said. 

Those programs also generate an immeasurable abundance of customer data that can provide companies with strategic information for future product decisions and the “super-premium goal” of artificial intelligence-inspired customization, he said. 

Brands that provide exclusive, personalized experiences at every touchpoint are appreciated by consumers, according to Salesforce’s survey. Companies that have successfully offered personalized experiences for consumers, such as Starbucks, have powered their programs through real-time customer data and A.I., per the survey. That makes it easier for consumers to conduct business with companies, boosting acquisition, retention and lifetime value. 

The success of various loyalty program schemes depend on the market segments they target, Camac said. A program that works at Starbucks won’t work at Landry’s or Ruth’s Chris Steak House, for example.

Companies should tie their programs to the interests of their demographic base, he said. For example, a high-end steakhouse could offer exclusive wine tastings to their preferred guests, he said.

“Free coffee would not work necessarily at a steakhouse,” he said.

Rewards programs are evolving to match diner needs

As companies launch new programs, others have made revisions to their existing ones. 

To continue capturing loyal customers amid rising menu prices, companies have increased discounts offered through points-for-dollars models. And, to strengthen customer retention, brands have improved their rewards programs with a variety of different schemes, ranging from NFT digital tokens to palm-scanning payment tools.

Pizza chain Pieology in November allowed Pie Life Rewards program subscribers to receive daily perks — such as side salads, cookies, and drinks — when they purchase a craft-your-own pizza. Similar daily perks have been adopted by other chains, like Noodles & Company, over the past year.

In an effort to account for changing market conditions and business costs, Chick-fil–A tinkered with its widely subscribed loyalty program Chick-fil-A One last spring. The fast food chain added new items for redemption to its rewards program, and increased the points values for some rewards. These changes mirrored moves by Dunkin’ and Starbucks, which revised their reward program point redemption systems in 2022 and 2023, respectively. 

Not every change has been well received, however. Dunkin’ received pushback from fans and frequent customers pledged to go elsewhere after it increased the accrual rate of loyalty points in 2022, while also increasing the number of points needed to redeem drinks. The move, which placed a greater emphasis on food items, increased the cost of redeeming drinks through the program. 

The company said those complaints were not reflective of the attitudes held by most loyalty customers. But the need to continue monitoring and adjusting consumer interests can be critical. 

Inflation pressures could, to a degree, change the kind of rewards that people are interested in, said Camac. 

“When money is more important, interest shifts to saving dollars as opposed to other rewards,” he said.

And many companies at this point have not yet adjusted their transaction-focused loyalty programs to become more personalized because in the past, creating one took a lot of resources, per the Salesforce survey. Fifty-four percent of retail loyalty programs still offer points-based rewards, the survey found. 

Reframing, retiring or adjusting the requirements and rewards for a points-based program can be a tremendous undertaking. 

Camac believes that most companies have gotten their loyalty programs wrong, continuing the same tiered programs for too long — reaching a point where most diners take those rewards for granted, and don’t necessarily look at them as a perk.

“It's hard to get excited about a free cup of coffee after buying 10, but I'll take the free cup,” Camac said.

The city council of Washington, D.C., passed a restaurant bill Tuesday with several provisions, including one that shields restaurants that charge service fees of 20% or less from some litigation under certain conditions. The bill passed by a vote of 12 to 1. 

The service fee amendment clarifies that such fees “shall not constitute an unfair or deceptive trade practice,” if they are less than 20%, are disclosed clearly to consumers — including verbally, on the restaurant’s website and menus — and so long as the purpose of the fees are disclosed.

Passage of this amendment comes as many in the restaurant industry predict a proliferation of service fees. In 2022, the District sued Grubhub over its fee structure, signaling interest in regulating opaque and deceptive fees.

