Off-premise dining services such as take-out, meal kits, heat-and-eat solutions, and virtual events are helping pave the road to recovery.
The nation’s vibrant foodservice landscape has been forever changed by the COVID-19 pandemic.
The restaurant industry, the nation’s second-largest private employer, has been among the most severely impacted of all U.S. business segments, with sales down about 24 percent in 2020, compared to 2019, according to data from the National Restaurant Association.
More than 110,000 restaurants, or about 17 percent of all locations, have closed, according to NRA data, as states and municipalities around the country ordered them to shut down or restrict operations to slow the spread of the virus, and consumers turned increasingly to home cooking. Some analysts predict it could be years before the industry returns to 2019 sales levels, which had reached a record high of $889 billion. The NRA estimated that sales for 2020 totaled around $659 billion, and it projects sales of $731 billion this year, up 11 percent from last year.
“There still is a substantial, substantial way to go before the industry, in terms of sales and employment, is back where it was pre-COVID,” says Hudson Riehle, senior vice president, research and knowledge group at the NRA. “Employment-wise, the industry remains down by well over 2 million positions.”
Restaurants that had strong delivery and takeout programs have tended to fare better than those geared toward dine-in service. Buffet concepts were decimated, and fine-dining restaurants that relied heavily on business meals and large gatherings for special occasions also struggled to stay afloat.
The NRA has lobbied for more federal relief for the industry, and a new industry association, the Independent Restaurant Coalition, emerged during the pandemic to advocate specifically on behalf of independent bars and restaurants.
Caroline Styne, a co-founder of The Lucques Group, which operates multiple restaurants and other foodservice operations in Los Angeles, says she joined the IRC shortly after it was formed last year.
“We all were freaking out, trying to figure out what on Earth we were going to do and how we were going to get through what was probably the biggest challenge any of us would ever face in our restaurant lives,” she says.
The main goal of the IRC has been to obtain relief for independently run restaurants, Styne says, “because we are the ones who are struggling and who are in jeopardy of not existing anymore.”
The IRC coordinated a meeting with the White House in late February to discuss a proposed $25 billion grant program for restaurants in the COVID stimulus package. The program would award grants to restaurants and bars for eligible expenses including payroll, employee benefits, paid sick leave, mortgage, rent, utilities, building maintenance and construction of outdoor facilities, personal protective equipment, sanitizing materials, food, and debt obligations to suppliers. The U.S. House of Representatives passed the package as part of President's Biden's $1.9 trillion American Rescue Plan, earlier this week.
All of us are in debt to our landlords and to our vendors and to banks because we've had to take out loans to keep ourselves afloat any way that we possibly can,” says Styne. “Many of us on the [IRC] advisory board have actually lost our restaurants because we haven't been able to pay rent.”
She says she has had hundreds of employees who have been out of work since March of 2020, when the pandemic-related shutdowns began.
Many restaurants have been able to take advantage of Paycheck Protection Program loans that can convert to grants, but operators say that will not be nearly enough to save many of the restaurants that have closed, and those that are barely hanging on.
Road to Recovery
In the near term, restaurants must continue to focus on protecting the health of their employees and customers as the vaccine rollout gradually gains traction, says restaurateur and Next Iron Chef winner Jose Garces, founder of Philadelphia-based Garces Group.
In the longer term, however, the industry will likely need to convince consumers that it is safe to return, he says. “Restaurants have taken a pretty big hit from a public relations standpoint. They are thought to be places where the virus spreads pretty easily, and we will need a public relations campaign about restaurants being safe, and that’s something we will have to undergo for some time.”
Styne agrees that it will take some persuasion to convince consumers that restaurants are safe again. “There are still going to be people who are fearful of going out and being around other people,” she says. “Getting people over that discomfort, and back into the comfort of being around others is going to take a while.”
Garces says he expects sales at his restaurants to ramp up throughout 2021 as restrictions on dining capacity are eased. “We may be at 15 percent of our levels in February, and we would be happy to get to about 50-60 percent by June or July and get to close to 100 percent by the beginning of next year,” he says.
New Avenues
Garces, like many operators in the industry, has pursued new avenues of business, including two new ghost kitchen brands: Rustika, which specializes in Peruvian-style rotisserie chicken, and Livy’s Plant Based Foods, which offers meatless burgers and sides such as vegan mac-and-cheese. He recently launched both concepts from a commercial kitchen space in the University City area of Philadelphia.
