Generation Z is entering the workforce, and with a disposable income estimated at $360 billion a year, this demographic is becoming a powerful block of consumers.
“Younger generations are more obsessed with food than ever,” Nikki Freihofer, a strategy director at food and beverage consultancy The Culinary Edge, said during an education session at the National Restaurant Association Show on Tuesday.
But earning the loyalty of these diners, the oldest of whom are around 26 years old, will be challenging, she said.
”They eat out roughly 10% to 11% less at their age than millennials did at the same time.”
Gen Z’s low restaurant consumption, despite its spending power and love of food, is pushing the industry to find the brand characteristics that can woo this demographic. Here are some of the insights that could help restaurants convert Gen Z diners into reliable customers, according to experts at the NRA Show.
Virality and customization
Social media is becoming an increasingly powerful discovery tool for Gen Z, Lindsay Lyons, Coca-Cola’s group director of consumer strategic insights, said during an education session.
“Social media is actually the first place that most of this cohort is going to interact with a new product or a new brand for the first time,” she said.
Social media can push consumers toward a restaurant’s digital channels. Restaurants should expect about 60% of order growth to come through digital channels in the next few years, said Scott Finlow, Pepsico Foodservice’s CMO. Food can go viral on social platforms, and brands with a strong digital presence, especially those that are continuously updating their menus, can capture sales from those moments, Freihofer said. TikTok’s ability to drive viral sales, for example, is well-documented, Freihofer and Graham Humphreys, CEO at The Culinary Edge, agreed. Chipotle, for example, added a TikTok-inspired fajita quesadilla to its menu in February.
The dynamic between social media virality and sales growth is evident in cold coffee, said Sam Ford, Westrock Coffee’s EVP of global insights and customer engagement.
“When you look at TikTok and you look at social media, the way that iced coffee has been portrayed and sold [to] Gen Z, it's a little bit more clean, it's a little bit more sophisticated, and it's a little bit more functional [than hot coffee],” Ford said. This marketing strategy has led to an explosion of cold coffee sales, he said, with some types of cold coffee experiencing double-digit compounded annual growth rates compared to hot coffee’s low-single-digit CAGR.
Ford said increased customization of cold coffee has been one driver of that category’s growth. Then there’s the product design — in a transparent cup, syrups, foams, blended drinks, whipped cream, and other customizations are more visible than in the opaque paper of a hot coffee cup. This makes them better “arm candy” to show off on TikTok or Instagram, Freihofer said.
“Food is definitely a must have accessory. Starbucks has been the emblem of this for many years,” Freihofer said. “Consumers want to wear and share their [food and beverage] experiences.”
Gen Z’s love of eye-catching products and easy online ordering can sometimes contradict another one of its consumption drivers: social impact. As an example of this, Humphreys showed an NRA Show audience a slide of a hyper-customized Starbucks drink that went viral on social media.
“This is the drink that sparked like 1,000 labor rebellions across the country at Starbucks,” Humphreys said. “Because of the strain that it actually puts on the staff. This is not a good look.”
Gen Z, experts say, is more attuned to the impact of their consumption choices on workers and the environment than previous generations.
“Gen Z is certainly very focused on companies and brands that have a purpose,” Finlow said. To that end, PepsiCo has highlighted its sustainability platform. Finlow said the Pepsi Dig In program, designed to support local Black-owned restaurants, was partly a response to Gen Z consumers’ desire for social impact.
Robert Byrne, Technomic director of consumer and industry insights, said that focus is particularly strong on sustainability, as a growing number of Gen Z consumers are concerned about the catastrophic impacts of climate change.
Humphreys said the gap between these consumers’ wish for products to meet their individual desires and their wish for the products to appear to be sustainable is narrowing, making the appearance of sustainability an increasingly powerful tool for marketing.
“Social responsibility is still a second, but increasingly close second to social advantage,” Humphreys said.
Shifting definitions of restaurants
Key to Gen Z’s consumption habits, experts say, are changes to the meaning of what a restaurant experience is. Byrne said busy schedules are driving more off-premise, handheld consumption of restaurant food.
As inflation has outpaced wage growth since mid-2020, according to the Bureau of Labor Statistics, the pressure on young adults to work more jobs, for longer, has increased. Some 46% of Gen Z consumers have at least two jobs , according to one Deloitte study. The result, Byrne said, is dashboard dining as workers are pressed for time, with 24% of limited-service meals purchased by Gen Z consumers eaten in the car compared to 17% for all other generations.
“I think this has a lot to do with the bowl-ification of the menu as well. Bowls are very easy to eat out of,” Byrne said.
Aside from changes to the menu, the pressure for convenience and speed has led to Gen Z consumers seeking meals from a variety of sources beyond the traditional restaurant, and beyond delivery apps.
“People are getting their meals from convenience stores, from drive-thrus, from kiosks, [and gas stations,]” Humphreys said.
Still, the pressure for convenience co-exists alongside Gen Z preference for experiential dining opportunities, Freihofer said. This contradictory sentiment is leading to a bifurcation of restaurants. On the one hand, Freihofer said, you have experiential destinations like steakhouses, Korean barbecue, hot pot concepts, crab shacks, and full-service dining.
“The other side of the spectrum is, and this is perhaps a harsh way to put it, more or less production facilities,” Freihofer said. “You just make the food and you send it out, or you hand it off to them, and they leave and eat elsewhere.”
That bifurcation is accompanied by Gen Z’s reliance on delivery apps and other forms of off-premise dining, which Freihofer called the “Amazon-ification” of the restaurant.
“[Gen Z is] used to a very complex chain of how stuff is ordered, made, sent and consumed. All of those events might be very separate places,” Freihofer said.
Is Gen Z actually different?
An emphasis on social media and off-premise can generate a misleading impression of Gen Z as a uniquely tech-focused generation, experts said. According to Byrne and Lyons’ presentation, Gen Z is often more mistrustful of tech solutions than millennials are. In this aspect, Gen Z diners have some similarities with older consumers.
According to a Technomic report cited in Byrne and Lyons’ presentation, 47% of millennials find it appealing to order from a robot, but only 32% of Gen Z consumers do, and 29% of Gen Z find it unappealing compared to 20% of millennials. Similar dynamics play out with drone delivery: 48% of millennials find the service appealing, and 23% find it unappealing, compared to 32% of Gen Z consumers who find drone delivery appealing and 30% who distrust it.
Gen Z’s brand preferences aren’t that different from those of the general population, either, Bryne and Lyons said. While Mr. Beast Burger and other viral or social media driven brands may create the impression that younger consumers are driven by parasocial attachment to media personalities, surveys indicate that legacy brands like Nike, M&Ms and Sprite top Gen Z’s brand preferences.
A similar dynamic extends to coffee, Ford said. Some Gen Z consumers will drink iced coffee on a winter day, he said, but cold coffee hasn’t necessarily taken much market share from hot. Gen Z’s consumer preferences haven’t weakened that product category, merely strengthened an additional one.
“Hot coffee is not going anywhere,” Ford said.
Even on social responsibility, Humphreys said, it’s still all about the product for Gen Z.
“I need the product benefit, I need it to be the right value. I need it to be delicious. I need it to deliver against self-centered needs first,” Humphreys said of the attitudes of younger consumers.
In this sense many of the consumer changes Gen Z is ushering in aren’t breaks from past consumption patterns, but modulations of them.