Service charges imposed by D.C. restaurants have become something of a political flashpoint since the implementation of Initiative 82 last year, which eliminated the tip credit and raised hourly wages for restaurant workers. The Employment Policies Institute, which has publicly advocated for the preservation of the tip credit, found 70% of regional restaurants would consider adding service fees by 2027. 

Operators lean on such fees to absorb rising labor costs. Omar Popal, founder of Popal Group in D.C., said in a recent Restaurant Dive interview that his restaurants use service fees to help cover wages, health insurance and worker benefits. 

Before the bill becomes law, the mayor must approve it and the legislation must be submitted to Congress for a review period in which the federal legislature can overrule measures passed the District’s government.

In the months leading up to the council vote, a coalition of left wing groups and worker organizations opposed to service charges, called Fair Price Fair Wage, launched a social media campaign in Washington to document service fees at restaurants and grade them according to their level of transparency. The group focused on highlighting individual restaurants rather than conducting a citywide survey, so its findings — which identified restaurants with unclear fee disclosures, clear fee disclosures or no fees at all — are unlikely to reflect the proportion of local restaurants implementing fees. 

Popal said some D.C. eateries have added service fees ranging between 4% and 23%. 

While there was a flurry of reporting that the end of the tip credit damaged the D.C. restaurant labor market earlier this year, such allegations were based on a single month of seasonally unadjusted employment data for a city where full-service restaurant employment generally dips in the fall and winter. Subsequent months have seen tipped employment recover in D.C., with the full-service restaurant workforce up by about 700 workers, or roughly 2.4%, larger in December 2023 than in the year-ago period. 

Restaurant workers haven’t returned to the sector in the numbers that business owners hoped to see years after pandemic lockdowns. By 2021, many restaurant owners struggled to fill cook, line cook, server, bartender and manager positions. And though the number of foodservice job openings and job seekers are beginning to near equilibrium, wage hikes and turnover are still squeezing operators. 

Inflation is driving up food costs and salaries, so restaurant owners are increasing menu prices to offset that overhead spending. But sticker shock is hurting restaurant customer counts, said Tony DiSilvestro, a Virginia Beach, Virginia-based business coach and restaurant owner.

“The last three years have been the most difficult three years I’ve seen in 40 years,” said DiSilvestro. “It was like a tsunami for us.”

DiSilvestro said consumer price sensitivity could cause restaurants to move away from the tipping system, and replace it with surcharges. But new digital payment devices have made it easier for restaurants to encourage tips — and specific gratuity amounts — and customers are generally tipping more in response. 

Seventy-two percent of consumers reported that the quality of service affects the amount they tipped, while 56% cited their personal budget, according to a Forbes Advisor report. 

However, reports and experts warn that some customers feel stressed by the ubiquity of digital tipping prompts, a dynamic that could keep many people home. 
 

Digital tipping fatigue could hurt restaurant traffic

Thanks to new technology, like handheld payment devices and tablets, 60% of Americans say they’re tipping more, according to a report from LendingTree. 

However, according to the same report, nearly a quarter of consumers say they always feel pressured to tip when the option is presented on the device. Another 42% say they sometimes feel pressured to tip, and 60% believe gratuity expectations have “gotten out of hand.”

The Forbes Advisor report found similar results, with roughly three quarters of survey respondents saying they always or often tip when expected, but one in three feel pressured to tip and 18% feel uncomfortable about it. 

The shift in tipping behavior has also increased tip totals. According to a recent report from insights firm Lightspeed, median tip percentages increased 2.3% from 16.93% to 17.32% year over year. 

But consumers in a recent USA Today survey reported similar frustration over tipping expectations, with 61% saying tipping has gotten too expensive and 63% saying too many places are asking for tips. Younger generations are particularly fed up with the practice, as half of Gen Z respondents and 52% of millennials say they’re tired of tipping, per the report. 

Toast reported that total tips for restaurants on its digital platform decreased ever so slightly in Q2, with tip averages dropping to 18.9% from 19% the prior quarter. For full-service restaurants, where tipped employees earn a lower hourly wage, average tips fell to 19.4% in Q2 from 19.7% in Q1.

