Scott Barnett & Associates Blog
Restaurant Response to COVID:
the Current Stakes and
Tips on Surviving COVID

October 14, 2020
The significance of COVID on the restaurant industry can't be overstated: COVID is probably the most consequential issue to confront the restaurant industry in history.
Before COVID has completely run its course - if it actually ever runs its full course, it will have destroyed businesses big and small, ruined the dreams of thousands of entrepreneurs and most tragically taken many lives. Many restaurant owners, managers and employees have been wondering gloomily for months: how will restaurants survive COVID?

Writing a blog post about this topic is difficult. Writing a good one even more so; we are still trying to understand the virus and a restaurant industry response to it that balances safety and business viability.

I've divided this post on restaurant response to COVID into two parts. The first will deal with the economic impact of the Coronavirus on the restaurant industry. I'll present economic data to give clarity to the current situation, and provide some important takeaways on that data.

The second part of this article will discuss some operational changes that can improve the chances a restaurant will survive COVID.

Current Restaurant & Economic Statistics
Below are statistics from the National Restaurant Association (NRA), and insights about those statistics, to help restaurateurs understand the current and foreseeable industry landscape:

  • Consumers likely won't be spending much now or in the near future. 44% of consumers think the economy is in poor shape and 34% think the economy is only in fair shape. When consumers feel this way, they don't spend.

  • Be hopeful for 2022. The forecast for 2021 economic growth is a paltry +1.5%. On the bright side, 2022 looks to be in the 6-7% range.

  • Employment growth in restaurants is currently almost stagnant after a relatively strong resurgence in the May-June period.

  • Urban areas are getting crushed. The permanent closure of restaurants has been most damaging in urban areas followed by suburban areas. Rural area restaurants have performed the best.

  • Operators are expecting declining sales in the short term. In a survey on October 1, 2020, an average of 71% of operators in the full-service segment felt that sales would fall even further in 6 months' time.

  • Restaurant operators are more pessimistic about their business than in the spring. In May, 57% of all restaurant operators were "optimistic" about their business. By late summer, that number had fallen to 30%.

The unfortunate fact is that the operators' pessimism contributes to worse outcomes and makes the future less certain. When it comes to forecasting, most economists will tell you that expectations often overrule reality.

Another important trend for restaurant operators to keep in mind, especially if you own a multi-state chain, is that certain states and regions are doing better than others. The more restrictions put in place for in-restaurant dining, and the less government predictability, the greater the economic damage to the restaurant industry.

The Danger of Debt
We've seen in the last few months a few big-name chains declare bankruptcy: Ruby Tuesday, CPK, Sizzler. These chains have endured mounting debt as the COVID pandemic has continued. Many other chains are likely to follow suit unless there is further relief to restaurants in a bailout package.

While restaurant chains are getting pummelled, the worst hit are independent restaurants. Drive around town and you will see many of their doors remaining closed in October, a full seven months since we were publicaly made aware that COVID had hit our shores. Without access to much-needed capital, the doors of many independent restaurants will never reopen.

5 Steps to Help Restaurants Survive COVID
Now let's look forward as optimistically and realistically as possible. As we survey the carnage from COVID, what have we learned and what can we expect? And most importantly, what can restaurants do to survive COVID?

  • Simplify the menu. We now know that long and complex menus are very difficult to manage in an environment where sales are going through the floor. They are not that much easier in stable economic times. I think simplicity is here to stay.

  • Develop a robust off-premise strategy. If your restaurant did not have a full-blown off-premise strategy before, you undoubtedly have one now. The next point explores how you can maximize off-premise strategy profits.

  • Embrace technology and data. As a corollary to the above, the basic need to embrace technology and data has been cemented into virtually every restaurant industry participant, small and large. Apps, payment methods, geo-targeted promotional efforts, social and digital media use, predictability- they are all now everyday necessities.

  • Work with, or leverage your position with, your Landlord. In many cases, your landlord is your partner, both literally and figuratively. If indeed 25-30 thousand restaurants will have permanently closed their doors by December of 2020, there will be a lot of space available. Use this to your advantage.

  • Cleanliness is everything. It used to be important, but now cleanliness is paramount. From clean glass and silverware to gloved and masked servers to touchless pay and delivery to better lit dining rooms. Customers will expect restaurants to feel almost like surgical centers.
The restaurant business has always been a tough industry, made for dreamers and survivors. That fact is all the more true during the incredible challenges that COVID presents. By making data-driven decisions, reworking operations for the new normal and some luck, your restaurant can see through to the other side and survive COVID.
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