Restaurants - Three Things That Will Change and One Thing That Won't
We've seen dramatic upheaval in the restaurant industry due to the COVID19 pandemic. This will drive change in how restaurants behave in the future. Much of this change was coming anyway and has been accelerated by the current situation. It will be interesting to see the adaptation in the industry as we move forward. Those that adapt well will be successful. Unfortunately many others will not. This post arose from a discussion with my friend Bruce for the FoodFocus podcast. I see three significant changes coming for restaurants and one critical element that cannot change.
Prices are going up
Restaurants have always been low margin businesses. I've long argued that restaurant food was under priced. It might have been due to lot's of capacity and competition for bums in seats. There are significant increases in costs arising due to COVID. These included reduced capacity (fewer seats in the same space and longer dining times both reduce capacity) and increased costs to protect guests and staff. These costs will have to be passed on to consumers or no restaurants will survive. Restaurants will likely try to avoid price increases in the short term in an effort to get people in and to fill seats but the only sustainable solution will be increased pricing.
While not directly related to increased pricing, we will also likely see revenue management become a bigger tool in the tool box. Expect to see higher prices in higher demand times as capacity limits mean the only way to increase revenue is to charge more for the meals in these time slots. Lower prices in lower demand periods will attempt to divert demand into these times. We need to remember that restaurants are really renting you a seat and charging more in high demand times is very similar to what airlines and hotels have been doing for a long time.
I also expect that we will see some restaurants sell "tickets" for meals. Many consumers abuse reservations and no shows cost restaurants dearly. Lower capacities mean these no shows will be even more expensive. COVID has increased the need for reservations. I would expect to see a non-refundable reservation deposit (a ticket) when you book a table which is applied to your cheque when you dine in or forfeited if you don't show up. It makes sense and protects the restaurant without costing consumers who dine in anything.
Labour is one of the biggest costs a restaurant faces. The amount of time that people are busy in a restaurant is often variable. Finding ways to reduce labour will be a primary focus for many restaurants going forward.
One focus will be redefining roles. Many restaurants have managers in both front and back of house and this will likely change. There may also be some incorporation of hybrid roles for staff. Historically front of house staff (servers, bussers, and hosts/hostesses) have been completely distinct from back of house staff (cooks). One potential savings in to have cooks run food out to customers when it is ready. This won't work in every restaurant but I have experienced it before and in some cases it actually improves the experience. At the very lease expect to see fewer hosts/hostesses with front of house staff covering multiple functions in the restaurant. In many cases this can be done without compromising experience because the staff are busy at different times. One caveat is that in the short term additional staff might be required for sanitizing.
Another approach to reducing labour costs will be the incorporation of technology. Once again, this won't work everywhere but some restaurants will have an opportunity to explore kiosks for ordering. It can work well in quick service and we may see some restaurants move to a "fast casual" model where ordering happens at a kiosk and then food is picked up at the front or delivered by a food runner to your table. Tablets at individual tables can also allow people to order after being seated. I expect we will still require servers to ensure that orders are taken and processed (and dining times don't get too long). The requirement for distancing may actually provide greater impetus for this sort of innovation.
Delivery and Pickup will continue to grow
We have seen a growth in pick up and delivery in the face of COVID restrictions on dining in. This was happening even before COVID. I expect that this growth will continue but that it won't be universal. Pick up and delivery don't work for everyone.
Delivery isn't cheap. It is hard to make money at it. Most of the delivery companies (Uber Eats, Foodora, Skip the Dishes, and others) are not making money yet. The margins they take from the restaurants also make many deliveries unprofitable for everyone (see a quick comment on this issue). That is hardly sustainable. Delivery demand also often mirrors dine in demand. While delivery or pickup may be appealing in theory to complement in house dining and spread out overhead, there is a risk that kitchens become un-manageably busy at peak times which compromises the ability to provide any customer with the type of experience that they are looking for. Its also worth noting that some food doesn't travel well. If a restaurant can't represent its food brand well after a drive home, there is considerable risk of losing that customer going forward if the experience is not good.
I expect there will be some restaurants who can make it work well - particularly if they are built for a hybrid of dine in and delivery/pick up. That might mean a bigger kitchen and more cooks than might be normal for the dining room alone. I also expect that some restaurants will focus on the dine in experience and do that well. Finally, I expect the biggest part of the market will be specialty deliver kitchens (ghost kitchens) that will only serve delivery clients. These kitchens will support several concepts (or have clusters of kitchens) so that there is a critical mass of orders to sustain the delivery function. Specialization will allow restaurants to focus on what they are good at.
Restaurants are going to have to be very careful to consider the experience of a consumer as they make changes to reflect both COVID requirements and a changed business model. A focus on cost ignores the reasons people go to restaurants. They are often embedded in neighbourhoods and an essential part of the community. We go there not just to eat but to enjoy the atmosphere. It may be tough to smile through a mask. It will be less crowded with distancing protocols. But for the restaurant industry to stay relevant and thrive it needs to sustain the feel of dining out. That is non-negotiable.
Recommended citation format: von Massow, Michael. "Restaurants - Three Things That Will Change and One Thing That Won't". Food Focus Guelph (93), Department of Food, Agricultural and Resource Economics, University of Guelph, July 13, 2020.