While modest, Toast reported the figure as the lowest average tip amount for full-service restaurants on the platform since the start of the pandemic. The company stated that tipping fatigue, concerns about inflation, generational divides, and tipping pressures contributed to the decrease. 

This souring consumer sentiment may impact sales, according to the LendingTree report, which found 41% of consumers have changed their buying habits due to gratuity expectations. The LendingTree report speculated that the tipping culture may have contributed to increased sales at grocery and specialty food stores, as well as beer, wine and liquor stores.

Not every report brought bad news for sit-down restaurants, however. According to the Lightspeed report, while tipping for online orders and delivery fell slightly from 8.83% to 8.07%, people are still eating at both fine dining and fast casual restaurants more frequently, with fine dining transactions increasing 3.6% year over year, and 3.53% at fast casual restaurants. 

Fairness to customers, servers and staff

Customers are feeling pressured to tip more on payment screens because many have options ranging from 18% to 25%, even when no service is provided, Bob Verdigis, founder of Pointofsale.cloud, said in an email. Digital tipping prompts have become more common among various industry sectors, including fast food restaurants, grocery stores and even self checkout machines, he said. 

Over the years, customers have become more willing to tip above and beyond what’s really necessary, said Verdigis. About 40 years ago, people were tipping an average of 15%, said Verdigis. 

Recently, customers with household incomes exceeding $50,000 have begun tipping 21% or more, a 2022 Creditcards.com survey found. According to the USA Today survey, 38% reported tipping 20% or more. 

DeSilvestro hasn’t seen tip frequency change, but he said customers are more finicky about who they tip, how they tip, and if a server should get a tip. That’s forced servers to work harder. 

“With the economy the way it is, if you’re not performing at a higher level, it’s definitely going to affect your tip,” he said. 

Customers who feel guilted into tipping in front of the server may increase tip amounts, but coupled with added sales taxes, and higher menu prices, eating out can get extremely expensive. As a result, many financially strapped families are opting not to dine at restaurants, DeSilvestro said. 

Digital tips can be more convenient for customers, but listed options should include 15%, 18%, and 20% gratuity, as well as a custom tip option for those who wish to tip more or less, Verdigis said. Servers should look away from the customer when they make their tipping choice and payment, he said. 

Even when they receive great service, customers should not feel like they need to tip more than 20%, Verdigis said. He argues that they should not be pressured into tipping for takeout orders when no service is provided, either. 

“Digital tipping becomes uncomfortable for customers when it’s presented by a hovering employee, gives unreasonable tip options or is offered for services that don’t require a tip,” he said. 

The discomfort of being directly asked for a tip has often prompted consumers to order takeout or delivery through digital platforms so they can take time to think and do the math through an app instead of under watchful eyes, said Verdigis. 

According to the USA Today report, reverting back to the paper receipt could actually help servers and staff looking for a bigger tip. Half of respondents said they tip the same when paying either digitally or on paper, but a quarter reported they tend to tip more when it’s on a paper receipt. 

However, digital tipping could yield higher tips than cash, with the Forbes Advisor survey finding that nearly 65% of respondents tip at least 11% more when tipping digitally versus with paper dollars. 

As wages for tipped workers grow, will a new system emerge?

A number of cities, such as Washington, D.C., and states, including California, have passed laws or are pushing through plans to raise the minimum wage for tipped workers. 

Many Americans agree with this trend. According to the LendingTree report, 84% of consumers say minimum wage for service workers should be increased, and 44% say tipping should be mandatory in the service industry. 

Many restaurants cannot afford to increase hourly server pay without making changes somewhere else to offset the cost, said DiSilvestro. 

“It’s great to be able to pay your employees a high salary, but if you’re not making money, employees will not have a job,” said DiSilvestro. 

