Five permanent changes in the restaurant industry to emerge from the pandemic

Pandemic, hopelessness and the path ahead!

In February 2022, Washington Post published a heartbreaking feature about one Yus family. The family a couple and two of their four sons ran a restaurant, Hollywood East, in Maryland, Virginia, for over 25 years. With great detail, the feature article talks about the tribulations that the Yu couple (Janet and Alan) had to go through early in the pandemic. In 25 years of running the Chinese-style restaurant, the Yus had experienced many challenges before; among them was losing their restaurant to unforeseen circumstances.

But nothing in the family's past could have prepared them for the pandemic. With extensive widespread shutdowns, supply-line disruptions, rising costs and plummeting revenue, their business was on a halt; they were not just cash-strapped but also clueless about the future. The restrictions, mandates and staff shortages made the situation even bleaker. And as unfortunate as it had to be, the husband would give in to a covid infection in the first year, leaving the other members grieving for him and struggling to find a foothold to continue the business.

Unsurprisingly, the Yu family isn't the only ones to have suffered. In just the first year of the pandemic, from March 2020 to April 2021, 90,000 restaurant establishments around the country would close either temporarily or permanently, per National Restaurant Association's estimate.

For more than two years, the restaurant industry has been on a rollercoaster ride. The effect of COVID-19 has been somewhat crippling, especially for independent, small businesses. The study -- State of the Restaurant Industry 2022 by the National Restaurant Association -- states that more than half of the restaurant operators believe it would take a year or more before business conditions return to normal. "Food, labor, and occupancy costs are expected to remain elevated and continue to impact restaurant profit margins in 2022." In addition, 96% of restaurant business operators experienced supply delays or shortages of key food or beverage items in 2021. These challenges will likely continue in 2022 and beyond. The worst is that 51% of adults aren't eating at restaurants as often as they would like. It is an increase of six percentage points from before the pandemic.

The size and investment of a business matter only to an extent. In the larger scheme of things, significant supply chain disruptions and extreme labour shortages, apart from many other issues, have affected every business in one way or another. Most restaurants are still struggling to recover from lost profits, pay back debts, and fill staff openings.

The pandemic situation is ebbing and evolving and is pushing the restaurant businesses to embrace changes. Some of those changes are here to stay for long. Let's look at them-

1. A technology-forward attitude

Widespread closures, restricted movement and lockdowns spelled disaster for the food and dining industry, with limited to no indoor dining. As a result, most full-service restaurants had to rely solely on take-out and delivery to stay in business. Revenues in the US market alone declined by 85% in 2020.

Quickly reacting to changing trends and timely technologies helped businesses survive the pandemic. The fast-food chain, McDonald's, for example, used its full arsenal of technology-led solutions to help it tide over the difficult phase -- from its user-friendly mobile app that helped customers place orders quickly and remotely to mobile payment options and contactless payment tips and leveraging drive-thrus -- everything helped. McDonald's has also been performing well financially, thanks to these continuing adoption of technologies.

Many restaurants, however, were slow to move. They took time to grow their capabilities and adopt evolving innovations. Larger restaurant chains had the infrastructure and deep pockets to implement new trends and technology. But smaller quick service and fast-casual businesses lacked the digital tools to face the crisis.

For instance, the Yu family implemented QR codes in their restaurant operations within a few months after reopening their restaurant. But since they were cash-strapped, they had difficulty re-activating their third-party delivery services, which they had discontinued at the beginning of the pandemic. So when they finally activated it after more than a year, they had to increase the food prices by up to 30% to cover the delivery service fee.

However, what would have been a choice before 2020, has now become a necessity, with the pandemic accelerating the use of technology across businesses, no matter their size. Even for those restaurants that only catered to dine-in customers, an increased digital presence has become the only way to survive and it would continue to be so.

2. Altering strategies to cut costs

Cost cutting hasn't just been a result of the pandemic. Multiple challenges have dominated the trend. First, rising prices, inflation (projected to be between 8-10% in 2022), and the supply chain crisis has meant that the cost of most products has doubled and even tripled. Add to it increased labor cost, store construction and set-up, and rent. Then there's shifting consumer behavior, which has been leaning towards ordering in rather than dining in. Every challenge, however, has drawn out a unique strategy.

Shorter or low-cost value menus are one-way restaurants have responded to rising expenses, helping them cut down their average food costs. For instance, Domino's has downsized its $7.99 wing deal from 10 pieces to eight pieces. Similar moves have been made by Burger King, McDonald's and other restaurant chains operating with multiple franchises.

Mobile ordering and delivery have become more popular, prompting some major restaurant chains to downsize certain outlets. In addition, they may be looking to cut costs by reducing property rentals while adapting to customer demands. Perhaps, that's why Domino's has been pushing deals exclusively for online orders. CEO Ritch Allison believes they are cheaper to process and give Domino's access to more valuable customer data.

Expanding automated systems and machinery has also been a way to keep costs in check. For example, an automated beverage dispensing system minimizes wastage, maximizes output, and doesn't require additional labor; adopting such equipment has helped restaurants. In addition, these use less energy and have advanced sensors and cloud-based diagnostics which ultimately keeps expenses down. Such strategies will continue to dominate the restaurant business in the next few years.

