This article primarily discusses the restaurant industry in the USA. The learnings and the struggles that the industry is going through however is applicable universally.
It's a highly fragmented industry dominated by 70% independent owners and operators, with average annual revenue of USD 1 million and an operating profit of 4-5%.
The epidemic has forced practically every restaurant to close, the concerns of the industry have remained largely unaddressed by government programs for small businesses, though at least 8 million employees are out of work.
Some restaurants have started opening late May and June for takeouts and outdoor dining, but the number of diners is down 65%. Suppliers who feed the restaurants have been affected due to this and so also the supply chain partners who move the goods across the country.
The industry that emerges from the epidemic would look fundamentally different from the one that existed before the epidemic. How will the landscape change, what do restaurants need to do to survive, what should the consumers expect?
Challenges
- Restaurants are inherently labor-intensive. labor is required both in the kitchen and in the dining area. On average they spend 30% on wages and are likely to increase with an increasing focus on fair wages.
- Restaurants purchase without the ability to hedge or lock-in pricing and so are at the mercy of supply price fluctuations.
- The third challenge is occupancy. Normally it 10% of the revenue expected. Also, there are additional costs for insurance, card processing, marketing, utility, repairs, etc.
A restaurant's daily cash is used to pay for supplies from previous purchases, payroll, rentals and they operate on very modest cash reserves. If the revenue is disrupted the accrued payables and payroll remain to be settled. On average they have 16 days payable according to one survey by JP Morgan Chase.
Various segments of restaurants are experiencing crises differently. the dine-in segment is facing a total lo of revenue facing a total loss of revenue, while the drive-through and take out services have recovered after the initial total shutdown.
Most restaurants have 2-3 weeks of reserves and these quickly ran out and they had to lay off staff, maintaining skeleton crews.
Pivoting to survive
many restaurants have pivoted to takeouts and drive-throughs to survive. They have also introduced delivery, kerb-side pickup, and entryway handoff. Some have developed a takeout offering of chef-prepared family-style meals including fully prepared or partially prepared multi-meal packages complete with reheating and final cooking instructions.
Some have implemented creative ways to improve sales like digital access, new menu offerings, contactless kerbside pickups.
Many have chosen not to go the way of takeouts, fearing the safety of their employees, and some were not prepared with required containers or packing materials for the same.
At the same time despite the pain they are undergoing, many restauranteurs are offering help to others in their communities by lending their staff and spaces, like delivering food to the elderly, offering simple meals to unemployed, starting a food bank.
Why employees don't want to return
Barriers include the safety precautions required, the need to take into account the pre-existing conditions of employees, flexibility in scheduling due to childcare/ elderly care needs. Addressing employee concerns is critical to ensure that the customers' concern about safety is taken care of in every aspect of service while maintaining high standards of quality.
In kitchens, proximity is a concern. In dining areas, besides wearing masks, vigilance would be required in cleaning and sanitizing. managing entry to control the flow of customers and ensuring they wear masks ll te time would be a challenge.
Reopening requirements
various mandatory safety requirements have to be taken care of which is going to increase the establishment costs. Reconfiguring the floor plans to ensure a safe distance, transparent screens, limiting the number of diners per table, expanding outdoor seating, health, and safety training for employees, frequent sanitation, touch-free interactions, single-use menus, contactless payments, etc.
Will the customers come?
The most important thing is the confidence and comfort he customers are going to have when they come back. Until people get comfortable with going to a restaurant, it will be the biggest barrier. Restaurants must incorporate health and safety parameters into a hospitable environment, staffed by well trained and courteous staff whose interactions with customers will induce them to return.
However, consumers are wary of cooking at home or reheating refrigerated food. Restaurants located near offices will no longer see the same footfall as many office goers have got used to having morning coffee and breakfast at home and this is likely to continue. Work from home is not going away and may well become permanent and hence the number of employees coming to the office will reduce.
Out of crisis, comes opportunity.
Companies that focus on the health of their employees and customers, that deliver meals and dining experiences that consumers crave, that manage their capital wisely, look after the corporate health of their business will uncover opportunities that the crisis has brought.
Intensive focus on restaurants and hotel industry is likely to lead to innovations in packaging, no-touch technology, paying, restrooms and even entry and exit from restaurants, cleaning, and sanitizing products and protocols.
restaurants would turn increasingly towards technology like robotics to improve labor efficiency. Restaurants will also examine the reduction of brick and mortar dine-in access in favor of virtual kitchen capabilities that will reduce the capital and occupancy costs.
Restaurant Revolution: How the Industry Is Fighting to Stay Alive
by Michael S. Kaufman, Lena G. Goldberg, and Jill Avery
HBSEDU 16 JUL 2020 | x`
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