As a result, DiSilvestro believes tips will eventually go away. Instead, there will be a surcharge of 15% or more on every order with tips being shared between all restaurant staff, not just servers, as is the common practice today, he predicts. Servers would receive a smaller share of surcharges than is typical, but would still be earning more per hour, giving them more financial stability, he said. 

“It’s probably a fair way to do it, especially in restaurants, because cooks are working just as hard as the waitresses, if not harder,” said DiSilvestro. “It will kind of level the playing field a little bit.

From office settings to private events, catering demand is growing dramatically. Offices need a better way to feed their hybrid workforces, and more consumers are throwing parties and social events. The market potential is huge in the U.S.— last year, the catering sector reached $72.7 billion. Now, catering business is expected to grow at a compound annual growth rate of 6.2% between 2024 and 2032, reaching over $124 billion by 2032, according to Expert Market Research.     

“Both [social and business] catering are very much alive,” said Mike O'Hanlon, chief partnership officer at ezCater. “This is a channel that if [restaurants are] already in, they are investing more, and if they’re not in it, they’re looking very hard at it.” 

More local, independent restaurants are embracing catering, too. EzCater is currently fielding interest from roughly 250 small restaurants weekly, and the number continues to grow. 

“We love big brands. We love the chains that everyone’s heard of, but catering is also a very local and personal thing. … Our customers really want their local favorite restaurants,” O’Hanlon said.

Roughly 54% of restaurants said they plan to introduce catering services this year and this channel was the top way operators plan to boost revenue compared to adding multiple new locations (44%) and opening one location (43%), according to TouchBistro’s 2024 State of Restaurants Report.

Chains are adapting their catering menus as well, providing more boxed-lunch and individual options and expanding their reach across different digital platforms to capture customers for this profitable, high-average-check channel. And there is plenty of opportunity for growth, sources said.

“Despite the plateauing in office attendance … food spend per head is much higher,” O’Hanlon said. “The overall market is bigger now than it was before COVID.”

How catering is growing across restaurant chains

Multiple chains are reporting double-digit growth that doesn’t appear to be slowing down. Catering at Cracker Barrel grew 50% versus the prior year, Craig Pomells, Cracker Barrel SVP and CFO, said during the company’s fiscal Q1 2024 call in November. 

In fiscal 2023, the chain achieved its goal of growing its catering business above $100 million, former CEO Sandy Cochran said in a September earnings call. For fiscal 2024, the restaurant company is leaning on its catering sales managers to drive growth, particularly with large accounts, said Julie Masino, Cracker Barrel’s president and CEO.                                                                      

BJ’s Restaurants’ catering sales were 50% higher during Q3 2023 compared to the year-ago quarter, CFO Tom Houdek said in an October earnings call.      

Fast casual chains like Sweetgreen and Cava have both been expanding their presence in catering, as well. Sweetgreen officially launched catering last year after rolling out the channel in select markets at the end of 2022, starting with Washington, D.C. Panera, which has offered catering since 2004, joined ezCater’s platform in September following the addition of Subway and Wawa, both of which have had catering for some time.          

Qdoba’s catering business accounts for 10% of sales and grew from $1,251 per restaurant per week in 2021 to $2,973 currently, Modern Restaurant Concepts CFO Mel Tucker said during the ICR Conference in January. 

“Catering is our most profitable, highest-growing business,” Tucker said. “It’s roughly 1,000 basis points more profitable on a four-wall cash basis than any other business in our restaurant.”

What’s driving the catering boom

Office catering is on the rise as employers use food to incentivize employees to come into the workplace, said Alison Quinn, Dinova CEO. Employers are also providing remote workers with lunch deliveries, she said. Dinova connects corporations and their employees to participating restaurants through its Dinova Connect program, which allows business diners to pay with corporate cards for large and small events.

