Through our Tuesday TouchPoints series, we are sharing a diverse set of content we hope will be helpful to those managing through volatility, working from home, or just connecting.
By HPA Advisor Meredith Sandland
We all need to eat, and in the richest country in the world, with the most well-developed food supply chain in the world, we have suddenly forgotten how.
A lot had been happening in restaurants before COVID-19. If I were writing this 3 weeks ago, I would have focused on:
- Americans now spend more eating out than they do cooking at home
- The United States is at an all-time high number of restaurants per capita
- “Off-premise” (including drive-thru, takeout, catering, and delivery) now exceeds dine-in
- Restaurant chains have been selling restaurants to franchisees at a high rate
- Franchisees have become professionally-managed, debt-financed companies
- American nutritional and flavor tastes are changing, as are their expectations for experience & convenience
All of these trends combine to suggest major disruption is on the horizon, even without COVID-19. The Restaurant Finance Monitor predicted that 20% of existing restaurant units will close in the next recession, which may now be upon us. The advent of DoorDash, Uber Eats and Grubhub suggests that restaurants, which had largely resisted the digital shift that has hit retail so hard, are now about to feel its impact.
This is both exciting and frightening. It’s exciting because consumers benefit from innovation – better options at lower prices. It’s frightening because 1 in 8 Americans works in the restaurant industry. As one of the largest private employers in the United States, any disruption to the current system has the potential to massively dislocate millions of workers.
COVID-19 is providing a window directly into what happens when restaurants are disrupted. Millions of Americans have been laid off, are losing tips as dine-in traffic shifts to delivery, and don’t know when or if they will work again. Meanwhile, the ~200K independent restaurant owners are wondering what to do – How do they protect their staff? Should they pivot to delivery? Should they pay their rent? Will their restaurant make it?
If you are a consumer lucky enough to have money to spend and want to help – what should you do? How can you help your favorite local restaurant survive? Is cooking at home safer than eating in a restaurant? Should you order takeout? Use the delivery platforms?
First, it should be said that the restaurant industry has been innovating on health and safety for years. While no kind of human contact can be guaranteed 100% safe, the restaurant industry cares deeply about employee and consumer health. Most restaurants are proud of their employee culture, which includes attention to food safety, hand-washing, and glove-wearing. When COVID-19 became a clear threat, the industry pivoted immediately to contactless-delivery.
The entire supply chain right up to a consumer receiving his order is tightly regulated by the government, whether USDA, FDA, CDC, or the local Health Department. The CDC says that “there is no evidence of food or food packaging being associated with transmission of COVID-19.”
Second, what restaurants most need right now is revenue. As a consumer, you can meet the needs of your favorite restaurants while meeting your own needs, too:
- Eat from Restaurants. Continue to eat restaurant food if you can afford to do so. In particular, support Asian restaurants, which have been even harder hit than others due to the unfortunate and inaccurate association with COVID-19. In Australia, a twitter campaign #Iwilleatwithyou has enabled diners to counteract these fears.
- Buy Inventory from Restaurants. Many restaurants are establishing “pop-up markets” to sell through their own inventory if staying open does not make sense. Some, who are staying open, are offering staples alongside takeout fare. You can help your local restaurant (and avoid lines at the supermarket) by purchasing basics like milk, eggs, bread and paper goods from a restaurant instead.
- Ensure Your Money Goes to the Restaurant. The best revenue a restaurant can get from you is a take-out order that comes through their own website or telephone. Delivery orders are also good for restaurants, but not as good as takeout. If contactless delivery seems safer or more convenient for you, go for it! The major delivery platforms have temporarily waived delivery fees for independent restaurants, so your money will still go to your favorite restaurant and not be diverted to the delivery company.
Finally, what lasting effects are we likely to see in the restaurant industry as a result of COVID-19?
- Acceleration of digital/delivery adoption. Non-pizza, non-chinese delivery is ~10% of restaurant sales today. In countries where this behavior is more commonplace, delivery ranges from 30-70% of restaurant sales. Before COVID-19, delivery adoption was accelerating, driven primarily by availability as restaurants increased participation and delivery platforms increased geographical coverage. Post-COVID-19, entirely new demographic groups will be users of delivery. My own parents (in their 70’s) would never have considered delivery. Now I am teaching them to use Instacart. Once more Americans are using delivery, the cost of it will come down, making it accessible to even more Americans.
- Acceleration of automation. Prior to COVID-19, startups and major equipment companies alike were innovating new technology for cooking that could help lower capital and labor costs, increase throughput speeds, and better handle customization requests. Innovating restaurants were starting to adopt these new technologies.
Yes, the economics have changed. Post-COVID-19, unemployment rates in the sector will be much higher and wages likely lower. After substantial restaurant closures, anyone opening a new restaurant will likely be able to take advantage of an existing buildout and not have to worry as much about start-up capital.
But something else has changed, too: safety perceptions. It is likely that Americans will be forever changed in their risk assessment and mitigation. Regular hand-washing will be a permanent part of our lives, but so will automation. Where before automation in food seemed “soul-less” and Americans preferred “farm-to-table” concepts over the “industrial food supply chain,” automation will likely be perceived in a much more positive light. Automation reduces human error and human contact, two things that most consumers are likely to embrace permanently post-COVID-19.
- Restaurant closures. I agree with the Restaurant Finance Monitor. There were several “zombie brands” before COVID-19, and the entire industry was over-leveraged. Combine changing consumer tastes with debt in a downturn and you will see entire brands and many specific locations go away. For perspective, Restaurant Finance Monitor’s 20% number implies 100K+ restaurant closures. That’s an enormous reset to the industry.
- A renewed appreciation of cooking at home. Before COVID-19, Americans were moving away from Grocery and cooking at home. But forced time at home with nothing much to do can lead a lot of people to the kitchen. I myself have planted a garden and my husband and I take turns making dinner, something we never would have done when we were both running crazy to work and trying to pick our son up from daycare before it closed. It’s actually pretty fun.
Meredith Sandland is a Restaurant Executive, innovator, consultant and author. She is currently writing a book on the major disruption occurring in the restaurant industry and rediscovering the joys of cooking for oneself.