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For years, the US restaurant industry – like most consumer sectors – has struggled to keep pace with changing fashions in dietary preferences and cuisines. Now, says Michael Halen, a senior consumer analyst at Bloomberg Intelligence, the changing of the generational guard is driving ever deeper changes at restaurant chains. The Baby Boomers and their tastes still weigh heavily on the sub-sector. But restaurants dare not ignore the very different demands of Millennials, including a desire for home delivery, gluten-free menus and other things their factory-fed elders went without. Michael Halen spoke with Karma Network Contributing Editor Michael Moran.

Michael Moran: How is the demographic divide affecting the restaurant industry today?

Michael Halen: There’s a few different things going on here. Baby Boomers are a very large generation. They’re aging. They’re moving to fix budgets. They’re spending less money on going out, and so that negatively impacts restaurants. Restaurants, what they’ve been trying to do is attract more Millennial consumers, and they want cheaper price points, higher-quality food, and a pretty quick experience, so that’s why you’ve seen places like Chipotle and Shake Shack — some of these fast-casual type chains — cropup and do so well with millennials.

Some of these chains that were heavily frequented by Baby Boomers like Chili’s and Applebee’s — they’ve been struggling pretty bad. They haven’t been able to resonate with Millennial consumers. Baby Boomers aren’t visiting as frequently, so they’re seeing a lot of pressure on their sales. What we’ve seen is a ton of money go into fast casual. A lot of private equity funds, venture capital funds, people, investors, are just pouring money into fast-casual concepts in the hopes that they can find the next Chipotle or Shake Shack.

Michael Moran: How is technology affecting the restaurant industry, specifically in terms of innovation in the growing demand for delivery?

Halen: Technology is very interesting when it comes to restaurants because most of the industry is very far behind many other industries when it comes to investments in technology. But what we’ve seen is that chains that get it right — Domino’s, Starbucks, Panera are three of the best — those chains have vastly outperformed all their peers over the last 10 years.

A lot of that outperformance is by having a superior customer-facing app, where customers can order and pay. They tend to spend more when they order on mobile, and that’s also closely related to food on-demand and delivery. We’re seeing all of these chains that we cover move aggressively to partner with the Uber Eats and the Grubhubs of the world to try to get into the delivery business as fast as possible, so this is going to be a huge thing to watch in 2019.

The interesting thing is these third-party delivery providers charge exorbitant fees right now. We think these costs are going to go down over time and that there’s going to be some consolidation in that industry, but right now these chains are giving up a huge percentage of their margin to these third-party delivery companies. And what most of them are saying is that the sales are all incremental.

Well, a customer who’s ordering Jack in the Box through delivery — maybe they weren’t going to order delivery from Jack in the Box if that wasn’t an option because they were really intent on ordering via delivery. But it may cannibalize visits later in the week. Right?

There’s only so many times you’re going to eat at a Jack in the Box during the week. There’s only so many times you’re going to eat at Chili’s during the week. These sales are lower margin because you have to pay the third-party delivery company. You have to pay for the packaging cost. So they’re much lower margin than in-house restaurant sales. This is actually hurting restaurant bottom lines. And then on top of it, they don’t control the data. So the third-party data companies, delivery companies, are the ones that control all the data, and that’s a problem in a world where it’s all moving to one-on-one marketing.

People – at least the upcoming generation of them – don’t watch TV anymore they way they used to, but they carry around a billboard in their pocket. Their cell phone. So not knowing exactly who your customer is can be a big problem in this business.

Michael Moran: Is there a segment of the digital world trying to bridge this gap?

Halen: In terms of somebody solving the disconnect between the third-party delivery companies and their best interests versus what’s good for the restaurant companies, I don’t know if there’s any other companies that can bridge that gap. What I think you’re going to see is a lot more of these chains go out and do this themselves.

Domino’s does delivery very well. Papa John’s does delivery very well. Panera got into it later on, but they’ve also had a lot of success delivering both small customer orders as well as catering. So it can be done. I think you’re going to see a lot more restaurant chains move that way. I’d say McDonald’s is one that I know of that is testing doing the delivery in-house so that they can control all the customer information. So the margins will be better.

Right now everyone is rushing to third-party aggregators because the system’s already setup. It’s kind of a plug-and-play solution pushing some of the chains to get into delivery as soon as possible. But over time I think doing delivery in-house is really going to be the solution. Millennials really do want their food on-demand. They want it delivered to them. So it is something that every restaurant out there has to discuss.