When the COVID-19 pandemic struck full force in the spring of 2020, it delivered a blow that reverberated across every corner of the restaurant industry. State after state, legislative restrictions mandated restaurants to close, compelling thousands of operators to lay off employees. More dramatic consequences for both operators and employees included shutting restaurant doors permanently.
Almost overnight, consumer share of stomach shifted to grocery stores and food delivery as the lights went out in restaurant dining rooms throughout the country. However, even in the wake of an extraordinary crisis, an industry evolution was underway.
Restaurant operators with the mindset, resources, and ability to adapt shifted gears to meet the new consumer needs and ensure their own survival. For some, this meant selling new products including groceries, meal kits and pre-made cocktails. For others it meant creating new formats with make-shift curbside pickup and walk up windows to meet consumers’ safety concerns. Bottom line, it was a demonstration of ingenuity, grit and pure drive to survive.
The restaurant industry is incredibly resilient, and the COVID-19 pandemic is not the first health or economic crisis it has faced. While the pandemic’s impact has been dramatic, restaurants and foodservice always rebound stronger, and their most recent crisis will not be an exception.
Recent signs of recovery, from mid-March to mid-July, indicate that the industry may be on the mend. As restaurants reopen, there is a sense that the industry is slowly returning to “normal,” except it isn’t. Although “new normal” may have become an overused term for many, it describes the industry’s future and there is no going back to yesterday.
COVID-19 has accelerated systemic trends that were already in place. While some temporary trends have emerged, other trends signify shifts that will likely be permanent. Identifying and distinguishing between temporary and permanent industry trends is a critical call to action for restaurant operators in the post-COVID-19 environment. The pandemic has also spotlighted long-simmering challenges that were ripe for correction. For example, prior to the pandemic, the industry had become overbuilt, with a disproportionate amount of restaurant and overall industry growth originating largely from menu-price increases.
History shows that chaos and downturns present unique opportunities for well positioned companies. As painful as the pandemic has been for the restaurant industry, there is a silver lining for operators who emerge tuned into consumer needs who will grow faster, take market share and ultimately operate more profitably.
In this report, we feature our findings on how consumer behavior has changed since COVID-19 struck, and what changes we expect to be temporary and those that are likely to be permanent. We also share what consumers are looking for from restaurants as the industry and country emerge from the pandemic.
Power and Disruption of COVID-19
COVID-19 has been devastating for the restaurant industry. According to the National Restaurant Association (NRA), prior to the pandemic, there were over one million restaurants in the U.S. Altogether, they employed more than 15 million people and generated $1 trillion in revenue.
The NRA estimated that between mid-March and April 2020, 3% of restaurants closed permanently. Unfortunately, that was only the beginning of weekly announcements of closures that followed. UBS expects one in five restaurants to permanently close as a result of the pandemic, which equates to approximately 200,000 restaurants across the U.S.
Not All Restaurants Are Equal
While the pandemic has had a universally profound effect on the industry, not all restaurants have been impacted equally. Many large Quick Service Restaurant (QSR) and Limited Service Restaurant (LSR) chains have proven to be better equipped to ride out the storm. Their ability to survive and in some cases thrive was largely built on:
- Existing digital platforms for online and mobile ordering
- Drive thru and delivery capability
- Resources and customer engagement to shift demand to pick-up and delivery channels
- As Restaurant Business puts it, “well-capitalized big chains, some of which are posting double-digit same-store sales jumps, are finding success with their digital platforms and drive-throughs. Many mom-and-pops though, are making the heartbreaking decision to close their doors forever.”
Independent restaurant operators have clearly been the hardest hit. The James Beard Foundation estimates that 80% of independents could go out of business. With 70% of restaurants estimated to be single-unit independent operators, COVID-19 could be the largest catastrophic event for small businesses in the restaurant industry in decades.
QSR and LSR brands that had drive-thru and digital ordering prior to COVID-19 were able to soften the blow of dining-room closures. They were able to shift operations to curbside pickup, to-go and home-delivery services. In fact, drive-through sales accounted for approximately 70% of QSR transactions before the pandemic. The high percentage shows the level of infrastructural advantage these restaurants wield.
Despite the magnitude of damage unleashed by COVID-19 and the choppy recovery that has ensued, there are indicators that the industry is turning a corner. Assuming another pandemic wave does not strike, which is yet to be determined, the industry appears to be showing an upward trend since bottoming out in April. However, recovery rates among restaurants remain uneven.
Recovery During Uncertainty
According to Black Box Intelligence as of mid-July, dine- in sales for full-service restaurants remained challenged and not surprisingly had declined in year-on-year comparisons. While off-premise dining increased for full-service restaurants, it was not enough to make up for the sector’s lost dine-in revenue. Sales for LSR brands, however, continued to improve and QSR achieved ten consecutive weeks of strong positive comp sales growth.
As states ease shelter-in-place restrictions, consumers are displaying a wide range of emotions over the prospect of restaurants reopening their doors.
Consumers are anxious to return to a new normal but they remain cautious about returning to restaurants.
Our research shows that while dining out is the single most-missed activity during the pandemic, most consumers remain wary of dining at restaurants. It is going to take weeks, and in some cases months, after reopening before they are comfortable returning, and demand for full-service dining, at least initially, will be at a substantially lower level than it was pre-COVID-19.
Also, approximately one-half of consumers surveyed plan on dining out less often. Combined with those who will avoid eating out altogether, the result will be a significant loss of dine-in business, that will particularly affect full-service restaurants.
