Discussed growth in the 1960's, current problems, and trends in the food service industry for the 1970's.Marketing,

Hall, Chester C., Jr.

English

Research Papers in Economics

The Role of the Food Distribution Industry
in Institutional and Service Foods
Emerging Competitive Developments in the Food Service Industry
Discussed growth in the 196 f) ’s,
current problems, and trends in
the food service industry for
the 1970’s
l As we enter the new decade of the
1970’s, we in the foodservice industry,
and particularly we in the industry’s
national leadership organization, the
National Restaurant Association, are
vitally concerned with the future.
This parallels generally the concern of
all industries with their respective
futures. But it also parallels, in a
specific way, the concern of the food
distribution industry with its future
as exemplified in this meeting--
directed as it is to the “emerging
role” of your industry.
But, as we all know, the food service
and food distribution industries
are not really parallel in their
outlook. Rather we have been
convergent and mutually dependent in
many aspects of our past; we are so
today; and we shall be so in the
future. In many ways, our futures will
be inextricably related, one to the
other. In other ways, we shall be
sharing the same developments which
will shape the future. The “emerging
competitive developments in the
foodservice industry” may well also be
shared. And, in any case, it is a
pleasure to be able to be here with
you today to share a look at some of
these developments.
Let me start, however, with a sort of
disclaimer. I shall not try to tell
you what lies ahead. No one can
predict for certain what is going to
happen from one minute to the next,
much less from one year to the next.
Instead, we can perhaps take a hint
from good business practice in
examining today’s problems, situations
and changing conditions and then try to
Dr. Chester G, Hall, Jr.
National Restaurant Assn.
Washington, D. C.
develop a forecast of what may lie
ahead if our assumptions hold true.
We are now almost ten full months into
the 1970’s, the decade which started
last January lst. Interestingly
enough, we have not yet named our new
decade, though Patrick O’Malley, the
President of Canteen Corporation and
Chairman of the NRA Education Committee,
has probably most significantly
suggested it will be the “Serious
Seventies”.
By contrast, within a short time after
the 1960’s began, we felt it was going
to be the “Soaring Sixties”, the
“Sensational Sixties”, or even the
“Sizzling Sixties” -- all adjectives
implying unprecedented growth,
expansion and general prosperity. By
and large, the optimism that
accompanied the beginning of the last
ten-year period was more than justified.
From an overall business standpoint
the sixties were indeed soaring and
sensational . For our foodservice
industry -- the sixties were absolutely
sensational. In ten years, restaurant
and bar sales increased 80 er cent.
~ From 1959 to 1969, the foo service
industry grew into a 42 billion dollar
business. We are now the fourth
largest industry in the country in
terms of gross retail sales, first in
employment, and first in the number of
outlets comprising an industry.
During the last decade, we have
participated in and helped en9ineer a
fantastic foodservice revolution.
People are eating at least 25 per cent
of their meals away from home. Brown
bags and thermos jugs have been
83replaced by modern, attractive
institutional feeding lines. The
“greasy spoon” has been supplanted in
many areas by systematized, slick,
semi-automated franchised operations
serving up delicious hamburgers, fish,
tacos or roast beef according to
scientific formulations. We may not
have a chicken in every pot in America,
but the fast food segment of our
industry has expanded so rapidly that
we seem to have a chicken establishment
on every corner:
Back in 1960, when John Steinbeck’s
travels across the States were reported
in his book “Travels with Charley”, he
commented that the only meal you could
count on to be pretty good was breakfast
Now, ten years later, our industry has
dotted all the major arteries of the
nation with quality food outlets, so
that virtually anywhere in America
today hungry travelers and tourists can
find reasonably priced breakfasts,
lunches and dinners that they can count
on to be good.
We have improved on-the-job feeding, at-
school feeding and hospital feeding,
We have brought in-flight foodservice
to a stage of art almost as amazing as
jet travel itself. We have brought the
experience of gourmet food to many
Americans, quality food to all
Americans, and we have consistently
elevated our standards of performance,
service, public health and sanitation.
Yet despite all these achievements,
we have almost failed! Despite our
great successes, despite what has been
done during the past ten years, it
will be these failures, the things which
the industry has not done, which will
now haunt us in the 1970’s. It will be
the ways in which these failures are
handled which will form the “emerging
competitive developments” of
significance to both foodservice and
food distribution.
These failures are common property. It
is no secret, for instance, that the
industry has not solved its pressing
manpower problem -- a problem which
