4 minute read

Turning the Tables: State of the Restaurant Industry

Joaquin Huerta, Senior Consultant

Despite the challenges to the industry brought on by the last year, some restaurant brands are emerging stronger from the pandemic. Those brands that accelerated off-premise options and delivered high service levels have a clear advantage, but others can—and must—catch up. This new blog series will discuss how some restaurant brands are leveraging their current momentum, with this first entry making some general observations about the current state of the industry.

The COVID-19 pandemic forced the hospitality industry, including restaurants, to rapidly reinvent its business model. Prior to the pandemic, dine-in and drive-thru demand in the quick-service restaurant industry were balanced. During the pandemic, the hospitality industry generally saw a transition of customer preferences from predominantly dine-in business to more off-premises and contactless pickup offerings. In 2020, drive-thru demand increased from 55-70 percent to 90-95 percent.

Indications are that the transition in demand to alternative services such as curbside pickup, mobile ordering, and drive-thru are here to stay. Quick-service restaurants will continue to be challenged to develop innovative strategies across all their business operations. Was your business prepared to adapt to these new customer preferences? Will it be in the future?

The impacts of not being prepared for the new customer preferences are significant. Customers will continue to utilize new ways to receive service—online, mobile, and drive-thru and curbside offerings—but will also expect a return to the same in-store customer experience levels. Customers expect convenient and fast options, particularly during peak rush. If the multiple options cannot be delivered with good speedy service, potential customers may simply leave, directly impacting revenue. Consider also less obvious types of abandonment. Some people will simply not enter at all if a line is too long for them. How many will join a queue that extends all the way to the roadway? Equally as impactful to revenue are those customers who have a bad experience, such as getting stuck in long queues waiting for their meals. They may never return.

So, after a year of accelerated transition to a more contactless and sanitary service, it is time to re-evaluate. Which options adopted during the pandemic stay and which go away? What are the considerations associated with a long-term off-premises operation? Are you aware of the impact that new food safety strategies have on workflow? Is the time and effort spent by employees used at the right place, at the right time?

People first

Customers demand excellent service. As the pandemic eases, the tolerance some customers had for sub-standard service will fade. Problems related to labor and staffing will continue to be one of the main reasons for a bad customer experience. By not having the right people, at the right time, at the right place, the customer experience suffers. In addition, employee satisfaction is crucial to providing high-quality hospitality service.

To maintain customer service and employee morale, you must carefully examine how the operational practices and off-premises options that remain will now permanently impact your labor practices. For example, as new food safety best practices emerged due to policies and restrictions, some workstations had to absorb extra activities, such as sanitizing and filling extra cleaning supplies. The utilization of that specific position can reach an exhausting demand during an ordinary shift. Enhanced sanitation is likely a good permanent practice, but drained employees are not.

Similarly, more offerings added into the business operations and the return of on-premises dining mean labor must be deployed to maintain the desired speed of service across the board. Speed of service of the off-premises offerings will always be a big indicator of customer satisfaction. Innovative and even experimental options based on your business needs and service objectives will continue to be necessary.

What options stay and which go?

Based on the changes in customer preferences, the contactless experience will keep playing an important role, but there are considerations associated with a long-term off-premises operation.

Drive-thru and mobile ordering and curbside pickup are likely here to stay. Third-party delivery was an important revenue channel at the beginning of the pandemic, but as restrictions ease up many consumers will likely rethink the value of paying a significant upcharge for delivery, particularly if the price of the delivered products themselves rise as the economy recovers. In those circumstances, does a commitment to third-party delivery make sense?

Your decisions regarding service options, including off-premises, necessitate a consideration of your actual premises. Many brands positioned themselves well prior to the pandemic by experimenting with unconventional unit layout strategies. Brands whose stores feature large and inflexible footprints have been adversely affected by the loss of dine-in demand. An inability to adapt to emerging customer preferences may make it very challenging for these brands to make a profit amidst high capital and utilities costs at their units. On the other hand, smaller footprint concepts benefit from less expensive capital costs, allowing them to seamlessly transition to a more contactless profit model without feeling the loss of dine-in customers as heavily in the interim. It is also much easier and less expensive to retrofit units with smaller footprints to feature a more open layout, enhancing airflow and the ability to socially distance oneself in line with emerging customer preferences.

With the off-premises service options playing a bigger role in sales, the restaurant industry will face operational challenges to achieve the highest service and efficiency possible now more than ever. These challenges will include:

Besides all the above, discussions regarding increase of the federal minimum wage also highlights the importance of optimizing processes and reducing labor costs in order to maintain momentum and sales after the pandemic. In the next post in this series, I will discuss the evaluation of labor strategies in the emerging environment and how to improve them.

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