“We will continue to see people gravitate toward services where they can get this higher level of cuisine delivered at home,” he says. “I feel like that is going to be around for some time, and maybe permanently.”
Garces also revived his Garces Trading Company brand, which focuses on gourmet heat-and-eat meals and other at-home food experiences. He had previously closed the brand but revived it to meet the demand of consumers seeking high-quality, convenient meal solutions. He operates it out of the kitchen of his Philadelphia event venue, The Olde Bar.
He also sees restaurants capitalizing on opportunities to offer more specialty retail products, driving revenues through the sale of items procured through chefs’ own unique supply chains. “Our ability to curate and find and procure great products is a skill that we should embrace, because we have done it for our restaurants and our menus for a long time,” says Garces. He’s planning to announce such a venture of his own into this space later this year, although he declined to disclose details.
In addition to his retail and foodservice ventures, Garces also has become more involved in virtual events, in part through his newly launched personal brand site, ChefGarces.com. There he offers brief culinary demonstrations called Cooking Space, which he said meld together mindfulness, music, and food. He’s also conducting live cooking classes in partnership with a group called Latin Live. “I have been doing a lot of virtual cooking demonstrations during this time, and I have enjoyed giving back, teaching, and being engaged with fans and with guests that have not been able to come in and dine,” he says.
Styne, meanwhile, says she still plans to open two new restaurants in downtown Los Angeles this spring, despite the restrictions of the pandemic. The openings have been delayed by more than a year.
The restaurants, which will mark the debut of foodservice at the Proper Hotel, include a rooftop venue and a small bar, which will have expanded sidewalk seating, a key tool operators around the country have leveraged to salvage sales, at least in warmer months and in warmer climes. “Still, it's hard when you open a restaurant to get that ‘wow’ experience of walking into the space when it’s outdoors,” says Styne. “Trying to create that on the sidewalk is a little difficult.”
Consumer Lifestyle Changes
Styne also says the industry will have to adjust to the increasing prevalence of consumers working from home. Her restaurants have felt the effects of this shift during the past year in the form of reduced business breakfasts and lunches. “A lot of businesses are recognizing that the idea of telecommuting is not an impossible one,” she says. “We’re adjusting our expectations around that, and pivoting on that level, too.”
Aimee Harvey, senior managing editor at industry research firm Technomic, says the growing at-home culture will be significant for the future of the industry. “Work-from-home policies and e-learning will have an ongoing impact on how and when consumers source food,” she says.
Riehle of the NRA agrees. “Looking ahead over the next decade, one of the most important trends will be what happens with remote workers,” he says. “Even if there's a hybrid solution for many of these workers who used to work five days a week in these major city centers, and that becomes two or three days, it still substantially impacts how the consumer's food dollar is spent and where.”
Restaurants in suburban areas are already adjusting to these changes, he notes, and many restaurants that have closed in urban areas have relocated to the suburbs.
Research firm Datassential also cites the opportunities created by this migration of consumers to smaller markets and suburban communities. Trend-forward ingredients, menu items and cuisines will emerge in these areas more quickly, as former urban dwellers bring their taste preferences with them, the firm predicts.
Off-Premise Grows
Consumer adoption of off-premise dining via takeout and especially via delivery, which had already been on a sharp upswing before the pandemic, accelerated sharply in 2020 and promises to be a key element of the industry’s future.
“Restaurant operators are telling us that even after the pandemic has ended, off-premise service is still going to be a priority for their business,” says Harvey of Technomic.
A recent Technomic survey revealed that 72 percent of operators indicated that takeout will be an ongoing investment for them post-COVID; 44 percent said the same about pickup/curbside, and 42 percent said the same about meal kits.
“We anticipate the quick-service restaurants will be either downsizing or completely eliminating the dining room at many locations,” Harvey says. “Look for takeout-only models to emerge rapidly for quick-serve restaurants, while full-service/casual-dining restaurant companies explore opportunities to develop concept spinoffs that promote express models, such as Buffalo Wild Wings’ new Go concept.”
She cites the growth of ghost kitchens, cloud kitchens, and dark kitchens as “the most important trend being tracked for concept development this year.” The growth of virtual brands is expected to continue in 2021, she says, as new concepts seek to meet the demand for pickup and delivery, without actual brick-and-mortar storefronts.
