Trends have changed by the day. But restaurants continue to adapt.
Where does the restaurant industry stand? Where is it headed? There remains plenty of uncertainty, even six-plus months in. A testy election awaits less than 30 days away. Regulations and restrictions jostle by the hour. What will outdoor dining look like in colder markets? How is the real estate picture changing? Are restaurants paying rent? Can they negotiate? Are there truly growth opportunities on the other side? As Darden CFO Rick Cardenas said recently, “once a restaurant, it’s a restaurant.” Meaning those vacant spots are likely going to be filled again. But by whom? And when? And does it make sense for restaurants to flood those same boxes and occupancy costs or is it time to rethink models and go smaller, more digital, more tech and off-premises ready?
According to industry management platform Restaurant365, which touts a customer base of 10,000-plus restaurants, closures rose to 60 percent in mid-April (not permanent necessarily). As of September 20, the percentage stood at 13.6 percent, reflecting reopenings. Again, however, the question is, which of those remaining spots are gone for good?
In September, per Brizo FoodMetrics, 99,603 North America restaurants (80,443 in the U.S.) had not received an online review in nine months.
Of that group, 56,501 represented brands with four or fewer locations. As you can see in the chart below, data correlates with major metros strapped by lockdowns.
Top ten U.S. metros with restaurants that have not received a customer review in nine months:
And here’s a look at a platform breakdown.
According to Brizo’s data, 54 percent of the restaurants that did not report a review within the last nine months also did not deploy third-party delivery service; 26.5 percent featured one third-party app; 12.6 percent two; and 6.5 percent three-plus.
What this suggests is straightforward: Restaurants operating today continue to rush into the off-premises fray. Only 20.4 percent of the venues that did report a review within the last three months, of which there were 148,555, weren’t using third-party delivery. That’s a 33.6 percent split. More than 35 percent, with reviews, said they were using three-plus platforms—a 24.5 percent increase versus those that were not.
"This data is a factual representation of what we have believed for a while,” says Ryan Gromfin, a restaurant coach and consultant known as “The Restaurant Boss.”
“More reviews equal more success," he adds. "It is imperative that restaurants have a well thought-out system for gathering reviews. It can be as simple as a reminder on the guest check circled by a server or as complex as text message and emails that automatically trigger after a visit, but a system for gathering reviews is a must. If a restaurant can get just one of its guests per day to post, that is 365 reviews per year. This turns into thousands of reviews in a short period of time. Any restaurant with thousands of reviews is going to have a line out the door.”
There are plenty of closure predictions. The National Restaurant Association believes 100,000 could shutter by year’s end, which aligns pretty closely with Brizo's current picture. Yelp reported 32,109 closures on its platform as of August 31, with 19,590 of those listed as permanent, or 61 percent—up from 26,160 and 15,770, respectively, in early July. Datassential’s Firefly base shows 43,329 permanent closures since the onset of COVID. Aaron Allen & Associates, in an interview with Bloomberg News, said one in three U.S. restaurants might fall off, which would equate to 213,000 of the country’s roughly 666,000 eateries. Rabobank suggested as many as 50,000 to 60,000 independent restaurant closures alone, or 15–20 percent of the entire field.
Wherever this die is eventually cast, and it’s likely to be somewhere in the middle, there’s no question the means to survival has changed in recent months.
If we turn the calendar back to March 1, an effort that feels like ancient time travel, takeout accounted for 18 percent of total industry sales, Restaurant365 said. Within a mere 23 days, it skyrocketed to 70 percent.
Takeout sales hovered in the 67–70 percent range through April 30 (minus a dip to 57 percent on Easter Sunday). It then trended steadily downward to 30 percent by September 20. The upward-downward phenomenon was inversely impacted by outdoor dining. As the latter lifted in summer, the former declined. It illuminates what could come next if dine-in recovers.
The delivery line has been equally radical, too. It shifted from 2 percent on March 1 to 10 percent by April 12. Yet it’s also fallen back (as a percentage of total sales) throughout the summer, hitting 4 percent by mid-September as dine-in returned to nearly 67 percent.
