The Rush By Toast - August 16, 2019

By: Isabelle Hahn

6 Minute Read

Aug 16, 2019

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Welcome to the third edition of The Rush, where we cover notable happenings in the industry. This week's coverage includes how NYC is handling their $15 minimum wage increase, Postmates' IPO announcement, the rise of ghost kitchens, and more. 

⏳Here's what you need to know about this week's restaurant trends in 10 seconds or less:

  • NYC’s $15 minimum wage increase has allowed restaurants to thrive.
  • Postmates files for IPO, and the rise in delivery app technology is leading to an increase in ghost kitchens, or restaurant locations that solely handle delivery orders.
  • United Nations warns the public about climate change's threat to the world's food supply. 

If you have more time:

How Wage Increases are Affecting NYC 🏙️🍎

  • In the time it took New York to raise the minimum wage to $15 from $7.25, the restaurant industry outperformed the rest of the US in job growth and expansion.

  • A new study concluded that job growth has accelerated in the restaurant sector since NYC’s mandated minimum wage increase.  

  • The report also suggested that restaurant profits were more negatively impacted by delivery fees from third-party services than by mandated wage increases. 

This year 21 states and the District of Columbia saw increases in the minimum wage, according to Ballotpedia. In 2018, nearly 50 percent of respondents to a Hospitality Alliance survey said they would have to eliminate jobs in 2019 to keep their doors open after minimum wage increases. In light of the increase, restaurateurs across the country feared an impending abundance of restaurant closings, widespread job loss, and customer complaints about rising prices.

But contrary to fears, a new report by The New School’s Center for New York City Affairs and the National Employment Law Project found the NYC restaurant industry is thriving post-minimum wage increase. According to the study, NYC's restaurants have increased sales by an annual 6.6 percent starting in 2014, netting almost $22 billion by 2018.

This may point to a hopeful scenario for other major cities, however, the success of NYC restaurants could be attributed to their immense population and wide-scale job opportunities for residents. NYC's restaurant industry appears particularly healthy. The authors of the study looked at twelve major cities around the U.S., all with populations over 500,000 people, and found that New York recorded higher rates of employment growth.

What's a Ghost Kitchen? 👻

  • Postmates is set to file for IPO.

  • The rise in delivery app technology is leading to an increase in ghost kitchens — or restaurant locations that solely handle delivery orders.

  • Consumers spent $10.2 billion on delivery services in 2018, up 42% from the previous year, according to Technomic data.

  • Restaurants and third-party delivery services are looking into ghost kitchens as a way to manage the demand for delivery.

  • Deliveroo's "Restaurant Rescue Team" will convert struggling restaurants to delivery-only

The food delivery market continues to remain in the spotlight following DoorDash’s purchase of Caviar last week, with Postmates announcing their plan to go public by the end of this year. 

According to Toast's 2019 Restaurant Success Report, the majority of diners are ordering online a couple of times a month and looking for a variety of pickup and delivery options. As delivery companies continue to grow, acquire other companies, and go public, it makes sense that there would have to be a dedicated sector of "ghost kitchens" to meet delivery demand.

A ghost kitchen is a restaurant location that only handles delivery orders. Also called a virtual kitchen, these restaurants slash labor overhead (in some cases, to 10% of former labor costs) because cashiers, servers, and bussers aren't necessary when there aren't customers coming to dine in at the restaurant location. 

U.K.-based food delivery company Deliveroo is also taking advantage of delivery’s rise in popularity by creating a "Restaurant Rescue Team" that offers delivery-only kitchen spaces to restaurants that have recently closed. Deliveroo has announced consultative programs like this in the past, incentivizing restaurants to exclusively partner with them while also taking advantage of this rising consumer behavior trend.

Climate Change Threatens Food Supply

  • A new United Nations report warns about the exploitation of natural resources and climate change putting pressure on humanity's food supply
  • The report also offered pathways to address any looming food crisis. 

In a report released on Thursday, more than 100 experts from 52 countries found that climate change threatens to disrupt and shrink the world's food supply. 

In some cases, the changing climate is boosting food production because of a longer warmer season, but the availability of food is being effected by erosion, desertification, and other climate-related factors. 

To address the food crisis, a major re-evaluation of land use, agriculture, and consumer behavior needs to take place, the report states. Proposals include producing less food waste and shifting diets away from meat. 

How These Trends May Impact Your Restaurant Operations

  • Minimum Wage Increases: NYC might be in a world of its own when it comes to thriving despite wage increases. For small business owners, cutting corners might be necessary to keep both customers and employees happy. John Banquil, CEO of Ling & Louie's Asian Bar and Grill, a four-location restaurant in three states, says, “We’ve had to take incremental menu price increases, worked with food and beverage distributors to secure better contract pricing, and adjusted our scheduling to be more efficient.” It also helps to know that there are alternatives to raising menu prices in order to stay successful.

  • Adopting a Ghost Kitchen Mentality: Ghost kitchens take the convenience of delivery to a new level, but completely cutting out face-to-face interactions with customers might not be that appealing to most restaurateurs. Here's how you can speed up service at your restaurant to account for more delivery orders and also accommodate diners who are searching for convenience.

  • Make More Sustainable Choices: The United Nations report laid out two options that everyone, including restaurant owners, can put into practice to shrinking the world's food supply: Creating less food waste — or composting the waste you do have — and offering fewer meat options are both great opportunities to become more sustainable. This is also a great opportunity for restaurant owners to dive into other sustainability research and practices, like what it takes to become a green restaurant and sustainable technology that helps restaurants reduce waste.

Extra, Extra! 📰🗞️

The Toast team loved this article because it highlights a number of important issues we called out in our Restaurant Success Report. In the restaurant industry, restaurant owners and managers are accountable for treating their workers fairly and offering an inclusive culture. But diners should also be asking questions and doing their research to keep these places in business. 

“You have to be very cognizant of where you spend your dollar. When you do spend your dollar at these places, you have to be cognizant of what they look like. Those are things that you can be doing on a daily basis," - Devita Davison, Executive Director of Detroit’s FoodLab.

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