continually saps our energies as we
try to cope with a turnover rate that
is three times that of all manufacturin~
industries. Although many of the job
changes are within the industry, recent
national data from a U. S. government
survey reported a 10,4 per cent average
monthly rate of new hires and a shocking
7 per cent average monthly voluntary
“quit rate”.
It is no secret, also, that we lead the
way numerically if not percentage-wise,
in business failures. The number of
restaurant closings and ownership
changes even surpasses that of gasoline
stations!
It is no secret that, although
substantial improvements have been
made possible in the sixties through
greatly accelerated vocational and
industry-oriented education, we are not
attracting and retaining the young,
aggressive managerial talent we need to
build the future of our business!
It is not a secret either, that in an
age where computerized decision-making
is a common element in the preparation
of every recent business school graduate,
the foodservice industry is woefully
behind in the application of such
sophisticated technologies.
So it is Perhaps also no secret that
Mr. O’Malley’s suggested epithet for the
decade -- the “Serious Seventies”--
must prove to be correct; this decade of
competitive development must be a time
for seriously attacking the problems
which have olagued us.
It must be a time to get serious about
our employee productivity rates which
have not even kept pace with inflation.
It must be a time to get serious about
a personnel system approach to
recruiting, training and retaining
career employees at all levels.
It must be a time to get serious about
improved marketing orientation,
research and decision-making.
And, it must be a time to get serious
about profits based on sound marketing.
Above all, it must be a time for serious
management -- thoughtful management --
well-prepared management -- tough
management that can take this vast
industry through what will unquestionably
be a very traumatic ten years to many.
An industry which so represents our
free enterprise economic system that one
of every five retail establishments in
the nation qualified for inclusion
deserves no less. The American eating-
out public, which will be eating one of
every three meals away from home by 1975
also deserves no less. In fact, it
demands no less.
Let us briefly examine these four
general categories of serious concern
(namely, employee ~roductivity;
personnel as a system; marketing; and
management) as they appear to be
84developing in the food service
industry.
First, productivity of employees must be
increased industry-wide to bring profits
up to an acceptable level. Sales per
employee, admittedly not an adequate
measure of productivity when separated
from profitability data, but still a
good indicator, has remained at
approximately the same level for the
past seven years, in spite of a great
deal of industry talk about efficiency.
Maintaining a balance with higher
employee costs, with higher food costs
and with increased investment needs for
land, buildings and equipment will
intensify the productivity push. The
current trend to reduction of the number
of employees actively involved in the
on-site preparation and service of food
will be accelerated. Commissaries,
centralized purchasing of food supplies,
elimination of duplication in jobs,
simplifying procedures -- these will all
be areas of emphasis. Limiting personal
service, increased use of disposable,
cross-training for multiple jobs --
these also will be tried, and where
they work, developed.
Automation will be maximized wherever
it is appropriate, particularly in so-
called “lower level” jobs, and the
increased use of pre-prepared and
convenience foods is an obvious
corelary trend. If a job can not be
automated out of existence, the
alternate approach, that of letting a
food manufacturer do it, will be
increasingly employed. And, of course,
we shall see maximum development of
limited and specialized menus, with
resultant reduction in the number of
skilled jobs needed on-site.
Improvements in food distribution will
necessarily play a large part in making
these developments possible in the
“Serious Seventies”.
Turning to personnel as a system, it
seems to me there are two !najor aspects.
One of these is the move toward
education as a source of better
qualified and better motivated people
for all job levels in the industry. We
have actually done this to a very
significant measure in the past few
years, particularly with the stimulus
to occupational education which has
resulted from the Vocational Education
Act of 1963 and even more from the
Vocational Education Amendments of 1968.
There are now some 25 colleges and
universities conducting baccalaureate
degree programs preparing young people
for careers in our industry, about 200
junior and community colleges offering
courses in our area, and over 900 high
schools. The total enrollment of
students pursuing foodservice career
education increased 75 per cent from
1966 to 1969.
It should continue to increase, as
courses are improved, and as the new
National Institute for the Foodservice
Industry, established this summer by
the National Restaurant Association for
the entire industry, develops better
course materials and initiates a program
of national certification of qualified
