In Part 3 of our “COVID Impact on Industry” series, we review the state of the Food and Beverage sector in the wake of the pandemic, and look ahead to see what the near future holds for this critical industry.
In March 2020, when the spread of COVID-19 temporarily shut down restaurants, bars, cafés, and other food and beverage businesses across the United States, merchants in virtually every facet of the industry faced unprecedented challenges. With sales drastically cut and foot traffic dwindling, many owners of food and beverage businesses had to make the tough choice of whether or not to lay off or furlough employees to stay afloat. Some also faced supply chain disruptions, especially at the start of the pandemic.
The economic impact of COVID-19 on the food and beverage industry is undeniable. By fall 2020, 3 million employees were out of work and the overall restaurant industry was on track to lose $240 billion by the end of 2020, according to a survey from the National Restaurant Association—which prior to the pandemic had projected 2020 revenues of a combined $899 billion for full service and counter service restaurants. The same trade organization reports that as of December 2020, more than 110,000 restaurants in the U.S. (17 percent) had closed permanently or long-term. However, not all these closures should be attributed to the pandemic, as FSR reports that 60% of restaurants fail within the first year and 80% fail within their first five years. It’s a tough business even under ideal economic conditions—and 2020 was anything but ideal.
For restaurants that remain in business, recovery has been slow. The National Restaurant Association’s Restaurant Performance Index (RPI) stood at 99.1% in January 2020, up from 98.6% the month prior, and represented the eleventh consecutive month of negative readings. The RPI tracks the health of and the outlook for the U.S. restaurant industry; a reading above 100 indicates expansion, while a reading under 100 means contraction.
Of course, the impact of COVID-19 on individual segments of the food and beverage industry hasn’t been uniform. Some types of businesses have been impacted more dramatically than others. As of January 2021, Allegra World Coffee Portal estimated the value of the U.S. branded coffee shop segment at $36 billion, down 24 percent over the last 12 months due to disruption from the pandemic. That said, drive-thru coffee remains popular, as most U.S. consumers (63 percent) now prefer to get their coffee from drive-thru versus in store.
Slower drive-thru times at fast food restaurants—likely due to higher utilization—have cost those brands an estimated $64 million, according to a study of 10 restaurant chains by SeeLevel HX. In spite of the slowdown in drive-thru times, fast food restaurants have seen steady demand during the pandemic and have even raised their prices at a higher rate than full-service restaurants. Restaurant Business attributes these price increases to demand, wage rates, and delivery prices. Well-capitalized fast food chains like McDonald’s and Chipotle have thrived during the pandemic.
The uncertainty of the pandemic has many American reaching for comfort foods, so in addition to fast food, ice cream has performed better than many other categories. For the 52-week period ending September 6, 2020, dollar sales in the ice cream subcategory of the larger ice cream/sherbet category were up 13 percent, according to Chicago-based market research firm IRI. On the individual brand level, ice cream companies such as Bruster’s Real Ice Cream in Pennsylvania and La Gelati in Michigan have seen this play out in their own stores.
Pizzerias have also fared better than some other sectors of the restaurant business, benefiting from lower price points than fine dining and the appeal of pizza as a comfort food. While 60 percent of pizzerias did experience a decrease in sales, according to industry publication Pizza Today, some pizzerias are actually doing better. Pizza Today found that half of those pizzerias that experienced sales growth were up by 16 percent or more over 2019 sales.
Following forced closures in many states, some restaurants and cafés pivoted to takeout and delivery-only models, but that brought its own set of logistical headaches. For instance, many restaurant websites were not set up for online ordering, because the merchants had primarily served dine-in customers. They had to move quickly to meet demand. Some restaurants, already operating on a razor-thin profit margin, signed up with third-party delivery apps but soon realized that those apps take a large cut from each order.
The other option is to integrate online ordering for pickup into your POS system. If customers place orders through the delivery aggregator apps such as Uber Eats, Grubhub, and others, merchants are charged service fees even if those orders are for pick-up. Options like Clover Online Ordering are appealing because they are more cost-effective for merchants, with no set-up, subscription, or incremental transaction fees.
Merchants operating on the takeout and delivery-only model still had to consider the safety of their employees, so they had the added costs of personal protective equipment (PPE) and additional cleaning protocols. When states allowed restaurant dining rooms to reopen, it was often at reduced capacity for safety reasons, making it harder for merchants to turn a profit with fewer customers and increased costs.
