Why chain restaurant CEOs are jumping ship

While management changes are nothing new for restaurant chains, CEOs have resigned in spades in the past two months, including departures from top brands like Starbucks, Dominos, Denny’s, Red Lobster and Wingstop. .

What is behind these publicized ruptures? food institute sat down with RJ Hottovy, Head of Analytics Research at Placer.ai, to look into the matter.

“It really seems like it’s just about every day that we see another high profile quit,” Hottovy said. “I attribute it to two factors. First, obviously, we’ve just gone through the most disruptive two years we’ve ever been through. So I think … some of the leaders who have probably already thought about succession plans may have accelerated that.

“The second reason is that there are a lot of challenges on the horizon.”

Case in point: Red Lobster CEO Kelli Valade recently announced plans to step down at the end of the week – after just eight months with the chain.

“We had two difficult years,” Hottovy said. “Now it’s only going to get more competitive.”

Several other factors help explain the wave of CEO departures, including:

  • Rapid rise in inflation: “Twelve to 24 months ago, you were just dealing with labor inflation,” Hottovy noted. “Now we’re facing a situation where most of the restaurant’s major costs — food, labor, real estate, and even, to some extent, utilities — are all going up. I can’t remember a time in the past 20 years where we’ve seen all of these categories hit all at once.
  • Rapidly changing consumer tastes and preferences: “With the rise of The kitchen chain, and celebrity chefs, the environment has definitely changed the way consumers look at menus,” Hottovy said. “Restaurants increasingly have to compete with people who cook at home. You need to elevate the menu to engage consumers these days. »
  • Staff turnover and hiring issues: “The overall landscape in terms of labor availability hasn’t improved significantly and we’re seeing a lot of shortages,” Hottovy said, noting that many workers are moving into roles in the gig economy. . “Some of the smaller chains, we’re still seeing quite a bit of evidence of limited opening hours and store closures. …And that can have a big perception on the brand, if (customers) go to one of their favorite restaurants and it’s closed due to staffing issues. And I think that’s something that a lot of incoming CEOs are going to have to deal with.
  • Unionization: “It seems like we’re seeing more pressure for unionization,” Hottovy noted, alluding to recent unionization efforts at Starbucks and Amazon. “I think right now it’s going to be quite limited (for the restaurant industry). … It’s potentially something that restaurants will face in the future.
  • Investor-backed companies (both PE and public) increase demand to achieve KPIs: “There’s a lot of pressure among investors to meet certain performance benchmarks,” Hottovy said, “and in many cases that may not be feasible.”

With these factors in mind, the next generation of restaurant chain CEOs will need unique skills that include a deep understanding of marketing and technology.

“Right now, someone like Brian Nickel is coming to Chipotle, with more marketing experience…I think that’s a shift we’re seeing,” Hottovy said. “It almost feels like the more marketing-oriented ones are where we’re starting to see a shift towards CEO appointments in this current cycle right now.”

The new generation of restaurant CEOs will also face obvious uncertainty as the world slowly emerges from the pandemic. And it will take time to put their channels on solid footing, Hottovy said.

“Hopefully with the new round (of hiring CEOs), investors will hopefully give them a little more time,” he said. “Because…the three years ahead of us could be some of the greatest years in the industry we will ever see in our lifetime. So I think that needs to be taken into consideration.

“As you set new benchmarks and KPIs, there may be short-term benchmarks that are roadmaps to a longer-term goal.”

Another option for restaurant chains is to turn to proven leaders. Starbucks, for example, recently tapped its former executive, Howard Schultz, to serve as interim CEO.

“As with Howard’s return, you might see some former CEOs return,” Hottovy said. “Maybe that’s kind of the underlying story: it’s almost the return of many legacy CEOs who really understand the experience.”

About Vivian J. Smith

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