managers.
The second aspect is within the
companies -- the whole trend toward
considering employees as a most valuable
resource on a career (rather than only
on an individual job) basis. Cornell
University’s School of Hotel
Administration, on a grant from the
u. s. Department of Labor and with NRA
support and consultation, has just
completed a very significant research
report on “Career Ladders and Manpower
Development for Non-Management
Personnel in the Foodservice Industry”.
We in NRA consider this so important a
report, based as it is on in-depth
examination of 18 large foodservice
companies whose activities cover the
entire spectrum of operations from
in-flight feeding through hotels and
cafeterias and hospitals and schools
to fast food, that we shall publish the
major conclusions as an industry service.
The career approach is clearly the
system of the future.
Turning to marketing, we are probably
facing the most pressing demand of the
decade. Sounder marketing decisions
will make the difference between
otherwise equal competitors, and better
marketing orientation is vital. You
all recognize, I am certain, that so
many of the industry’s failures,
including those in the manpower as well
as sales areas, are directly
attributable to marketing errors
committed long before the first oven
is installed. Too often, the wrong
place is going up at the wrong time
on the wrong corner and appealing to
the wrong customers. Too often, we have
assumed the future would duplicate the
past.
Greater market orientation, real rather
than haphazard research, and a sharper
sense of market segmentation will be
needed in planning and conducting
operations. We must tune in to what
people want -- then zero in on
satisfying some of those needs.
85Marketing segmentation in foodservice
has principally developed in the last
ten years. We have seen the growth of
specialized eating places ap~ealinq to
specific clientele with specific needs.
And it works. Profitable concerns are
those which have carved out a slice of
the market and made it their own in a
unique way. Well-managed chain
operations, for instance, are serving
specific market segments, like the
travel market, and they are currently
capturing about lfl Der cent of the total
market. In each case, basic marketing
decisions which permeate the entire
chain are decisions based on aood
research , sound information and
scientific analysis. Operating
decisions on menu size, employee
requirements, commissaries -- in fact,
all the streamlining I mentioned as
trends affecting the manpower ~roblem--
logically follow well-considered
marketing decisions.
The soundness of decisions on the great
marketing opportunities of the 70’s,
including the leisure market, the
travel market, the diet and health-food
market, the foreign and ethnic food
market and the school-lunch catering
market, among others, will shape the
rise and fall of many competitors of
the 70’s.
Finally, to management. Our industry is
big; it will continue to grow. We need
about a quarter of million new Deople
each year to provide replacements for
job dro~outs and to fill the thousands
of new jobs being created as the
industry expands. About 10 ~er cent,
or 25,000 of these new ~eople, are
needed annually to fill managerial and
supervisory jobs. This is a biq order,
even if looked at only as a quantitative
one.
Oualitativelv. the order is even biqqer.
We need the management skill to handle
all the problems faced on a day-by-day
basis of operations. We need careful
attention paid to the highest standards
of product and of service, of customer
satisfaction and customer protection.
But, most of all, we need the executives
who are are motivated as well as
qualified to face head-on the man~ower
problems, the matters of career system
and career ladder development, and the
marketing dilemmas which are built
into the future.
The industry is actively searching out
potential executives on the campuses
and throughout the industry each year.
We are actively supporting academic
programs in every state in the nation.
But whether we can find the key to
success in recruiting and keeping the
young, imaginative, ambitious,
aggressive men and women we will need
is a real question. Our industry has a
tremendous arowth ~attern and a very
visible pot~ntial
better ways of tell
convincing the very
develop that growth
should do it.
In this task, in ou
for the Foodservice
We need to find-
ng our story and
people who must
potential that they
National Institute
Industry, and in all
other areas where our futures are
interrelated, the foodservice and food
distribution industries will have to
he mutually supportive.
This task will require, therefore, a
massive commitment, and I am hopeful
that it will be given. Perhaps it will
be the kind described in the story of
the chicken and the hog who were walking
down Halsted Street in Chicago when they
saw a sign reading “Ham and Eggs 50d”.
The chicken wanted to go in and have
some, hut the hog said, “Not me, I don’t
want to encourage that”.
“hlhy not?” said the chicken. “It’s a
bargain at 50d.”
“For you it’s a barqain and a
contribution”, said the hog. “But for
me , it’s total commitment”. l
86

EMERGING COMPETITIVE DEVELOPMENTS IN THE FOOD SERVICE INDUSTRY

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Research Papers in Economics