Cov-19 and Restaurants

Introduction

Part of what all of us have experienced during this time of “quarantine life” is that we have come to appreciate what we had before the COVID-19/coronavirus pandemic, much of which we took for granted in our daily lives before March 2020. One of these “things” that we just assumed to be relatively stable was the daily availability of restaurants of all types, categories, cuisines and sizes. Whether it was the morning stop for caffeine at Starbucks to having breakfast, lunch, dinner - or maybe even that late night “fourth meal” at Taco Bell, we became accustomed to having a multitude of food choices available to us that our ancestors could only dream of! We could drop in, drive thru, order out for delivery - heck, we could even order and eat in our own cars at the local Sonic - often having our food delivered by a roller-skating server! Sometimes, we could feel almost paralyzed by our choices as the foods available were so abundant and the means of where, how, and when we could enjoy these restaurants were numerous.

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Well, that was then, and now, in the midst of state lockdowns, stay-at-home orders and a fearful public, restaurants everywhere are struggling to survive. From major chains to the family bistro, restaurant management teams are having to make almost day-to-day tactical choices - with their strategies largely being thrown out the window. How can we actually serve customers at this time? How can we actually safely operate? Which employees can we/should we keep on - how many and for how long? How can we actually derive some revenue - and is it enough to justify staying open? How can we act in a way that will enhance our brand and our standing in the community? And the big one of course, can we actually survive this?

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There has never been an event that has hit the restaurant industry like this before. As we discussed in the first article in this series (The Post-COVID-19 Business World — Part 1: Overview), the COVID-19 pandemic is perhaps the quintessential Black Swan event of our lifetimes. However, restaurants seem especially vulnerable to the impact - both immediate and long-term - that the coronavirus will have on their operations after the intense fear and danger do pass - which they will. One theme that we will come back to time and time again as we analyze various industries in this article series is this: The average American consumer will likely be changed forever because of the experience of living through this pandemic. No matter what age group, what ethnicity, what income level, etc. - no matter how you defined your target market prior to March 2020, you need to add a new dimension going forward. This is the fact that just as the experiences of our elders shaped them as consumers - i.e. living through recessions, wars, 9/11, social change, etc. - this event will reshape how we - both individually and collectively - act as consumers. And today, that dimension will be focused on one word: hygiene. And when you are dealing with food and food service, hygiene is an absolutely critical service dimension.

In the first article in this series (The Post-COVID-19 Business World — Part 1: Overview), we stated this proposition in the following manner:

In a nutshell, we believe, modifying the classic saying slightly for these fast-changing times, “cleanliness will be next to godliness” in the post-COVID-19 world of commerce - both on the macro level and especially on the micro level. The present hyperfocus on safety from germs and cleanliness/hygiene, as well as social distancing, will not diminish overnight once the initial threat is gone from the coronavirus. Indeed, it is highly likely that lasting, substantive changes will need to be undertaken by businesses of all types and sizes to serve what will be a far more health-focused, are we say almost “germaphobic” consumer in the wake of this pandemic.

And so when you look at the restaurant industry going forward in the post-pandemic environment, whether that begins in a month, three months, or later this year and whether it will be the same timeline nationally, regionally, or even locally, we can identify five key trends that all restaurateurs should consider as they make plans for how they will move forward in the “new normal” after the pandemic. These are:

Delivery, Delivery, Delivery!

Takeout Will Comprise a Significant Share of Future Restaurant Revenue/Volume

Social Distancing Will Not Ever Really Go Away

Safety from Germs Will Be a Key Differentiating Factor in the Mind of Consumers

Physical Spaces Will Need to be Rethought/Reconfigured/Repurposed

While it is difficult for both corporate management teams and individual restaurant owners to focus on the long-term when fighting the immediate battles of the moment, we believe that these forces will prove to be critical considerations and key success factors in the restaurant game moving forward. And now, even in the midst of challenging times, restaurant management needs to consider what they can and should do to better position their companies in the eventual post-pandemic environment.

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1. Delivery, Delivery, Delivery!

