By Travis Traini
The Canadian food service industry has faced numerous challenges during the COVID-19 pandemic. Here, consulting firm fsSTRATEGY outlines some takeaways for operators from what we’ve seen so far.
Key learnings from COVID-19
From a food service operator’s perspective, one of the greatest takeaways from COVID-19 may be the importance of communication. Typically, the restaurant industry has done the majority of its cleaning out of the public eye. Now, best practice has become making sure cleaning and sanitation is visible and communicating to your guests what you are doing. This includes internal staff communication and training of new procedures and task-list tracking.
A segment of the population was ready to dine out in restaurants as soon as the restrictions were lifted; however, many people are less comfortable. Research shows that customers are more comfortable dining out when restaurants have practices in place to keep customers and staff healthy. These include cleaning, sanitizing, social distancing measures, staff wearing PPE, etc. It is increasingly important to communicate to customers what you are doing to keep them and your staff safe.
In addition to the change in communication and sanitation protocols, operating practices have changed to keep staff and customers safe. For example, tables in many restaurants are not set and sanitized cutlery is brought to the table after guests are seated with many offering packaged plastic cutlery for those who prefer that option. Self-serve food and beverages have been discontinued, at least temporarily, while tamper-proof seals and optional contactless delivery are quickly becoming an expected norm. Restaurants are offering single-use menus and making menus mobile-friendly with some having QR codes on the tables to access menus quickly.
One of the biggest accelerated changes in the industry has been restauranteurs’ and customers’ embrace of technology. Mobile order-pay apps, third-party (and in-house) delivery, website enhancements, and so forth existed before the pandemic and increasing in popularity; however, adoption rates have soared in 2020. We are three years ahead in technological adoption compared with where we were before the pandemic.
Critical challenges as the pandemic continues
The greatest challenge will be to operate profitably with reduced sales. While quick-service restaurants have done reasonably well generating revenue throughout the past several months, dine-in capacities continue to be restricted with social distancing requirements in dining rooms. Expanded patios are helping to some extent, but this is Canada and patio season is coming to a close with the onset of fall.
Restaurateurs have already looked for ways to increase top-line revenues (e.g., curbside pickup, which looks like it’s here to stay as an option, as well as meal packages and short-term expansion into grocery items). Restaurants should continue to look at expanding ordering and product delivery channels while restrictions are in place and moving forward. A dine-in only restaurant without significant takeout and delivery business will likely struggle. The ability to capitalize on delivery during the pandemic was a key factor in restaurants’ ability to survive.
Operators must look at the middle of the income statement and determine what changes they can make to reduce expenses without affecting quality or service. The restaurant business is tough — according to Restaurants Canada’s 2020 Operation Report, the average pre-tax profit in Canada’s food service industry is 4.2% of sales (based on 2018 reported operating ratios).
Reducing expenses, where possible, is essential. Costs to clean, sanitize and provide PPE have increased and restaurateurs should be taking advantage of government programs to reduce expenses, such as the Canada Emergency Wage Subsidy (CEWS) and the Canada Emergency Commercial Rent Assistance (CECRA). However, ensuring they are managing all costs effectively is still important. Managers should review opportunities to reduce costs constantly.
High unemployment rates may turn out to be good for the industry by creating a larger pool of potential restaurant employees. The Canada Emergency Response Benefit (CERB) has been an operational challenge as many operators have indicated they are having trouble staffing their restaurants when potential employees are able to spend their time at home with pay. Recruiting and retention of good staff will continue to be a key to success and should be a focus for operators.
The pandemic has pushed restaurateurs to think more creatively and be more entrepreneurial. Restaurants pivoted their service methods. Hardly anyone was doing curbside pickup pre-pandemic and now this method of service may continue as an ongoing revenue stream for full-service restaurants. Menus were revised to respond to the pandemic — simplifying to be responsive to the challenges or to only include food that would sustain its quality off-premises, offering groceries and other staples with delivery orders, etc.
As customer behaviour adjusts moving forward, restaurateurs should determine whether a business case exists to develop an in-house delivery program to avoid losing margin and control over their customer relations to third-party delivery. Some operators may seek local partnerships to share costs with other restaurants looking to provide delivery.
Restaurateurs may be able to develop additional revenue streams by creating a differentiated virtual brand offering a separate, delivery-only menu produced in their existing kitchen spaces and sold exclusively online (as opposed to a ghost kitchen, which service delivery orders from a separate location). Some chains are also exploring the subscription model to encourage traffic and guest convenience. Subscriptions may include programs for coffee or fountain beverages, pre-paid meal programs per month or free delivery subscriptions.
The food service business is challenging and operators are good at adapting and innovating. There always seems to be key challenges: staff recruitment and retention challenges, economic downturns, GST implementation, changes in labour regulations, alcohol policies. Surviving and adapting to the challenges of the COVID-19 pandemic will make operators better prepared for the next challenge.
In particular, restaurateurs must:
- Continue driving revenue effectively (i.e., take advantage of revenue opportunities that provide a good return on investment)
- Manage the middle of the income statement—continuously looking for opportunities to reduce costs without affecting service and quality.
- Embrace technology where it makes sense for their restaurant financially (determine if a business case exists at your restaurant for the technology being offered—you are buying solutions and must make sure the solution is addressing a challenge at your restaurant).
- Make sure they are taking advantage of emerging revenue streams such as delivery, meal packages and curbside pickup.
- Finally, connect with their guest base proactively. Keep them informed of what’s being done and listen to their feedback and sentiments around the current environment. Good listening practices with both customers and staff may produce opportunities which may not have considered, but which make sense.
Jeff Dover (President) and Travis Traini (Principal) are part of fsSTRATEGY, a consulting firm specializing in strategic advisory services for the hospitality industry, with an emphasis on food and beverage. fsSTRATEGY hold memberships in the International Society of Hospitality Consultants.