A Recipe for Disaster
The COVID-19 pandemic has changed Canadian dining habits, forcing the entire restaurant industry into a downturn. It's projected that the pandemic could result in the closure of nearly 60% of Canadian restaurants by March 2021. With drastically reduced capacity due to social distancing guidelines, restaurants are no longer a social hub where people can relax and spend time with others. The decreased demand and newly-incurred COVID-19 safety expenses have hit restaurants harder than any macroeconomic event before; inherently slim industry margins saw few restaurants have cash reserves strong enough to act as a buffer for such financial hardship.
Restaurants must adapt to this ‘new normal’ by adopting strategies that will help them overcome lower customer traffic, supply chain disruptions, operational barriers, and new consumption trends. These strategies include diversifying revenue streams, strengthening takeout channels, revising menus, and focusing on local customers.
Not So Happy Hour
In adapting to COVID-19 induced challenges, restaurants must navigate the rise of two consumption trends: increased home cooking and takeout orders. With 80% of people reporting medium to high levels of anxiety surrounding dine-in, many people have taken up cooking as a safer, cheaper, and easier alternative to eating out. In fact, surveys have found that people are cooking at home 60% more than before the pandemic. Further, the popularity of takeout hit an all-time high in August 2020, with Uber reporting a 103% increase in Q2 delivery revenue over the previous year.
The rise of these two consumption trends has in turn highlighted two ways restaurants will have to adjust. First, restaurants will need to cater to millennials and younger generations in terms of taste and price point because they are generally less fearful of the virus and ordering from restaurants. Second, restaurants will need to strengthen their takeout channel to embrace the growth of delivery and pickup orders.
Unfortunately for most Canadian restaurants, takeout has traditionally been unsustainable in the long run. This is because major players in the food delivery industry such as UberEats and Skip the Dishes charge up to a 30% commission fee on top of the restaurant’s razor-thin margins. Furthermore, alcoholic beverage sales are typically a key profit driver for restaurants, generating 20-25% of restaurant revenue. Due to extreme markups and the accessibility of liquor stores, there are few incentives for customers to purchase alcoholic beverages with their order. Moreover, takeout was designed to be a secondary stream of revenue. In particular, upscale restaurants are struggling to maintain the quality and experience of their food through this new channel.
To overcome the challenges of growing takeout and home cooking desires and more, there are four strategies restaurants can employ.
The Menu for Success
Re-thinking Delivery Systems
Firstly, restaurants should look to improve their margins by exploring new delivery and takeout strategies. It's no secret that third-party delivery apps aren't feasible in the long run for many restaurant owners. Major companies like UberEats and DoorDash charge commission fees of approximately 30%, resulting in substantially lower profits. Newer players in the delivery industry tend to offer more affordable online order management and delivery. For example, Tock To Go is a platform that coordinates reservations, pickup, delivery, contactless payments, and more for restaurants in Toronto and Vancouver for a 3% commission fee. For restaurants that require delivery drivers, smaller companies such as Vancouver's From To and Toronto's volunteer-run iRover boast commission fees far below 30%. To bypass third parties altogether, restaurants can offer discounts on orders not placed through apps to incentivize consumers to adopt a new habit of ordering directly from the business. Other options for restaurants may look similar to that of a group of restaurants in Ontario. In an effort to evade high commission fees and to connect more personally with customers, these restaurant owners pooled in resources to begin their own delivery system.
Diversifying Revenue Streams
Restaurants should diversify their revenue streams to cover costs in the wake of full-service restaurant sales dropping by 78% since February 2020. For example, Earl’s Kitchen and Bar recently introduced their Earls at Home collection, ranging from alcohol deliveries, meal kits, and even grocery services. Due to their existing supply chain, it was relatively straightforward to implement, all while accessing a customer segment that was unwilling to dine-in.