DoorDash, GrubHub, Uber Eats, Caviar, Postmates, Waitr… The trend of Americans using food delivery companies had been accelerating prior to March 2020. However, as more and more people made use of these services in light of the very real limitations on their outings and movements during the COVID-19 pandemic, food delivery went from a handy option to a critical service for many of us during this time. As tens of millions of Americans sheltered in place, food delivery services enabled them to enjoy food options that they knew and try other restaurants who used these services as they sought both comfort and variety to help not just feed themselves and their families in many cases. And in areas like hard hit New York City, food delivery companies became an absolute lifeline for many families. This means that food delivery companies have been one of the few - the very few - “winning” sectors to emerge from the pandemic.

Certainly, when the analysis is done, the pandemic conditions certainly encouraged many folks to try food delivery for the first time. Thus, it is likely that when the numbers come in, the pandemic will have produced dramatic increases in people’s overall likelihood to make use of delivery services - both third party and those offered by the restaurants themselves. And with good experiences and customer information to act upon, delivery companies will be able to entice more and more Americans to make use of their services more often - and make delivery a de facto choice for an ever-increasing share of the population. Thus, the prominence of delivery as a service mode for all restaurants will be a key impact from the pandemic experience.

Moving forward then, it will be incumbent on restaurant management to forge stronger partnerships with the major - and minor - food delivery companies and to make it as easy as possible for their customers to order from their restaurant through them. While a shakeout in the food delivery sector is likely, in the near term, it will be critical for restaurant management to be “platform agnostic” in working with these service providers, as it may now take some time for the “winners” and “losers” in the sector to be sorted out through the mergers and acquisitions that will likely occur. These combinations will serve to winnow the field into a few strong players nationally, but with the likely presence and growth of localized competitors.

Finally, we believe that restaurant management should examine their own operations to see how offering their own, in-house delivery services might be of strategic benefit to their operations. Certainly, we have the national pizza chains and local small operators (think your neighborhood pizzeria or Chinese restaurant) who have for years tailored their operations and their menu to make delivery an essential component of their marketing mix. Today, as delivery will be increasingly utilized as a - if not the - preferred option for restaurant patrons, both major restaurant chains and small, single or several store proprietors should strongly consider the prospect of establishing and/or strongly enhancing their own delivery operations. As with most business decisions, there will be tradeoffs in terms of operating costs, payroll, and yes, liability concerns. However, we believe that large chains and small businesses alike may be able to make the quality of their delivery services a key differentiating factor in the mind of the post-corona consumer, serving to improve brand loyalty and reputation and turning customers into more frequent, satisfied buyers.

The challenge, of course, will be in the execution of this change - and in the willingness of restaurant management to commit to delivery as a core part of their business. However, a lasting effect of the current pandemic will be this acceleration of the adoption curve for restaurant delivery services - shifting its potential far higher than what might have been anticipated before this Black Swan-level event.

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2. Takeout Will Comprise a Significant Share of Future Restaurant Revenue/Volume

In tandem with delivery, we strongly believe that restaurants - across the board - will see a lasting impact of the coronavirus pandemic on the takeout portion of their business. In total, it is quite possible that for most restaurants, even those that might formerly not had any significant takeout business or even had food offerings that might not seem conducive to takeout (i.e. think things like hibachi, soups, pho, etc.), their takeout sales/volume/revenue is likely to be a significant success factor moving forward.

With the emphasis on takeout and delivery, we feel that restaurants that have not done so already may need to rethink/revise their menu to be better geared for these purposes. Menu offerings may well need to be simplified (i.e. perhaps 20 options rather than 60, 70, 80 or more). Family style meals may need to be added and/or featured to better serve the takeout/delivery market. Foods may need to be prepared in a manner to be better geared for the containers in which they will be transported. Finally, as both a number of national chains and local restaurants are beginning to do today (subject to local and state laws on the matter), pickup and delivery of alcohol is now becoming a key part of their marketing and revenue mix. And as an aside, there will be a renewed focus on - and much money to be made from - developing far more sophisticated food containers than today’s standard styrofoam and cardboard offerings.

In sum, as more and more Americans come to not associate restaurant food with the need to experience the restaurant itself, and they are willing to pay the same price - or maybe even more - for menu items to be consumed at home rather than in the restaurant space, restaurant management must reconsider not just their business models, but the way they configure, operate, and staff their businesses. If, as many experts have predicted, the quarantine experience will change the patterns of American life, both from a social and work perspective, to encourage more getting together not in person, but through technology from the home, restaurants must rethink their delivery/takeout services to cater to a very changed customer base.