Other trends that will emerge going forward, according to Harvey, include:
• Real estate and acquisition opportunities. “The savviest organizations will assess the future climate as a green light to take advantage of prime buying opportunities not only in real estate, but in the acquisition of brands,” she says. “In 2021, there will be an acceleration of acquisitions, as companies purchase chains for an advantageous price, shutter underperforming units, and revamp locations in stronger markets.”
• Changes in food hall operations. Time Out Market, a prominent food hall brand with locations around the world, “is providing a blueprint that we will see many other food halls mimic,” says Harvey. For example, its new app will enable customers to preorder and immediately be seated when they enter, rather than congregate at individual vendor stalls. Food halls will also build out their outdoor spaces, and closely track on-site capacity. More food halls will also implement curbside pickup and delivery programs, Harvey says.
C3 Counts on the Future of Virtual Brands
Multi-concept foodservice operator C3 (Creating Culinary Communities) is betting big on the future of multi-concept kitchens and virtual brands.
The company, backed by shopping mall giant Simon Property Group and multinational hotel operator Accor S.A., is establishing a network of brick-and-mortar locations that will house multiple foodservice brands at each site, including in hotels and in its own food halls. Its first food hall, called Citizens, is slated to open in Manhattan this spring.
C3 owns the Umami Burger concept and several other brands, including Krispy Rice, Sam's Crispy Chicken, Plant Nation, LA Gente, In a Bun, and The Other Side. It recently acquired 22 units of Specialty’s Café and Bakery, which it is converting to its own breakfast/lunch cafe and catering brand, EllaMia. The locations will also house several other C3 brands as delivery-only concepts produced in EllaMia’s kitchens.
"Unlocking the value of underutilized real estate and creating opportunity in a hurting foodservice industry is key to the C3 model,” says Sam Nazarian, CEO and founder of C3.
The company also recently reached an agreement with Graduate Hotels to operate foodservice concepts for the chain, through which it will showcase some of its brands and produce the menus of others available for delivery only to the surrounding areas.
Thomas Negrel, who was recently named chief operating officer for the EllaMia concept, says the brand will expand to dozens of locations this year, both in the conversion of the acquired Specialty’s locations and as virtual brands located within the kitchens of C3’s other brands.
As C3 and other foodservice companies expand their off-premise operations, they will need to focus carefully on the customer experience, he says. One way C3 is doing that is through its CitizensGo mobile app, which will allow customers to place orders to multiple C3 brands simultaneously. This would not only provide a convenience to consumers but would also allow C3 to have one-to-one relationships with those customers, as opposed to through a third-party ordering platform/delivery service such as DoorDash, Grubhub, or Uber Eats.
“Creating a direct link to the customer is one of the things we are actively pursuing, because that’s where the value is,” says Negrel. “We want to own that relationship … to ensure that the experience for the customer is what it needs to be.”
That effort around the customer experience extends to everything about the delivery, including the packaging and the overall brand messaging.
“Food has become so commoditized; it’s almost like ordering from Amazon, where a package arrives at your door,” says Negrel. “We want to create something that is closer to a ‘Christmas moment.’ We want people to get excited when they get their food. We want to connect with consumers in a way that goes beyond the food and is about the moment.”
Pandemic Drives Restaurant Technology
Restaurant adoption of technology advanced significantly during the pandemic, as operators became dependent on online ordering and delivery platforms, QR codes that enable customers to download menus, and expanded use of social media platforms to reach homebound consumers.
“Much of the pandemic actually has accelerated the integration of technology into the typical restaurant experience,” says Hudson Riehle, senior vice president, research and knowledge group at the National Restaurant Association, citing contactless payment technologies as one example.
That trend toward increased use of technology is one that can be expected to continue, post-pandemic. “The association’s research indicates that well over one-third of all American adults still feel there isn't enough technology involved in their restaurant experience,” says Riehle, noting that younger consumers in particular agree with that sentiment.
The NRA’s 2021 State of the Restaurant Industry Report found that about half of full-service, fast-casual, and coffee-cafe operators devoted more resources to technology since March, and 39 percent of quick-service operators did so. In addition, 40 percent of restaurant operators added contactless or mobile payment options. Twenty-nine percent of consumers said the availability of contactless or mobile payments would make them more likely to choose one restaurant over another for takeout or delivery, including 45 percent of Gen Z adults age 18-23. The survey indicated similar preferences for mobile apps that allow ordering and payment.
Mark Hamstra is a regular contributor to Specialty Food.