The hybrid workforce tends to come into the office Tuesday through Thursday, with Tuesday being the peak day, Quinn said. Because fewer employees come into the office five days a week, some offices no longer offer onsite cafeterias, which has helped increase demand for catering. 

Office catering has become easier to anticipate since demand has primarily stemmed from orders placed on Tuesday through Thursday, while event catering tends to be off-hours and in the evening. That means restaurants can more efficiently plan out how to fulfill these orders that are typically made ahead of time, Quinn said.

Dinova has seen an increase in catering for business-related events as offices work to increase employee engagement with workforces often split between hybrid and virtual employees. Business travel is also up and is expected to exceed pre-pandemic levels this year, she said. Dinova recently brought Main Event onto its platform, which provides an additional option for corporations to bring their employees together to socialize and build relationships, she said. 

“The consumer diner is not expected to grow this year. They may actually decrease the amount of spend,” Quinn said. “Whereas business dining is not price sensitive. … Business dining is growing and consumer dining has flattened. That’s a huge opportunity for restaurants to focus a bit more on business dining versus on consumer dining.”

And there’s plenty of money on the table. The amount of catering transactions that are $3,000 or higher is increasing, Quinn said.

Catering platforms have also been making it easier for restaurants to offer more catering orders. EzCater, for example, offers a product called Relish that allows individual workers to order meals from restaurants that are subsidized by their employers. Restaurants then receive a pre-scheduled, aggregate group of orders that are easier to fulfill than getting 30 orders all at once, O’Hanlon said. 

Why catering is no longer just office-based

Individual meals and boxed lunches grew in popularity during the pandemic due to safety issues, but the popularity of such offerings continues to grow — especially since individual lunches can be a great way to attract workers into the office, O’Hanlon said. 

“Tray catering is not dead. It’s more or less back, but our best catering partners are also offering individually packaged items like sandwiches and boxed lunches,” O’Hanlon said, adding that how people order really depends on preference and where their workplaces are. 

Individual meals are also popular as a catering option for non-office based locations like construction sites and distribution centers. EzCater has expanded in these segments since the pandemic, when office attendance tanked, because there was opportunity to cater to essential workers at hospitals, construction sites, factories and distribution centers. 

“If I could predict into the future, I think more around-the-clock use cases will be part of our future,” O’Hanlon said. “That’s dinner, that’s lunch, but at 4 a.m. because that’s the third shift at the factory.”

Catering menus are getting more diverse

People want more flexible menus that have a range of dietary options, such as vegan, gluten free and allergy friendly, Quinn said. Many chains have developed catering offerings that deliver on this diner demand. 

Within the past year, Wings & Rings has seen catering grow in the double-digits, Dan Sweatt, Wings & Rings’ field marketing manager, said. To best appeal to this demand, the chain adapted its menu with different catering options, like wings platters that include sauces, celery and blue cheese that are packaged in a more organized manner. 

The chain also offers individual box lunches that have helped it serve the business crowd. Boxed lunches have also appealed to families going on day trips, who can stop into a restaurant in the morning and grab a lunch on the go. The chain also offers party boxes with appetizers. 

Wings & Rings already offers a core menu that includes a diverse array of wings, appetizers and salads, so the key is to highlight the different diet needs — such as vegan or vegetarian — that its food caters to, Sweatt said. The chain offers several different sauces to provide different flavors, as well as cauliflower wings to appeal to non-meat eaters. The company also offers large salads to provide more healthy options. 

“People really want to be able to customize and have options, especially as you get back into the office and you’re having these larger parties. People want different things,” Sweatt said.

Now that consumers are used to streaming live sporting events at home, more people are hosting Super Bowl parties, especially post-COVID-19, Sweatt said. Wings & Rings added party snack boxes leading into the last Super Bowl and saw huge demand. The company continues to invest in packaging, especially since it adds an element of brand presentation for parties as well, Sweatt said. 

“People want to eat at home more, but still would like a restaurant food experience,” Sweatt said.