For perspective, dine-in sales were 85 percent less on March 28 than they were a year ago. That same day, delivery was up 25 percent and takeout 14 percent versus 2019 levels.
Accelerate to June, when restaurants were far more entrenched in the off-premises pivot, and delivery tracked 40 percent higher, year-over-year. Takeout 55 percent.
From June 22 through September 20, delivery sales ranged from 10–66 percent above prior-year marks, while takeout stretched from 16–77 percent higher, and dine in 4 percent higher to 55 percent lower (a lot of volatility, market-to-market).
Talking about labor
Restaurant365 tracked the total employees scheduled each week as well as total labor hours throughout COVID. This illustrates staffing realities—and complications—amid COVID setbacks.
The week before restrictions started (March 9–15), the 5,700 restaurants indexed by Restaurant365 employed a total of 695,224 employees with 4,680,188 labor hours. That dropped to less than 300,000 and 1,807,971, respectively, the following week when dining rooms went dark across America.
The next four weeks flattened at less than 200,000 employees and roughly 1.2 million in labor hours each week during the trough of restaurant closures. So you’re talking a decrease of about 75 percent of restaurant employees and 75.7 percent in total hours.
The Bureau of Labor Statistics released its September jobs report Friday, showing that 2.3 million jobs have been lost by the food and beverage industry since February—more than any other industry. After adding 200,000 jobs, the industry now employs a touch under 10 million. Even with upward movement, it’s 2 million-plus less than pre-COVID levels.
Restaurants have continued to push Congress for more direct aid, and appear to be gaining ground with the latest Heroes Act proposal, which includes a $120 billion fund for the industry. More on that here.
A study from The National Restaurant Association found 40 percent of operators think it’s unlikely their restaurant will still be in business six months from now if there are no additional relief packages from the federal government.
This is a concern we can put weight behind. The new Heroes Act also promises a second round of application eligibility for the Paycheck Protection Program and expansion of the Employee Retention Tax Credit.
According to Restaurant365, the PPP program’s first two rounds, blemishes or not, produced a tangible uptick in employment numbers and labor hours. They upped to 250,065 and 1,731,890 during the week of April 27 through May 3. Figures continued to rise through the week of June 15–21 when the numbers leveled out in the mid 500,000s for employees and about 3.6–4.1 million in labor hours. They ‘ve remained steady since.
The message being restaurants will put aid to good use, and that includes bringing people back to work. They just need to get it.
The operator point of view
Restaurant365 surveyed operators, from independents to restaurant groups to fine-dining, quick- service and full-service franchisees and franchise brands.
Starting with the PPP conversation, 87.3 percent of the respondents said they applied for and received a loan. Of those, 36.2 percent currently employ less than 50 percent of the staff they had pre-COVID; 37.6 percent said they employ 75 percent or more, including 13 percent that still employ 100 percent of former staffs.
Only 7.6 percent said they chose not to apply for a PPP loan, with 5.06 percent unable due to ineligibility or technical issues. No restaurant in the survey was denied for one.
Of course, this isn’t quite so simple. The guidance to get the grant forgiven was convoluted on day one. “The greatest challenge has been the constant uncertainty due to a lack of leadership at the highest levels of government,” a full-service operator told Restaurant365. “If there would have been a clear message regarding when we could reopen and how we could actually use the PPP funds, we could have set a better business plan. Instead, we’ve had to change our goals on a week-by-week basis. Our team has gotten better at this as time has elapsed, but this is no way to run a business.”
One of the biggest issues at hand was how to bring employees back to a different operation. Or an operation that wasn’t sure when it might be forced to change again. Does the restaurant even need the same number of employees with current revenues? Are there new roles to fill, like sanitation-focused positions? What old jobs have been rendered obsolete? Can you use kiosks anymore? If you add QR code and mobile ordering, where does that leave the server count, or cashiers? What’s the deal with tip-pooling and wages? Who needs to make more in a cross-functional environment?
In Restaurant365’s survey, 28.4 percent of operators said they still employ 81–100 percent of their pre-COVID employees, suggesting a good deal came back when they could.