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3. Social Distancing Will Not Ever Really Go Away

Most Americans had never heard of the concept of social distancing before the past few weeks when we all became “armchair epidemiologists.” However, as expert after expert came on our TV screens to tout the virtue of social distancing to stop the spread of the coronavirus and “flatten the curve” to a more manageable level of epidemic for our health care system, we suddenly began to seriously look at just how physically close we were in many aspects of our lives. Six feet of separation suddenly became something vitally important - and the standard that all businesses should strive to have between individuals, be they their customers or their employees. Physical barriers were something that was not really thought to be essential in much of the restaurant business, outside of the “sneeze guards” one might see at your local sandwich shop or buffet restaurant.

In the wake of the pandemic experience though, we believe that social distancing will likely continue to be a very real, active concern for many in society for some time to come. We may not really actually measure out the six feet of distance - and yes, in time, we may grow more comfortable being in more crowded spaces. However, we believe that what we will call “social distancing thinking” will continue to be felt for months - and even years to come - in a significant portion of the population. Restaurants would be well-advised to think of how to lower the need for lines, reduce crowding in congested areas like bar areas, and how to spread tables farther apart for more distance between different customers’ parties. Tables themselves may need to be reconfigured, so as to eliminate situations like the 6 person booth that really only comfortably seats 4 people or the standing bar at a coffee house where customers may be face-to-face only 12-18 inches apart! And physical, plexiglass barriers will likely be necessary to be placed in many new areas of restaurants, such as between the fast food cashier and the customer and perhaps as hard as this might be to imagine, between the bartender and the customer at the bar!

The lingering impact of all of the intense, current emphasis on social distancing will thus be something that restaurant management should be concerned with for some time in order to attract and retain customers. Indeed, in the mind of a significant portion of customers, a lack of social distancing may serve as a “dealbreaker” that could eliminate the possibility that they would turn into a repeat customer - or even become a customer of the restaurant in the first place!

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4. Safety from Germs Will Be a Key Differentiating Factor in the Mind of Consumers

Perhaps the greatest challenge for restaurants will need to adapt to in the wake of the pandemic will be an operational one. Namely, that challenge is that management will need to look at 98-99% of what they do to cater to the lingering germaphobia that will linger in most of us - to one degree or another - in the aftermath, both in the near and the long-term, of the coronavirus pandemic.

Think about how much direct food handling is involved in the restaurant experience, wherever that may be on the spectrum from a full-service sit-down restaurant to fast food. From the kitchen to the ready line to the server to your table - there’s lots of handling - meaning lots of hands. At your local Starbucks or independent coffee house, your barista hands you your cup of joe - or much fancier drink. Gloves - and perhaps even masks - will now be a necessity across all of food service, as will keeping separate the tasks of handling the cash register and handling food with customers (and yes, that certainly might add to staffing needs). The operational model that will work “best” in this environment from the standpoint of customer preferences on food handling is that currently employed by fast casual restaurants (think about the way that Panera Bread, Five Guys, Shake Shack, etc. operate today). Overall, there will be a push for contactless service across the restaurant industry, and how management responds to this new consumer expectation will be a key ingredient in their success moving forward in the post-pandemic competitive environment.

And one change that will have long-term implications for the restaurant industry will be the halting of the trend toward self-service in-store through kiosk-based ordering. This has been a fast-moving trend that even the most infrequent of restaurant patrons could spot. All across the board, from fast food giants like McDonald’s, Wendy’s and Taco Bell to sit-down casual restaurants like Chili’s and Applebee’s, major restaurant chains have taken a huge position in guiding customers toward kiosk-based ordering. In fact, recent industry projections had the kiosk market growing to over $30 billion by 2024. However, with restaurant patrons newfound concerns over touching screens that have perhaps been touched many, many times before, we believe that no matter how much restaurant management may try to “mitigate” the germ and cleanliness issues with touchscreens by having them cleaned frequently, the growth rate for these self-service mechanisms will likely be greatly diminished, if not halted in the post-pandemic market.