How chains are adapting to growing demand

Paris Baguette has seen an increase in business catering as well as gifting catering for things like large cakes and cupcakes, Paris Baguette’s Chief Operating Officer Nick Scaccio said. Over the past few years, the chain revised its packaging and tailored its orders to the average size of orders, which is about 50 attendees, that it has seen post-pandemic. Its catering menu, which has been revised in the past few years, includes assorted pastry boxes, handcrafted doughnuts, croissant breakfast sandwiches, baguette sandwich packages and lunch boxes.

Paris Baguette also shrunk its catering order lead time from 72 hours a few years ago to two to four hours, depending on the offering. With crossover on its in-store and catering menus, it is easier to fulfill many of these orders within cafes. Paris Baguette is looking into partnering with catering partners in the CRM space, as well, Scaccio said. 

The chain is also focusing on simplifying operations and integrating technology so that orders coming in from its app, online or through a third-party catering platform flow through its point-of-sales system, Scaccio said.    

Bloomin’ Brands launched Carrabba’s Sandwich Bistro last year for its Italian food brand to provide lunch-focused catering with sandwich bundles (which include a side and cookie), boxed lunches and trays. The company’s catering channel “continues to outperform our expectations,” Bloomin’ CEO David Deno said in a November earnings call. Off-premise and catering represented 34% of Carrabba’s sales during the third quarter, he said.    

“We’re very bullish on what the catering business and what the off-premises looks like at Carrabba’s,” Deno said. “And we’ve seen sales levels that are just terrific.” 

Cava has been developing different restaurant formats as a way to accommodate its growing catering business. In addition to trialing a format that only has digital ordering and delivery pickup alongside catering, it is testing a hybrid kitchen model. The model has an in-restaurant service line, digital make line and 300 square feet of kitchen production space to be a central hub for catering. Cava is also testing which existing restaurants have capacity to support catering. 

This year, Wings & Rings will invest more in marketing its catering menu. Within the past 12 to 18 months, Wings & Rings put a lot of emphasis on its digital platform to make sure it is easy to use. That means ensuring that it has a robust presence of third-party apps like DoorDash and Uber Eats, and investing in digital ads through platforms like Google. Sweatt said that the chain also ensured that it has in-store ads.

“Catering orders are huge because it’s money that you’re going to make ahead of time,” Sweatt said. “Preorders are great. The more you can generate, the more revenue you know is coming in and you’re able to plan ahead of time to make … the best product. … We love catering. We want to do as much catering business as possible.”

Big restaurant brands continue to make headlines with products featuring prominent plant-based meat analogues, but experiments with whole vegetables and old-school patties hint that the industry’s approach to plant-based menu development is in flux.

While Impossible Foods and Beyond Meat seem to hog the plant-based stage, test runs of items like Chick-fil-A’s fried cauliflower sandwich show a willingness to explore other meat-free avenues. Early research into more direct consumer choices — namely, at the grocery store register — also reveals an interesting trend:  repeat plant-based meat buyers are few and far between, and those that do buy in aren’t giving up the real thing.

Restaurants have a difficult tightrope to walk in the plant-based category. A recent report from the Good Food Institute reveals that almost 10% of U.S. consumers tried a meat analogue at a restaurant in 2022. The stark point, though, is that most stopped at one. Chains looking to broaden their meal occasions must navigate investing in meat analogues, which some diners scrutinize over processed ingredients, or embrace innovation around whole vegetables. 

There are many kinds of meat-free diners

At Fatburger, the move to introduce a meat analogue didn’t change the chain’s perspective on its longstanding vegetarian options.

Across more than 150 locations, almost half of which are in California, the company has long sold a classic, soy-based Boca patty, which Kraft-Heinz gussied up in 2018. That same year, Fatburger debuted the Impossible Fatburger. Customers with additional dietary preferences can sub the restaurant’s standard American cheese with Daiya’s vegan slice and swap the vehicle for an Udi’s gluten-free bun.

