2020 was a shockingly traumatic year for the restaurant industry.The COVID-19 pandemic led to shutdowns across the country that hit restaurants harder than any other industry. While there is light at the end of the tunnel with the approval of the first vaccines, vaccinations have nevertheless proceeded more slowly than anticipated while infection rates continue to grow. Given this uncertain environment, how will the restaurant industry in 2021 look?
Takeout and Delivery
Due to the pandemic, most restaurants will still rely heavily on takeout and delivery to make ends meet. While the shift to off-premise dining has been growing for years, the sudden jolt of the pandemic makes it absolutely essential.
3rd party apps
Delivery apps such as DoorDash and Grubhub have seen incredible growth since the pandemic. Restaurants have relied on them to provide delivery services that they themselves didn’t. In exchange, however, restaurants end up paying commissions that are proving to be unsustainable. Localities like San Francisco and New York have imposed a limit of 15% on the commissions they can charge restaurants, but as shutdowns continue they will continue to control much of the takeout and delivery market.
Branded & Phone
In response to the dominance of 3rd party delivery apps, many more restaurants are turning to branded options that let them offer online ordering under their own name. Taking orders by phone remains hugely popular. In fact, it’s grown as many customers who have become aware of the awful deal that 3rd party apps present to restaurants have turned to phone ordering as a way to patronize their local restaurants directly. Building and growing a branded online & phone ordering experience is one of the main ways restaurants can claw back some of the margin that 3rd party commissions take.
Even once indoor dining becomes commonplace again, customers will be more focused than ever on hygiene. Offering customers contact-less menus and payments will help build trust and confidence. Sanitation measures that started due to the pandemic such as wearing masks and extra thorough cleaning of surfaces may persist as the norm even after the pandemic.
Another trend that is likely to endure after the pandemic is outdoor dining. City-dwellers have clamored for years to have more outdoor options, which led to the pedestrianization of some streets like Broadway in NYC. Since it’s become the only safe way to dine during the pandemic, many more diners have gotten a taste. New York City has already stated that it will keep its Open Restaurants initiative running permanently. It’s likely that many cities and jurisdictions will prolong the special accommodations such as street closures to promote the rejuvenation of their restaurant districts.
Simplifying the menu to maximize efficiency during the pandemic has helped reduce overhead and waste. For example, some fast food and burger restaurants have cut out non-core offerings such as salads and bagels. When considering this move, it’s important not to over-simplify. Deciding whether to drop an item requires balancing the benefit from reduced inventory requirements and operational complexity of offering that item against the possible profit margin that item may contribute.
Expansion: Groceries, Alcohol, and Packaged Goods
Many jurisdictions relaxed licensing requirements to allow restaurants to offer new categories of goods for takeout and delivery, most notably groceries and alcohol. This has helped restaurants diversify their revenue stream, though it does present potential competition for incumbents (grocery and liquor stores). It’s unclear whether or not this loosening of rules will continue after the pandemic since those incumbents may complain about unfair competition, but it appears until things are closer to normal these relaxed rules will continue to apply in may places.
On a related note, many restaurants are also offering packaged goods in addition to meals. These could be items with longer shelf life, such as salts, spices, or even meal kits. Rules have been relaxed in many places to allow the sale of items that may not contain the usual nutrition or other information that retail food sales typically require. Other restaurants are offering merchandise like T-shirts and apparel that customers can buy as a way of supporting their favorite local establishments.
Sadly, perhaps the most impactful change in 2021 will be the number of restaurants that will close. There are reports that so far during the pandemic, over 100,000 restaurants (about 15% of all restaurants) in the US have closed permanently or long-term. Many iconic brands such as Friendly’s and California Pizza Kitchen, as well as operators such as NPC international (Wendy’s, Pizza Hut) and CFRA Holdings (IHOP), have already declared bankruptcy. As it looks like that it won’t be until Q3 or Q4 2021 for there to be a full return to normal, it’s likely that those numbers will get steadily worse as the year progresses.