3. Labor shortage is permanent- redefined recruitment strategy is need

Last year, Mcdonald's, Chipotle and Starbucks announced they would be cutting staff hours in some locations because the workforce crisis reached the food service industry soon after the pandemic began and continues to grow. Many restaurant managers find themselves in difficult positions since there are no workers. The problem was attributed to a staffing crisis. From servers to cooks, from the agriculture workforce to other restaurant workers, labor shortage has been a constant in the food service industry. Meatpacking plants are also dealing with a shortage of workers, causing hassle for businesses that solely depend on them for meat processing.

The labor shortage resulted from two years of continuous turmoil in the restaurant and hospitality industry in the wake of the pandemic. In the initial days of the pandemic, workers reported increased abuse from customers and managers and consistently depleting tips that they depend on, owing to the lower wages in this particular industry. At that time, restaurants closed for indefinite periods, and many employees left for better opportunities with the possibility of better shifts, more promising wages and more manageable working hours. Increased immigration enforcement has also contributed to the restaurant worker shortage. Only in November 2021, 1 million of the 4.5 million Americans who quit their jobs were restaurant and hotel workers, per the Bureau of Labor Statistics.

Retaining staff has always been a challenge in the food service industry, but now, with many furloughed and fired food service employees that have found employment opportunities in other industries with better wages and stable profiles, getting them back is difficult. Industry leaders anticipate that the issue is almost permanent. To overcome labor shortages, hiring needs to become competitive.

Redefined hiring strategies with proper technology implementation, augmented salaries, and increased benefits are the only way to deal with this crisis. Some of the new strategies that the restaurant chains are turning to include hiring Gen Z. Reportedly, it is believed by a large section of industry leaders that with technological solutions being integrated with the restaurant management system, it's easier to train the Gen-Z. This is because they live on their phones and are technologically savvy. As a result, the demand for technological solutions like an effective point of sale system integrated with inventory management is also picking up.

4. Beating the odds with data-driven strategy

Beating the odds is all about having the right information. Since supplies remain expensive and difficult to acquire, most operators are working around ways to reduce risks, reduce costs, staff smarter and boost efficiency. As a result, the reliance on data-driven decisions has increased in the last two years.

Foodservice operators have traditionally attempted to cater to their customers better by sizing them up, taking in their age, cultural background, and economic status. Advanced technology is now doing this for them. The food delivery app GrubHub, for example, has analyzed thousands of dishes and data points to create a personalized recommendation system for its users.

In the physical world, restaurant self-service kiosks are being fitted with cameras to show diners dishes that are likely to appeal to them. Raydiant, a digital signage company is deploying automated technology at its self-ordering kiosks using Sightcorp software. These camera-equipped kiosks can detect a customer's age, mood, and attention level to propose appropriate menu items to them.

Employers are also staffing smarter by leveraging workforce management solutions, so they're not over or understaffed for any given shift or don't overutilize employees to burnout.

In the past, many operators relied on their gut instincts to run the business, but they now realize that it's not feasible anymore due to rising prices and tightening margins. Data analysis plays an increasingly important role in how restaurants are run, and owners are increasingly keen to mine their data to make decisions due to this increased understanding. Even smaller businesses are using technology to decide how to proceed with things like marketing or understand what takeout customers want to order using data provided by online ordering platforms, for example. It's a positive change and is poised to help the industry revive in a better way.

5. Now, customers care about safety protocols!

One of the primary requirements of working in a restaurant, irrespective of who it is the chefs to the waiters or even someone just helping out for the day - is to follow strict food safety and sanitary protocols. This is simply because so much can go wrong if one is not careful- getting food poisoning from undercooked seafood, contracting salmonella from eggs that aren't properly cooked and many other things! So one has to stay on top of their game at all times.

But after an outbreak like the Covid-19 pandemic, things have become trickier, especially with customers now becoming hyper-vigilant about knowing what is happening in a restaurant. What are the waiters doing with their hands, whether or not they are wearing gloves, and if the chef is wearing a mask while preparing food or not -- customers want to know everything.

There's no arguing that food safety practices like avoiding cross-contamination, cooking foods with safety protocols intact, and until they're properly done are still important. However, restaurants now need something else entirely in this new era - which is protocols to help them keep their business going, not to be branded unsanitary by consumers.

The onus is completely on the restaurants now to be up-front about how they are prioritizing safety protocols. Communicate their commitment through onsite signage, website content, and social media posts so that the customers understand their positioning. Restaurant owners need to let everyone know -- the customers as well as the employees -- that they take health and safety seriously. A constant reassurance in this regard is the need of the hour -- a trend that is likely to continue.

Conclusion

Many of the covid-related disruptions have been difficult to manage -- quarantines, overburdened or broken supply chains, inflation and staffing shortages. But people have started finding hope in innovative solutions until a resolution can be reached. Adapting to the necessity and transitioning business models accordingly will help in moving forward.

The problems have been daunting, but the solution is clear-
Have a tech-forward approach.
Embrace automation and efficiency.
Create new revenue streams.
Prioritize the safety of customers and the staff.
The future looks bright!

Become a member of the Restaurant Association!