As COVID-19 case numbers fall in many parts of the world, several business owners in the food industry are hoping that worst of the crisis is on the horizon.
When coronavirus lockdown measures end and crowds return to the streets—the theory goes—restaurants that have survived will finally be able to take a breather.
The past few months have been rough, and restaurants have made some very painful decisions. The industry counts for six out of ten jobs lost in the United States in March, and each day, we hear of restaurants closing down, from the mom-and-pop shop serving ethnic comfort food in your neighborhood to destination restaurants such as Prune in New York.
It makes sense that people are holding out for better times. If your restaurant has successfully pivoted to delivery and made enough revenue to keep the lights on, you might think that things will take a turn for the better once the lockdowns end.
Sadly, chances are good that you’d be dead wrong. In the words of Joelle Paranteau, the owner of hip German street food bistro Wolf Down in Ottawa, Canada,
Restaurants Are So Fucked
In a blog post widely circulated on social media, she explains,
COVID 19 is about to kill restaurants by the thousands. This pandemic is the ultimate pressure test and restaurants are failing hard. Margins in the restaurant industry are notoriously small. Like tiny, actually. For reference, margins for banking, accounting, and legal services come in around 18–25%, healthcare 12-15%, and software 15–25%. Restaurants? 3–9%. Ya, like single digit. These razor thin profit margins have left restaurants with zero reserves. So when a crisis hits (like right now), they are pretty much screwed.
The coronavirus crisis has only just begun for food businesses.
Yes, the hardest shock from the coronavirus will pass us soon. But COVID-19’s effects on the food service industry in general and restaurants in particular, will continue for a long time.
What most people don’t understand about restaurants during COVID is that as bad as things are now, there will be several more waves of illness over the next two years, even as scientists race toward a vaccine or cure. So things might look a lot worse in the next six months.
In our emergency guide to shifting to food delivery, we said that even after the lockdowns end and shops reopen, the coronavirus still remains in the world. The virus will only go away after enough people get immune or a vaccine or cure is ready, and experts estimate that will take between a year and eighteen months.
There are just over 40 vaccines in development right now, and at current speeds, a suitable vaccine might be ready in September 2021. But even if we get a vaccine then, implementation is going to take time, and many will be reluctant to return to restaurants for months after. For restaurants during COVID
Society is realigning, and things will not be the same again.
The financial impact of COVID-19 has barely been felt. Even so, 30 million people have already filed for unemployment in the United States alone. Between widespread unemployment, lower incomes in the worst economic crisis of a generation, and people taking on more affordable habits such as cooking at home, the promise of a quick recovery seems dreamy at best.
At worst, it’s the assumption that will sink your business.
In this article, we think about the future of the food industry in the wake of the coronavirus. Things are about to get even more difficult for food businesses around the world, and we wanted to share some ideas, suggestions, and hopes as the restaurants we love shift from panic mode into planning for the long haul.
Short-term: The simmer after the boil
• Cash will be hard to find and secure
• Sanitation will become crucial
• Supply chains will waver but hold
Cash will be hard to find and secure
The most worrying thing right now is the sharp drop in restaurant revenues everywhere.
Almost all governments have released large stimulus packages against the coming recession, but these bailouts only save businesses in the short term. We’re starting to see declines in spending from a recession that starts on the ground rather than from financial markets. The high overheads of food businesses, especially, mean that government funds will dry up in a matter of months, if not mere weeks.
Liquidity can be hard to find in times like these. Restaurant margins hover at around 5 percent at best—already a razor’s edge in good months.
Right now, banks and other institutions are facing endless requests for credit, and many central banks have cut interest rates to zero to help make funds available. However, the sheer number of businesses applying for loans means many will not receive the funds they need before their shops close down.
It’s a bleak picture, but the worst is still to come. People today are still fighting to support local food businesses with the money they have, which means that spending patterns have a long way to fall yet. This will become increasingly clear as COVID-19 causes middle-class incomes to fall worldwide.
Sanitation will become crucial
Closer to the shop floor, sanitation and contagion safety protocols are becoming a new standard for all food service businesses.
Gone are the days of tasting food on the line with the same spoon and working customer service without face masks. Most of your staff are likely very familiar with food safety best practices, but contagion prevention is food safety on hard mode, and people will take no chances in the middle of the pandemic.
Any negative reviews that mention sanitation will instantly discourage many more people from placing orders with you. Local government agencies will likely step up sanitation and food safety checks, handing out harsher penalties for anything missed.
Supply chains will waver but hold
The lockdowns and travel bans have also made it clear how fragile global food supply networks are. Just think about the UK: half of its food comes from outside the country. When the coronavirus rips apart supply links, ingredients become harder to find and costs go up.
Restaurants may have to adjust menu items on short notice as ingredients become unavailable, especially expensive or uncommon ingredients. For now, though, the supply crisis is still not in full swing.
What you can do
• Seek rent support from governments and landlords
• Master delivery and takeout
• Do everything you can to get customer revenue
Seek rent support from governments and landlords
If you haven’t done so already, stop reading this and reach out to your landlord for rent support. Call your local government representatives for it. No, we mean it.
