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Restaurant trends and issues

Creative strategies in today’s evolving restaurant marketplace

COVID-19 has had a devastating impact on the restaurant industry overall. Even operators who have thrived through the pandemic were forced to assess and adjust to a dramatically different operating environment. Those who were able to adjust quickly had operating models and technologies in place conducive to a low-contact, quick service environment. As markets reopened, operating models for some were enhanced and others were totally overhauled to address health concerns and new local regulations. Many locations across the U.S. remain closed and may not reopen under the same name, brand or ownership structure.  

While we cannot predict the future, demand in the summer months is a clear indicator that U.S. consumers have not given up on the restaurant industry. People continue to want the convenience of someone else preparing, and in many cases, delivering their prepared food, and they continue to crave the social interaction and overall experience of dining out. Nonetheless, as outdoor dining becomes less practical in cold weather states and the country experiences a surge in COVID-19 cases and resultant restrictions, the industry will likely take a step backward before moving forward. Despite government support expected for the industry, we anticipate additional restaurant restructurings and unit closings in the coming months. That said, we also see tremendous opportunity for those who survive as an industry that was over saturated and over seated in many markets finds balance in the market place. 


RESTAURANT CHALLENGES AND OPPORTUNITIES

Mergers and acquisitions

Expect investment in the industry to ramp up in the next several months as struggling brands look for financial partners to help them survive in the near term and evolve their operating models to accommodate permanent shifts in consumer behavior. Savvy investors will bargain hunt for struggling brands and seek to capitalize on shifts in the competitive landscape across the board. Competition for guests, talent and real estate will be at unprecedented lows as we emerge from COVID-19. Those prepared to take advantage will be in prime position to succeed.  

Consumer preferences and technology

In many ways, COVID-19 has been a great accelerator of trends we’ve seen emerging in the industry across the retail ecosystem over the past several years. While demand for prepared foods, places to socialize and share a meal are likely to continue, many buying habits developed during the pandemic are also likely to continue. Off-premise dining will forever be an important part of most restaurant operations, regardless of the segment of the industry. Optimizing operational efficiency and cost effectiveness needs to be a top priority as it will be a critical success factor moving forward. Technology will play an important role across the operation and those with the foresight and capital to invest will be the best prepared for success.  

Curbside pick-up has become widely accepted and offers a more cost effective off-premise solution than third-party delivery platforms. With the appropriate technology, ordering and payment responsibilities reside with the guest, minimizing stress and additional cost to the operation. It also provides the operator better control over the product the guest receives if kitchen capacity is managed effectively, something diners seem to understand and appreciate.  

COVID-19 has also taught many operators that they can be more profitable producing less revenue. Data analytics will help operators analyze optimal operating hours, staffing needs and menu planning.    

Expanding kitchens to accommodate peak off-premise demand without impacting dine-in service will be critical for some concepts. Today, some operators are forced to suspend pick-up and delivery during peak dine-in hours. This needs to change if operators hope to retain the off-premise business they took from grocery and c-stores during the pandemic. Continuation of family-meals and other creative menu planning will also be critical to retain market share.

Labor and real estate

During 2019 the industry saw labor and real estate costs continuing to soar. Record low unemployment levels created intense competition for qualified talent across the country and competition for prime real estate was adding additional burden to most restaurants. Today, unemployment is high and some of the most desirable locations in 2019 are dark as high-rent, historically high traffic locations are closed as people continue to work from home and operators continue to evaluate their ability to operate with restrictions imposed by local municipalities. While this is a troubling situation, it may also be an opportunity for those who survive. Affordable second-generation real estate and the availability of qualified talent may facilitate cost effective growth strategies for those positioned for growth.