Meanwhile, 17.28 percent said they only employ up to 20 percent of their pre-virus employees. In that group, 64.2 percent represented independents with one or two locations. That’s likely related to a more fragile reopening process, as well as guarding the bottom line tighter with thinner cash reserves. Bloomin’ Brands, for instance, choose not to furlough anybody so it could reopen quicker (and cheaper) when the time came. That was simply not a forward-thinking luxury less-capitalized a lot of brands could afford.
Also, many independents were unable financially to provide some of the furlough perks chains could, like continuing existing healthcare benefits and covering 100 percent of out-of-pocket costs, co-pays, and deductibles for any medical visits related to COVID, as First Watch did.
So when it came time to try reopening, a lot of operators started from scratch with workers. Either their employees moved on to other gigs or they elected to collect expanded unemployment benefits and stay on the sideline.
A total of 49.38 percent of respondents told Restaurant365 they employ up to 60 percent (including the 17.28 percent with up to 20 percent) of pre-COVID employees, with 12.35 percent staffing 21–40 percent and 19.75 percent employing 41–60 percent.
Yet even with sales climbing and a labor pool wider than before COVID, when it circled 3.5 percent—the lowest level in five decades—restaurants have struggled to staff operations, Restaurant365 said. A president of a quick-service, multi-unit group said, “employees were unwilling to return to work due to the additional $600 per month in unemployment benefits.”
This is something to monitor moving forward. Restarting the $600 expansion is part of latest Heroes Act. It ended in July. When active, minimum-wage workers were making as much 270 percent more in some states.
Staffing, in general, was mentioned as the top challenge by many of the restaurants in the survey. One full-service executive said “overpaying” employees was the only solution to the lead barriers at hand—competing with lofty unemployment perks, and convincing people to return amid COVID safety concerns.
Another sit-down operator offered a solution: “We supported our staff and encouraged them to work and stay with us, working with their family issues and listening to their concerns. We had to be flexible because we were at their mercy to come to work to keep us going. We provided extra pay for the tipped employees at the beginning of the pandemic.”
Here’s more on flexible self-scheduling as a potential outlet. Restaurants found themselves rolling perks well before COVID to compete with each other in the so-called “war for talent.” That hasn’t changed, despite pandemic conditions. If anything, an argument can be made it’s become even more expensive.
What if we reverted to March, and restaurants were mandated to shut indoor and outdoor dining again? (Let’s hope this never happens). Restaurant365 asked respondents to imagine the result from a four- to six-week lockdown: 43.04 percent said they were not at all confident they could make it. Another 27.95 percent said they were fairly confident they could. Nearly 23 percent said they were very confident, while 6.33 percent expected they’d actually get stronger.
This provides a glimpse into how far many restaurants have come with fresh channel offerings, like delivery and curbside. And whether they think they could stand on them again.
What are the concerns at hand?
- 25.9 percent: Generating enough revenue to break even
- 23.5 percent: Government imposed restrictions
- 16.1 percent: Staffing your restaurant
- 12.4 percent: Health and sanitation
- 7.4 percent: Keeping up with rent payments
- 6.2 percent: Food and labor costs
- 4.9 percent: Customers’ reluctance (this is worth highlighting)
- 3.6 percent: Employee retention
Restaurateurs seem to agree that it’s officials limiting demand, not customers. Which could hint at a speedy turnaround once the green light is shown. That would make a COVID comeback a lot different than the Great Recession, which was more of a slow crawl. And there’s evidence to back the theory from earlier traffic results that appeared mostly resistant to case spikes.
Darden CEO Gene Lee shared this in the company’s Q1 quarterly call: “So far ... we have seen no change in demand based on COVID levels in a market unless capacity restrictions change. So, [for] example, we're in South Florida when we had the spike after the Fourth of July and the restaurant restrictions were very limited, we definitely saw demand dropped. But that was not because of the consumer, it was more because of the restrictions the local municipalities put on us."
It’s no secret restaurants haven’t been entirely pleased with guidance from officials on health and safety or capacity limits. It’s often come across shaky and inconsistent, or just too difficult to find.