Nando’s also implemented this strategy by introducing their bottled sauce for wholesale in 2004. Sales for their legendary Peri-Peri sauce have expanded into major grocery outlets such as Costco, Save-On-Foods, and Walmart. In addition, they launched a limited-edition Spicy P(ERi-PERi) sauce with Toronto Raptors star Pascal Siakam in February 2020. Not only does it diversify their revenue streams, but their sauce collection generates brand awareness with favourable margins.
Managing the Menus
Restaurants may also consider the pandemic and uptick in takeout orders as an industry signal to fine-tune and specialize their menus. With an inundation of challenges to juggle, from health and safety guidelines to virtual QR code menus, restaurants have the opportunity to embrace the changes and reflect on menu items to create a dining experience that is better suited to the needs of their market in the COVID era. By doing so, restaurants can focus more on consumer favourites and optimize the subsequent takeout experience. Adjusting menus accordingly through simplifying them, can help reduce waste and overall costs. Sourcing certain items from local suppliers can also lead to cost savings and fresher ingredients, ultimately resulting in a better experience for customers. Additionally, research by Loyalty.com saw that 61% of Canadians preferred purchasing local food and that 87% were more willing to increase their budgets if local alternatives were more available. While it may not be feasible for larger or chain restaurants, smaller restaurants may reap long term benefits from making these changes.
Engaging New Customer Segments
Another critical consideration for restaurants in a pandemic is the shift in their target segments. With a 96.6% decline in travel to Canada due to border closures, local consumers are the lifeline keeping many restaurants alive. Restaurants can reach local consumers by creating loyalty programs and other discounts specifically for locals. They can also engage in community initiatives that focus on increasing awareness amongst locals.
This engagement could entail providing meals to front-line workers, generating favourable PR through social media contests, giveaways, or cooking lessons with local chefs and allowing people to try menu items firsthand. Cooking lessons in particular may be an effective way to turn the threat of home cooking into an opportunity. Restaurants could sell packages of ingredients for select menu items (to avoid cannibalizing sales in the long run) that customers can pick up. Customers could then follow along to a livestream of the Chef sharing their preparation techniques. These strategies would work well for restaurants located in residential neighbourhoods, where they can develop long-term relationships with the people living close by, creating long-term prosperity.
A Community Story
Yellow Door Bistro, located within the Hotel Arts in downtown Calgary, is a prime example of a restaurant that has taken the pandemic in stride. They officially reopened for dine-in on June 18th, 2020, but were limited to just 50% capacity. To offset this significant reduction, they set up a curbside pickup system. The Yellow Door team created a website for their to-go offerings in a pinch, and renowned Chef Quinn Staple continues to offer Chef-inspired gourmet takeout meals. The curbside pickup program was well received and bolstered by community support, with some volunteers picking up and delivering orders to elderly customers.
They also saw interruptions in their typical supply chain as an opportunity to focus on local and regional producers and suppliers. Impacted heavily by border closures and travel restrictions, they re-evaluated where they chose to source their ingredients. Yellow Door Bistro has opted to simply accommodate what local suppliers have available during this time. They take pride in their unique Chef-inspired dishes and look forward to incorporating new ingredients.
The majority of restaurant owners are chefs, rather than business strategists, but are now required to do both by circumstance. Before the pandemic, restaurants could thrive off of reputation and great food. However, new barriers concerning accessibility, safety, and logistics of the foodservice industry emphasize the importance of a robust business model. While these recommendations can help restaurants stay afloat in the coming months, the impacts of COVID-19 are far from over. Ultimately, there is only one person who can help keep restaurants and small businesses alive: you.
Here are some actions that you can take to help support local restaurants and businesses:
- Order from local restaurants and avoid third party delivery services such as UberEats when possible.
- Take precautions to keep your community safe so small businesses can stay open.
- Share your favourite local restaurants with friends and family.
- Provide much needed immediate funds to restaurants you're planning to visit by purchasing gift cards for later use or as gifts.
The combined conscious actions of consumers and creative flexibility of restaurant owners will enable restaurants to not just survive, but thrive in the face of persisting uncertainty.