In states that permitted restaurants to serve customers outdoors, merchants maximized patio space and some even expanded outdoor dining into their parking lot to serve more customers. Come wintertime, outdoor dining wasn’t viable for everyone, but some restaurants kept their outdoor dining spaces open with the help of patio heaters, blankets, or even bonfires to keep customers warm. Restaurants with outdoor dining space have a huge advantage over those that don’t; Datassential reports that 63 percent of consumers feel safe eating outdoors at a restaurant.
As more Americans get vaccinated and many states and workplaces start to reopen, the outlook for the food and beverage industry should continue to improve. Still, not everyone who’s fully vaccinated feels comfortable returning to indoor dining just yet. In a March 2021 Harris Poll survey for USA TODAY, almost a quarter (23 percent) of those surveyed said they won’t feel comfortable eating indoors until the country reaches herd immunity. Yet a full third of those surveyed say they would feel safe with indoor dining a few weeks after their second vaccine dose or earlier.
Some customers are eager to resume indoor dining and other aspects of their pre-pandemic lives to regain a sense of normalcy after a year that has felt anything but. For others, the pandemic has fundamentally shifted their relationship to restaurants. For one thing, some customers now have higher expectations of restaurant hygiene than they did before. QSR Magazine reports that 61.9 percent of consumers polled want employees to use masks and gloves after reopening, while a quarter of those polled wanted restaurants to continue using those PPE for the rest of the quarter or indefinitely.
Consumers who discovered the convenience of food delivery and online ordering may continue to enjoy that convenience even when they feel comfortable returning to restaurants. They may order delivery from merchants that they wouldn’t normally frequent in person due to distance or availability of parking in that merchant’s location. Customers can also benefit from the safety of contactless ordering and payment for dine-in with QR code-based online ordering features such as Clover’s Scan to Order.
An advantage of the rise in online ordering is that it gives merchants more insights into their customers. Some food and beverage brands now offer customized recommendations based on customers’ previous orders, similar to how Netflix curates movie recommendations based on viewing habits.
Even when the U.S. reaches herd immunity, CNBC predicts that drive-thru ordering will also remain above pre-pandemic levels, so this is a key trend for merchants to watch. Some fast-casual restaurants are investing in drive-thru ordering for the first time, so consumers who picked up this habit during the pandemic may continue to use drive-thrus.
While the pandemic has strained restaurants and forced some to close, it hasn’t been all doom and gloom in the industry. The pandemic has spurred innovations that could help these merchants stay relevant and sustainable in the future.
Savvy merchants invested in online ordering capabilities such as Clover Online Ordering. Many streamlined their menus to make their kitchens more efficient and explored new product ideas that filled a customer need. For instance, From the Boot, an Italian restaurant in the Philadelphia area, introduced TV dinners. Other merchants focused on take-and-bake options or family-style meals, catering to customers who were sick of cooking for themselves. Found Coffee in Los Angeles started selling half gallons of cold brew and other beverages. Found Coffee also began selling grocery staples like milk and bread, since grocery stores tended to run out of inventory early in the pandemic.
Some merchants also managed to survive by amping up their digital presence. This was especially important at a time when customers’ in-person interactions with brands were minimized for safety reasons. Swirl Wine Bistro in South Florida began featuring new specials on their website and starting a monthly newsletter to keep in contact with loyal customers. Brooklyn Tea in New York used social media to promote new products such as their Immunity Box with herbal teas for respiratory health and the immune system.
This resilience and willingness to pivot is likely to help these merchants in the future even when the threat of COVID-19 is largely behind us. After all, agility is essential to survival in competitive and ever-changing industries like food and beverage.
Recovery will not happen overnight for the restaurant business, but the industry is likely to see improvements over the next year as more people get vaccinated and scientists gain an even better understanding of the virus. Consumers have come a long way from the days of sanitizing every grocery item before it entered the house!
Those merchants who’ve made strategic decisions to invest in POS technology and those who fill a specific customer need—for instance, comfort foods or family-style take and bake options—are best positioned to survive and thrive in a post-pandemic world.
Enjoyed this article? Check out the rest of our COVID Impact on Industry series: