The Impact of COVID on Restaurants

Perhaps no other sector was as severely affected by the pandemic as restaurants. When COVID-19 disrupted everything we considered normal, the restaurant industry bore the brunt of the lockdown and social distancing norms. While some had to permanently shut down, many restaurants had to remodel their business to give themselves a fighting chance.

What’s striking about the impact of COVID on restaurants is that it affected the industry irrespective of the size of a business. From standalone diners to fast food outlets to pubs to cafes, everyone was impacted. With the constant fear of new variants, normalcy isn’t going to return anytime soon.

There’s universal recognition now that to survive, restaurants will have to adopt newer ways of doing business. This extends from distribution to customer engagement to employment. The industry also recognizes that like every other sector, most of the changes implemented are going to last a long time.

How COVID impacted restaurants

When the pandemic finally leaves our lives, the restaurant sector would have drastically changed. To better understand where it’s headed, one should know what happened over the past 18 months. 

An unprecedented number of closures

The numbers reveal the scale of the devastation. At no other time in recent history had a sector witnessed so many closures as restaurants did during the pandemic. In the United States alone, it’s estimated that a whopping 110,000 restaurants have temporarily or permanently shut down. 

Around 2.5 million jobs in the sector were lost due to COVID according to figures released by the National Restaurant Association. The real number could be significantly higher. This acute job loss happened in a sector that was supposed to provide 15.6 million jobs in 2020, a figure that represents 10 percent of all payroll jobs in the country. 

What about the decrease in total sales? There was a stark decline of around $240 billion from the projected figures of $899 billion in 2020. To put that number in perspective, it set back the growth of the industry by five years.

Localized restaurants were hit the hardest

Not all restaurants were impacted the same way. The most affected were local restaurants that had been rooted in their communities and were an intrinsic part of their social lives. These were businesses that didn’t have the bandwidth to absorb and manage the effect of the pandemic beyond the first few weeks. 

On average, the restaurants that permanently closed had been operating for 16 years. While it’s compelling enough, that doesn’t reveal the true picture. 16 percent of these restaurants had been in business for at least 30 years. In other words, they were pillars of their communities that had been employing people in the neighborhood for decades. 

The average number of people employed by this group of restaurants was 32. Out of these, 17 percent of restaurants had at least 50 people on their payroll before they shut down. Nothing shows the extend of the crisis more than the fact that around 72 percent of owners who have permanently shut down their business admit that it’s highly unlikely that they will ever open another restaurant again. 

More emphasis on safety

There has been an increased focus on safety in the restaurant sector. Due to both governmental regulations and consumer expectations, the industry has had to double down on its safety protocols and implement several new measures including redesigning the dining space.

Hygiene has become paramount for everything from cooking to packaging and delivery. What’s interesting is that customers expect restaurants to adopt these protocols and are willing to pay extra for the added safety measures. For restaurants, this has meant a redesign of their interiors with partitions between tables. 

Restaurants have also taken extra precautions to sanitize their kitchen utensils, plates, glassware, and cutlery. Most eateries also have encouraged and even insisted their staff get vaccinated and have been assuring customers of the vaccination status of their employees. 

A majority of restaurants have also removed their traditional menus and introduced QR-scanner-based digital menus or digital signages to further reduce the chances of infection.

Delivery becomes the savior

With on-site dining ruled out during the pandemic and severely limited by the restrictions afterward, restaurants have had to redraw their distribution methods. There has been a heavy emphasis on takeaway and delivery over the last few months. It’s not just the lockdowns and social distancing regulations that have influenced this trend. 

Consumers have been wary of visiting crowded places due to fear of contagion. This meant that the only two options were to physically visit the restaurant and pick up the order from outside or get it delivered. The first option still has risk attached to it and therefore, there has been a dramatic shift toward the latter. 

The other reason is remote work. With companies instituting remote work, millions of people were confined to their homes. This severely affected those urban eateries that depended on working professionals for their lunch and dinner orders. Working from home, customers preferred to order from nearby restaurants. 

This has also forced restaurants to revisit their menus. There’s more focus on preparing food and beverages that are better-suited for delivery. The previous bestsellers, if not easy to pack and deliver, had to be sidelined for those that can be easily delivered. 

Increasing digitalization

The most important factor that has pushed up the delivery model has come from a deeper consumer shift aided by the rise of third-party delivery partners. From DoorDash to Uber Eats to Postmates to Grubhub, there’s intense competition among these players, with each brand dominating certain cities. 

It’s become clear that the traditional model of restaurants directly delivering their food and beverages will be unsustainable in most markets. (This isn’t to suggest that the business model of delivery aggregators is sustainable but they have better bandwidth and funding to subsidize their offerings and attract customers.)

Restaurants that weathered the storm have had to digitalize several of their functions, from customer outreach to payments. Digital media is the new primary tool to acquire and retain customers. Social media has become an invaluable and inexpensive tool to engage with customers and communicate time-bound offers and exclusive deals. 

Rationalization of real-estate

When a large percentage of the restaurant business comes via curbside pickup and delivery, most businesses will cut down on their real-estate requirements. Restaurants, especially those into fine dining, have been giving up their space to better focus on takeout and delivery modules. 

As this trend picks up speed, restaurants with multiple branches in an area would reduce their retail footprint and combine their operations into a single location. This will help large chains cut down on costs and significantly improve their operational efficiency. 

Since real estate expenses, including rent, utility payments, etc. are a large component of operational expenses, various sub-brands of a single group may end up sharing kitchen space. This has ramifications for the number of people the sector would end up employing. 

Competition from home cooking 

Since dining out was ruled out, people’s interest in home cooking increased significantly during the pandemic. What differentiates this trend is the emphasis on healthy home-cooked meals. This has enormous consequences for the restaurant sector. 

Consumers are searching for healthy recipes that don’t take much time or effort and are effortlessly repeatable. With the regularization of remote work, the need for healthy food is understandable since most people are aware of the ill effects of sedentary lifestyles. This has led to the rise of home cooks with a considerable social media presence.

What’s peculiar about this shift is that it’s led by younger consumers and not necessarily by senior citizens or unhealthy individuals. This acceptance has taken the stigma out of cooking and eating at home. To cater to this need, there has been an explosion of meal kit services. With a delivery-only business model, these services could pose intense competition to traditional restaurants. 

Recruitment and retention challenges

Around 75 percent of restaurant operators believe that their toughest challenge will be recruitment and retention. This is despite the uptick in employment in the sector. At one point, about 700,00 people were quitting their jobs every month. What’s worrying is that they’re not looking for a job at another restaurant but a career switch. 

Workers who have left don’t want to return to jobs that are physically demanding, low-paying, and with increased exposure to infections. To top it all, employees in other sectors don’t have to constantly deal with irate customers the way restaurant employers have to. All this, for a job with no noticeable growth prospects. 

Other than offering increased wages and better working conditions, employers may have to incorporate gig workers to offset this trend. 

In short

As we step into 2022, there is a worry that there will be restrictions and renewed calls for social distancing. This means that for restaurants, while the worst might be over, it will be a long and challenging road to recovery.