The decision to keep both items was simple, the company told Restaurant Dive in an email, and aligns with what both Impossible Foods and Beyond Meat have opined: Plucking off a sliver of plant-based dieters would be nice, but Fatburger is really after the 94% of Americans who eat meat.

“The Boca burger is a vegetarian burger meant for consumers looking for a vegetarian-friendly option that tastes like just that: a vegetarian burger,” the company said. “The Impossible consumer is (typically) someone who likes the taste of meat but is looking for a plant-based option.”

Fatburger, which also sells dairy-free milkshakes crafted with Craig’s cashew-based ice cream, added that consumers are drawn to plant-based foods for a variety of reasons. Some want the look and feel of beef but choose not to eat meat; others are vegan by choice or lactose-intolerant by nature. Some care about cross-contamination on cooking surfaces, while others might not be so strict.

In an interview with Impossible in 2021, former CEO Andy Wiederhorn said 1 million Impossible Fatburgers sizzled on their grills annually, “double what we sold when we had veggie burgers on the menu.” The company declined to clarify the figure for Boca patties then or now, but confirmed it sells “about four times more” of the Impossible Fatburger.

While sales of plant-based foods have generally increased in recent years — up more than 8% to hit $8 billion last year — the subcategory of meat analogues has endured volatility, dropping by around 1%, according to SPINS data. Sales of dairy alternatives, including cheese and ice cream, fell by 2% and 4.5%, respectively. 

As Fatburger noted, consumers don’t fit into neat little boxes.

Across the pond, restaurants like Burger King, which in the U.S. sells the Impossible Whopper, have discovered a hungrier plant-based audience. BK Germany first sold its Veggie King burger in 1997, and it’s still on the menu. That Whopper features a patty from the Dutch producer The Vegetarian Butcher; stores also offer meat-free Long Chicken sandwiches and nuggets. In 2021, the company opened an entirely plant-based restaurant in Cologne and has since experimented with similar concepts in other cities, including London and Vienna.

Four out of every 10 meals sold across BK Germany’s 750 restaurants are vegan or vegetarian, the company told Restaurant Dive in a statement, and almost one in three is “purely plant-based ingredients.” 

Burger King’s plant-based menu isn’t growing as quickly domestically, however: The chain piloted a plant-based chicken sandwich last year with Impossible Foods, but has yet to launch the product. 

What does it take to stay on the menu? 

The meat analogue slump has been pronounced for Beyond, which in August reported a 30% nosedive in revenue for its second quarter compared to the same period in 2022 – a rough year for the broader plant-based industry.

Restaurant chains including TGI Fridays and Carl’s Jr. continue to offer Beyond burgers, but many others have cut ties — and seem reluctant to talk about it.

Dunkin’ unveiled a Beyond Sausage Breakfast Sandwich in late 2019, expanding the menu item to most of its 9,500-plus U.S. stores. Not even an ad campaign with the rapper Snoop Dogg could save it: the coffee chain removed the English muffin alternative  from all but a few hundred stores in 10 states by June 2021. Dunkin’ did not respond to multiple requests for comment about the menu change.

Del Taco, the California-based Mexican chain acquired by Jack in the Box in 2021, introduced the Beyond Taco in 2019. This was considered a win for the meat analogue market, which has long struggled to gain meaningful traction outside of the burger category. 

But the menu item, made with Beyond Meat protein crumbles, didn’t last long. Del Taco removed the crumbles from select stores last year, and by this spring had snubbed them entirely, citing low sales. At $2.49 a pop, the crumbles cost a buck more than Del Taco’s basic meat counterpart. 

Competitor Taco Bell has also dabbled with Beyond products, testing the plant-based manufacturer’s Carne Asada Steak last fall. But the Irvine, California-based chain hasn’t announced plans to scale the menu item, and in June launched a pilot of a proprietary vegan Crunchwrap at a handful of stores. McDonald’s also tested a proprietary plant-based burger, but didn’t scale the product after the pilot ended last year amid reports of low sales.