Yet, we do not see the trend toward more self-service in the restaurant experience abating. Quite to the contrary, we believe the trend in the restaurant industry overall will be toward even greater levels of customer self-service - ordering included - just not on kiosks. However, customers will likely, both on their own and with the smart “nudging” of restaurant management, gravitate to more online and app-based ordering - even in-store, rather than using fixed kiosks. From an operational standpoint, the more customers order through their phones or other mobile devices and pay through them, this will reduce the need for cash handling in store - and yes, reduce the need for staffing at the service counter. And, of course, the more customers order online and in the restaurant’s app, the more information that can be gathered and the greater the opportunity for customer loyalty programs to be leveraged. So, in the end, the movement away from kiosks and toward personal devices may prove to be a real strategic benefit for restaurants to better connect with their customers.

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5. Physical Spaces Will Need to be Rethought/Reconfigured/Repurposed

This force is really an outgrowth of all four prior factors. The look and feel of restaurants is likely to dramatically change over the next few years as both major chains and independent operators cope with the changing demands and preferences of customers. Many of these changes will take time, as the necessary ingredient - money - will be in short supply during the immediate months following the return to “normal.” All restaurants, whether they have thousands of locations or one, will have suffered great financial damage from the COVID-19 outbreak and the resulting actions that have had to be taken that have discouraged people from venturing out unnecessarily. However, between now and 2022, 2023 time window, we recommend that all restaurant owners and management teams will need to seriously examine not just their operations, but the physical form of their locations. This includes the following items for consideration:

With the new emphasis on delivery and takeout, the physical space dedicated to serving customers dining outside the restaurant and the design of the order flow will need to be seriously examined.

With concern over social distancing, dining and/or bar layouts will need to be rethought. There will likely be new innovations from companies making restaurant furnishings to better make use of restaurant spaces to accommodate changing customer preferences in this regard.

More and more restaurants will need to have the look and feel of fast casual dining, as the full-service model - and the physical layout of dining and kitchen spaces, along with any waiting areas, will need to be redesigned to meet the expectations of post-pandemic patrons regarding food handling and social distancing.

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CONCLUSION

Yes, we are living through unprecedented times - at least in all of our lifetimes. And for all of us, the primary challenge today is to keep ourselves and each other safe during this pandemic by sheltering in place and refraining from unnecessary social interactions.

The coronavirus seems to be unrelently deadly on a medical front. However, it will also wreak havoc for many months - and even years - to come across the entire economy. In an industry with an exceptionally high failure rate to begin with, restaurants are indeed operating today in nothing less than crisis mode, with forecasts for unprecedented levels of failures for both national chains - and their franchisees - and independent restaurants across the nation. The New York Times recently headlined an article with an estimate from restaurant industry experts that 75% of independent operators that have had to close due to the coronavirus may not survive the current pandemic - with an estimated loss of almost a quarter of a trillion dollars for the restaurant industry as a whole over the next three months! And so from McDonald’s to main street, all over America, the primary focus of restaurant management today is simply, as Emma Liem Beckett, the editor of Restaurant Dive put it bluntly, just to “keep the lights on.” One lingering impact of this pandemic is that consumers will likely continue to differentiate between local restaurants and national chains, and many will seek to support and frequent their locally-based businesses. As such, it will be critical for franchisees of national chains to make it clear - through signage, social media and email communications - that they too are small businesses based in the communities they serve and as such, are deserving of community-based support.

In the end, there will be a post-pandemic recovery period, and whether that starts in June, July...October. As such, it will be incumbent on restaurant management to consider the many changes that they will need to make going forward to attract, serve and retain a very changed customer from the pre-COVID-19 normal that existed before March 2020. We believe that while there will certainly be a multitude of financial and operational challenges for all restaurants - from the largest chains to the family-owned establishment - and their management to deal with initially when the economy does get “jump started” later this year, the leadership of these companies would be strongly advised to consider the many more strategic and tactical changes that they will need to undertake in both the short and the long-term. Most of what restaurants are doing today in the way of menu, operational, and logistical changes are being done merely to survive. However, these tactics will prove to be important “lessons learned” for more longer-term, permanent changes that will need to be made by restaurants in the post-pandemic environment.

We urge restaurant management teams and individual restaurant owners alike to strongly consider the recommendations set forth in this article, both internally and in communication with their counterparts in other organizations, as the starting point for making the necessary changes to survive - and yes, maybe even thrive - in the post-pandemic restaurant marketplace.