Bring your sales figures showing how hard the coronavirus crisis has hit your business, and assure them that you’ll weather the storm just fine—if only they support you during this tough time.
Landlords who refuse to help here actually have much to lose. Finding another restaurant to replace yours will be a nightmare in this climate, not to mention the onboarding and opportunity costs they’ll have to foot. Make this case successfully, and you may save between 30-50 percent of your costs.
Frankly, if this doesn’t work, the other tips may simply not be enough. We suggest saving your rent for other more understanding landlords in the future—there will be many, as more businesses start to crumble in the coming months.
Master delivery and takeout
As with most restaurants during COVID where most orders shift to delivery and takeout, a reliable, smooth delivery workflow spells the difference between survival and business failure. Our emergency guide goes into the essentials of setting up your delivery system for the coronavirus crisis and beyond.
In brief: Get creative with your product and menu, optimize your ops for delivery with technology, and get your staff on board.
Do everything you can to get customer revenue
This seems easy to say but impossible to do. With walk-in demand evaporating and delivery platforms charging exorbitant fees, where is customer revenue supposed to come from?
We’ll cover this in greater detail in a coming post, but there’s a lot you can do right now.
Start by building the community around your business. Update and boost your website and social media often, and invest time and care into small touches. A handwritten note, follow-up email, or campaigns that make customers feel involved can endear you to them and go a long way.
If you can find a way to partner with essential services such as hospital, communications, and transportation workers, good on you! It’s a great way to support their hard work while also staying viable yourself.
Mid-term: Crises favor the big
• Delivery and takeout will not be enough for some
• Global food supply chains will start to break in places
• The rise of ghost kitchens and large chains
Delivery and takeout will not be enough for some
Broadly speaking, for most restaurants during COVID, delivery and takeout are not likely to jump any more than they have already. At this point, most people have adjusted to working and living at home, and cooking cheaper, healthier foods at home is now the new norm.
The convenience of delivery and the desire for quality restaurant food will always remain, but don’t expect a sharp uptick in your delivery sales anytime soon.
In the coming months, the world will cycle between restricted movement and cautious reopening until a vaccine or cure emerges—but this might hurt shops even more. Restaurants will be tempted to staff and run physical spaces as quickly as possible, but with only half the usual customers returning due to occupancy restrictions and the promise of new lockdowns, it’s a risky move.
At this point, smaller businesses may find their delivery revenue unable to cover their costs. Several will be forced to suspend operations until the virus vanishes, or even close their doors permanently.
This is exactly what Old Bird, a modern Chinese restaurant in Vancouver's historic chinatown did. It closed for over a month and laid off its staff. On April 21, it started offering take-out only with a tweaked menu.
The restaurant opened Jan. 16, and is owner Sophia Lin's first restaurant. She said it took two years of planning to open an eatery with an intimate setting that would serve shared dishes inspired by Chinese street food and "our grandma's cooking." According to Lin,
When we opened our doors in January, I was so happy because everything was exactly what I wanted and the concept was exactly what I had envisioned and ... everything was just perfect, and obviously after two months, when COVID-19 happened, it was ... very hard for me to grasp the situation, and very hard to adapt quickly. I was very scared for the future as well
Global food supply chains will start to break in places
After a few months of supply chain disruption, local stockpiles will start to run out.
We’re already seeing some of this during periods of panic buying, where pantry staples such as flour vanish almost overnight. With factories and farmers slashing production as demand shrinks, core ingredients will cost more and become harder to get.
The rise of ghost kitchens and large chains
Large commercial enterprises, so often seen as bland options in the food world, have actually been gaining momentum for several years. The coronavirus crisis simply brought the future to us ahead of time.
Ghost kitchens are essentially assembly operations, and standardization runs in their blood. This leads to economies of scale and cost savings, but also makes it easier for them to implement new sanitation practices at scale during a pandemic.
Food chains and ghost kitchens, many backed by institutional and venture investors, can reach into deep pockets to wait out the coronavirus crisis. Worse, they may undercut struggling small and mid-sized food businesses, poach key employees, or simply buy them up wholesale.
What you can do
• Get creative about convenience and quality
• If you have money, use it well
Get creative about convenience and quality
For all the risk they face, small businesses and restaurants during COVID do have one unique advantage: they can respond far more quickly to new customer trends. The coronavirus crisis has made healthy eating and fresh ingredients even more important, for example, and customers who can afford quality food are happy to pay premium prices for it.
Get creative about how you can bring this quality to customers through your delivery service. Ready-to-eat meals, DIY meal kits, and fresh, nutritious ingredients are some tweaks you can make that communicate this.
Quality doesn’t just depend on the food itself, either. Here at RouteBasic, we’ve enjoyed online beer tasting sessions with local breweries, and our favorite coffee roasters have started giving detailed guides and personalized tips on preparing their coffee at home. Doing this helps customers remember and trust you, and they’re more likely to stay loyal to you because of it.