When asked for comment, a Del Taco spokesperson shared the same statement issued in April: “We value our long-standing partnership with Beyond Meat and are continuing to explore potential new and innovative plant-based menu items with them. Our flexitarian, vegan and vegetarian friends can rest assured that their cravings will still be satisfied with a variety of made-to-order menu items that can align with their dietary preferences.”

Moving analogues outside the bun

Other small and mid-sized restaurant chains that use plant-based products for non-burger menu items might provide a roadmap for new ideas.

JINYA Ramen, based in Los Angeles with nearly 40 locations in North America, added tacos, a rice bowl and vegan ramen with Impossible beef in 2021. Noodles & Company launched Impossible’s panko-breaded chicken  late last year. The Melting Pot now offers Impossible Meatballs to dip in its savory fondues. However, these companies didn’t respond to requests for comments about the performance of these products. 

Like Taco Bell, other restaurants have entered the plant-based production field themselves.Shake Shack, for example, developed the Veggie Shack, released in May. The throwback-style vegetarian patty is made from mushrooms, sweet potatoes, carrots and quinoa, and is promoted alongside a non-dairy chocolate shake. 

The New York-based chain was already known by vegetarians for its ‘Shroom Burger, a deep-fried portobello mushroom on a bun. Both the Veggie Shack and ‘Shroom Burger cost about the same (around $8.75) as the restaurant’s specialty burgers.

The poultry category, meanwhile, has struggled to gain traction with plant-based alternatives. KFC briefly tested Beyond Fried Chicken in 2021, and Burger King toyed with Impossible Nuggets and the Impossible Original Chick’N Sandwich as recently as last year, but the experiments — available only at select stores — fizzled within months.

Recently, Chick-fil-A has taken a different tact by innovating around whole vegetables. The chain teased its fried cauliflower sandwich in just a handful of stores in three markets in early 2023, but its promotional text sheds light on how restaurants might adjust their approach in coming years in focusing on the vegetable in a way that “embraces the plant-forward style.”

In other words: It might not be a question of replacing meat with “meat,” but putting vegetables front and center — a trend that full-service restaurants seem to have embraced.

Consumers’ true desires are still unclear

Research into meat-analogue purchasing habits has tended to rely on stated consumer preferences but not actual sales at the register, said Zachary T. Neuhofer, a Ph.D candidate in the Department of Agricultural Economics at Purdue University. He co-authored a 2022 paper published in Nature that analyzed household scanner data for ground meats and their plant-based alternatives between November 2018 and November 2020.

Of nearly 39,000 households, about 20% bought a meat analogue at the grocery store at least once, but only 12% did so on multiple occasions, per the report. These consumers tended to be younger, higher-income and have kids. The study also found that just under 15% of households never bought real ground beef, turkey or pork. A fraction of the group — just 3%, or 1,000 households — avoided ground meats of all kinds.

What’s intriguing is an overlap in shopping categories: 86% of the plant-based buyers also bought ground meat.

“If they did buy plant-based, they also bought ground meat,” Neuhofer said, but “most just bought [animal] meat.”

He noted that households with some plant-based meat analogues spent less on ground meat during the two-year timeframe, $98 compared to $113 among all participating households, but overall expenditures increased.

The evidence suggests that becoming a plant-based customer doesn’t deter meat demand. Additionally, the authors added that “rising PBMA [plant-based meat alternative] market shares are not necessarily indicative of an expanding market since most purchasers of the products also purchase meats.”

The data might portend a different outcome if the price of plant-based options dropped closer to their animal-based counterparts. “You would expect to see an increase in PBMA demand,” Neuhofer said. 

For now, that future is still up for grabs, as retail sales of plant-based meat alternatives have slid in recent months.