Ongoing Consumer Demand for To-Go, Delivery and Curbside Pickup Services
Datassential reports that during COVID-19, 51% of restaurants created separate pick-up areas, 22% transitioned to online food ordering and 18% added third-party delivery – all services that were not previously provided.
Our survey findings reveal that these services are here to stay as consumer demand will continue.
Demand for curbside pickup remains strong across sectors, particularly for consumers who primarily dined at Full Service Restaurants.
More than one-half of all consumers surveyed want to continue using curbside pickup.
Specifically, 72% of consumers between the ages of 18 and 24, and 78% of consumers between the ages of 25 and 39, are actively using curbside pickup services.
Mobile-app usage for ordering food from restaurants is on the rise. There was a 23% increase in the number of consumers using apps to order food since the pandemic. Also, 66% of consumers using apps intend to use them more frequently.
Mobile-app usage will remain strong post-pandemic.
Apparently, you can teach old dogs new tricks…
New mobile-app users came from diverse demographic groups, with the largest increase in adoption among those over 65.
Health and Safety Factor in Where-to-Eat Decisions
Health and safety was ranked as the second most important factor in deciding where to dine, taking priority over price. Also, the most important protective measures for consumers surveyed were having restaurant staff wear protective gear and place tables further apart.
Road to Recovery – and Opportunity
Lost revenues, increases in unemployment and bankruptcies are among the many indicators that quantify a recession. Plenty of analysts are quantifying these and similar indicators as they relate to the COVID-19 pandemic. The more difficult question, however, is predicting how COVID-19 will affect and change future consumer behavior.
A recession is one of the strongest catalysts for innovation and transformation. As Smithsonian Magazine explains, “Disease can permanently alter society, and often for the best by creating better practices and habits. Crisis sparks action and response. Many infrastructure improvements and healthy behaviors we consider normal today are the results of past health campaigns that responded to devastating outbreaks.”
Examples of progress during recessions and crises are abundant throughout history. For instance, the SARS outbreak of 2002-2004 facilitated the growth of the then small e-commerce company Alibaba when Jack Ma turned the outbreak that threatened the existence of his business into an opportunity. By pushing through the crisis and ensuring that Taobao, an online consumer marketplace, was launched, Ma was able to capture significant market share as demand for Taobao’s platform skyrocketed.
The Great Recession of 2008, which catapulted the growth of shared-asset companies Airbnb and Uber, Venmo with its convenient alternative payments and Groupon with its performance-based marketing solution as great examples of innovation and growth during adversity.
By anticipating long-term trends, businesses can not only survive difficult times, but also help shape consumer behavior.
Airbnb redefined the vacation rental experience. Netflix transformed consumers’ viewing habits. Venmo, Revolut and other mobile apps revolutionized the payment process. And the list goes on.
Restaurant companies have a rare opportunity to transform their brands to align with and shape consumer demand.
COVID-19 has accelerated secular shifts in consumer behavior that were previously underway. Now, what may have taken years to unfold has arrived in a few short months.
For example, before the pandemic, consumers were already making their preference for the convenience of delivery known. Although the delivery preference remains intact in a COVID-19 world, its strongest driving force has shifted from convenience to necessity and safety. What has followed is a significant number of new consumers aboard the delivery bandwagon. Our data suggests customers will continue to use delivery long after COVID-19.
Consumers will ultimately return to restaurants. That’s a given since consumers are by and large social beings. What’s more, dining out with friends, family and colleagues is a near irreplaceable part of Americans’ social and business lives, and that will not change. What has changed, however, is that restaurants have further proven that their brands are no longer confined to their dining rooms and now extend far beyond their four walls. Restaurants have also demonstrated that similar to other retail brands, they can be omni-channel.
Mobile Food Experience
COVID-19 has forced consumers to experience restaurants through delivery and to-go. It has also introduced restaurant brands to consumers in completely new and different ways.
For many consumers accustomed to in-restaurant dining, what may initially have been done begrudgingly is proving to be a mainstay, and for some a preference. Consumers have grown to like what they have experienced. It’s convenient. It’s frictionless. They no longer have to wait to be seated or make a reservation. The ability to enjoy their favorite food from the comfort of home, at a park or on-the-go has taught consumers how to use technology and expanded their dining options.
Higher Safety Expectations
The COVID-19 pandemic will pass – not tomorrow, perhaps not even in a year. What will remain, however, is consumers’ higher expectations of restaurants to accommodate their safety concerns. Restaurants that fail to proactively put strict health and safety protocols in place risk losing consumers to competitors that do.
Consumer preferences for distancing between tables, as well as visible sanitation procedures, will be industry constants. Restaurants now have the opportunity to add “health and safety” to their branding, and in a way that is more meaningful than it has ever been.
There is also an opportunity to go beyond the expected and enhance the consumer experience.
Contactless menus, ordering and payment through apps as well as anti-microbial devices – all are additional opportunities for restaurants to create safe, differentiated and memorable dining environments.
Industry Silver Lining
The COVID-19 pandemic provides restaurants the opportunity to competitively transform themselves to address consumer concerns and set the standard for the new normal.
Restaurants that are resourceful, adaptable and financially secure with strong balance sheets will emerge from the COVID-19 chaos with more profitable formats, omni-channel sales, greater market share, and be positioned as the restaurant brands of the future.