If you have money, use it well
You might be thinking none of this so far applies to you, because your business is one of the rare few that are thriving in the crisis.
Perhaps you never had a storefront to begin with, and your online sales tripled after the lockdowns began. Or you found a way to support a community of essential workers near you. Maybe your product is a niche good, and your regulars are both willing and able to spend more to support you during this time.
Congratulations—you’re in a great position to serve them and any new customers even better in the near future.
All over the world, large companies are drastically cutting their marketing budgets and freeing up ad space. If you can afford it, investing in marketing is a smart move right now, as is talking to freelancers about your branding, design, and other needs.
It’s also worth talking to talented people in your industry who have suffered from the crisis—you might be able to bring them on if business continues looking good.
Long-term: Food is a commodity, unless it’s an experience
• Restaurants will reopen, but they won’t be the same
• Supply chains will become more local and diversified
• Experiences will make or break your business
Restaurants will reopen, but they won’t be the same
When the dust settles and the coronavirus crisis has truly passed, the food industry will look nothing like it used to.
It’s still unclear how new norms such as working from home and video conferencing will impact travel, tourism, and how work is done. But one thing is for sure: the home will become a new center of life like it has never been for this generation.
With more comfortable domestic spaces after the crisis, people will start hosting gatherings and making their own meals more often. They will turn to restaurants largely for convenience and the occasional special experience.
Ghost kitchens and food chains will now be standard fare, and for a few years at least, people will enjoy far less variety in their food than they did before the crisis hit. Until new, smaller business find the resources and will to rise again, food will simply be a commodity for most people.
Supply chains will become more local and diversified
We’ve all been hit hard by the supply chain failures uncovered by COVID-19. Now that businesses are starting to make enough again, there will be a conscious effort to order supplies from multiple suppliers and regions, as well as local producers with high-quality products.
The choice to prioritize closeness and diversity comes at a cost. The price of food is likely to rise across the board—except among ghost kitchens and chains because of their bargaining power—and much of this will have to be passed on to customers.
On the bright side, after months of eating takeout and washing their own dishes, customers are likely to understand and pay this premium for the restaurants they love. Or maybe not - perhaps young people will actually learn how to buy groceries online and cook, and having gotten used to saving money, stop frequenting restaurants altogether.
Experiences will make or break your business
Millennials and Generation Z are infamous for sparking the experience economy, their low savings rates, and their high debt. Both these groups will become far more frugal after their first major economic crisis, even though their desire for freedom and experiencing life to the fullest remains strong.
When the jubilant spending after the world emerges from lockdown dies down, millennials and Gen Z customers will be hunting for affordable yet rich experiences that help them make memories and expand their horizons.
For food businesses that have successfully turned to delivery and takeout, shifting back to creating physical experiences will be a difficult but essential task.
What you can do
• Think like a startup
• Focus on creating memories, relationships, and experiences
• Collaborate with fellow local businesses
Think like a startup
Startups are known for moving fast, staying lean, and listening to what people need on the ground. When the coronavirus fades and people start coming out into the streets, this is the best time to reach out and ride the wave of spending while it lasts.
If you had been building relationships in the industry as the crisis unfolded like we suggested, good on you. As soon as finances allow, bring in a few talented workers prepared to hustle hard with you as business finally starts growing again.
Bootstrap and save on everything else, in the meantime. Your margins will stay shaky for the first few months until things truly stabilize, and cost savings will count for much here. In particular, many shopfronts will up on steep discounts—track vaccine developments around the world, then start hunting for bargain deals when real progress is near.
Focus on creating memories, relationships, and experiences
We’ve stressed this time and again, but that’s because it’s the single most crucial thing you can do to help your business survive the coronavirus.
With any luck, you’ve already been figuring out how to do this at low cost. A detailed guide on designing food service experiences is far beyond this post’s reach, but in any case, you’re better off staying abreast of food trends yourself and figuring out what your customers really want.
Again, remember that creating great experiences involves your outreach and social media, too. Stay tuned for our upcoming article on how to create these experiences, even on a shoestring budget.
Collaborate with fellow local businesses
Even though rent will be cheaper after the crisis, most food business will avoid taking on spaces with large footprints. Reach out to your industry friends and partners, especially those with products that are a great fit for yours, and see if you can join forces.
Collaborations help bring new customers for everyone who shares in it, effectively boosting each business’s marketing efforts. Besides, it’s a great way to build community and celebrate new beginnings in your area.
Hardly anyone working in the food industry is feeling safe or comfortable with how COVID-19 has changed the game. Still, there are many things businesses and restaurants during COVID can still do to survive and stand strong when the coronavirus passes.
In the meantime, we’ve written a few articles on choosing delivery systems, getting delivery services started, and doing it all better with technology. Our app platform, too, is designed to get you off to an easy start with delivery and prepare yourself for the long haul.
As for everything else, we hope this article has added to your view of the future ahead and how you can best prepare for it.
We’ll see you on the other side.