While the highest percentage of respondents in Restaurant365’s study (36.25 percent) gave their state and local governments a fair rating, 35 percent rated the guidance received as poor or very poor. Only a combined 28.75 percent considered their state’s communication good, very good, or excellent.
Unsurprisingly, 100 percent of those that tapped a very poor rating were independent restaurant groups ranging in size from one unit to 19.
The No. 1 complaint: Lack of guidance. “The greatest challenge was, simply, the beginning of the shutdown and the lack of guidance from all government entities,” an 18-unit quick-service operator said in the study. Another—the CEO of a multi-unit limited-service chain—said, “the greatest challenge was changing on the fly almost daily, plus the constant changing of government guidance. The government, federal and state, has been alarmingly confusing and inconsistent.”
One more, from a quick-service franchisee group with nearly 200 locations, cited the top-tier challenge as “inconsistent laws regarding masks and gloves for different cities, and shortages of health/medical supplies from our vendors.”
In terms of solutions, “more than a few” operators said they wanted less government intervention, Restaurant365 said. Others asked for more. A fast casual noted, “We need a clear message from all governments allowing us to plan and prepare. We need support and advertising from the local governments. We need reduced restrictions, reduced small business taxes, and breaks for the true small businesses.”
On the flip side, a CEO of a fast casual stated, “Government needs to stay out of our way. Let the restaurant owners decide how they choose to react to the virus. Customers can make their own choice to patronize establishments with which they feel comfortable.”
Like many things COVID, two sides of the same coin look like different currency.
Some solutions from the trenches:
- 46.06 percent: Federal passage of the Blueprint for Restaurant Revival (see Heroes Act above).
- 50 percent: Pass another round of the Paycheck Protection Program, only with more flexible forgiveness guidelines for restaurants.
- 22.37 percent: Replenish funding for Economic Injury Disaster Loans (EIDLs) and advanced grants to support businesses with major revenue reductions due to COVID-19.
- 6.58 percent: Government/corporate partnership.
- 21.05 percent: Financial support from state and local governments
In Resturant365’s survey, nearly half (48.1 percent) of operators believe the outlook remains gloomy for independents over the next 12 months. Only 13.9 percent called the overall picture “abysmal.” Nearly a quarter (24 percent) were cautiously optimistic most of the industry would recover in the coming year, while 6.3 percent said it’s already on the way.
- 48.1 percent: Gloomy for independents
- 24 percent: Cautiously optimistic
- 13.9 percent: Abysmal for the entire industry
- 6.3 percent: Industry on the road to recovery
The truth is COVID is a divergent path. It’s not sweeping the industry like a wave. It’s striking like targeted meteors. “Chains/ franchises will survive for the most part. Multi-unit independents will survive if they make necessary adjustments [reduce menu size, cut staffing, etc.]. Single unit independents/mom and pop restaurants will suffer the most,” a controller of a multi-unit, independent group said.
Added the director of organizational development for a 24-unit, full-service, independent group: “Those that can generate enough on carryout will survive and those that cannot will struggle. Upscale dining is going to take a big hit.”
Further down the road, 27.9 percent said the restaurant industry won’t fully recover within three years. Nearly half (46.8 percent) were fairly confident the industry could come back in that window. And while 21.5 percent were very confident, only 3.8 percent believed the industry would emerge stronger.
“What can be learned from these survey results is that restaurant operators have adapted their operations in whatever means necessary to meet unprecedented challenges,” Restaurant365 said.
Operators have changed their menus, adjusted hours, dipped into PPP loans, expanded off-premises channels, and bolstered outdoor dining. Sales plunged to a low of negative 69.1 percent, year-over-year, on March 12. It’s now negative 15.8 percent.
Restaurants have adjusted, as they always do. Also worth taking into account, the field today is smaller than the one in early March, as much as 100,000 units thinner, according to the Association's current outlook as well as the future one. It’s a group more equipped for COVID times, and, optimistically, ready to shift if needed yet again.
“In an industry that generates an operating profit of approximately 4 to 5 percent, money has never been the motivating factor for the majority of restaurant operators,” Restaurant365 said. “To open and run a restaurant takes more than just a commitment of time and effort. It demands an intense love of the restaurant business.”