When will eating out get back to normal and how can the sector prepare?

On 26 May 2020, we brought together leaders from the restaurant and food to go sector to discuss how - with the market largely closed and with operating restrictions expected to last into the medium term - their sector has been impacted by COVID-19 and their expectations for recovery.

At that session they shared with us, how they think the sector will cope in the short- and medium-term, as well as what they believe the industry might look like after the crisis. 

How the industry responded to the initial crisis

Most large operators closed their businesses entirely in the initial phase of lockdown, with 43% of our surveyed attendees still fully closed. While they are now able to offer delivery, many have taken time to establish new kitchen procedures (to adhere to required social distancing and keep staff safe) before now offering takeaway and delivery from selected sites. Once the procedures and economics of this have been assessed, they will consider rolling this out further across their estates. 

Food to go operators are more likely to have some sites open for takeaway, which makes sense given they are more operationally geared towards take-out options. 

What are the main considerations for recovery?

Phased reopening of sites

64% of our attendees expect to phase the reopening of their sites, dependent on location type. Which sites reopen (and the order in which they do) will depend on the level of expected demand in different location types (e.g. city centre vs shopping centre vs towns), as well as the amount of outside space. 

Capacity considerations

Given expected social distancing requirements, operators will be able to operate to varying levels of their full capacity. For example, only 7% of our survey respondents believe they will be able to operate at full capacity. The majority (86%) expects to operate between 50-70% of their capacity, while the remainder anticipates operating at less than 40% capacity. This will depend on the size and configuration of sites, as well as the flexibility of seating (e.g. booths vs counters vs flexible tables), and will have significant implications for potential site economics post reopening. Where the debate over the required distance between people in restaurants lands will be critical to the industry - one metre instead of two metres will make a lot more sites viable. Most international markets are currently using 1.5 metres but some have gone down to one. Operators need to be thinking now about how to reorganise and reconfigure sites to make the best use of space.

Levels of demand

Base case assumptions on the level of demand in the three months post-opening vary between 20-80%, reflecting the level of current uncertainty, different location types and target customer bases of the operators surveyed. However, the majority of our operators expect demand to be 40-59%. Food to go operators are generally more pessimistic, which could reflect the expectation that many currently working from home will continue to do so. 

Initial indications from international markets suggest sales have recovered to 30-60% within weeks of easing lockdown. This will vary by market depending on the level of restrictions in place.

Recovery time

There is broad consensus that it will take at least nine months to return to pre-crisis levels of sales, with nearly two-thirds of our respondents expecting it to take more than 12 months. There are several constraints to bouncing back to previous levels, including operational (e.g. capacity restrictions), consumer caution and economic (if the expected economic downturn unfolds).

This aligns with our recent consumer survey, where approximately 50% of people expect to return to eating out in a restaurant within a few months but the remainder expects to wait until things return to normal, which could take some time.

International markets which have reopened suggest that initially capacity restrictions and demand levels appear aligned at around the 50% level. While there is enough demand for restaurants operating at 50% capacity though, it is unclear how full they would be operating at full capacity.

How can organisations prepare for the future 

Businesses must use this crisis period to reassess and restructure their operations. All of our respondents indicated that they are planning to change their operating model or business because of the crisis. Operators should look at right-sizing head office teams, reducing on-site staff levels, and rationalising supply chains. Others might consider simplifying menus or more limited opening hours, something we have seen examples of in international markets. These are things which are likely driven by short-term needs but also could benefit businesses longer-term. 

Some operators are also planning to consolidate estates. 57% of respondents did not expect to reopen all of their sites post-crisis, with the majority expecting to close 10-20% sites. The question is whether the tails of sites being cut are being based on historical or future demand profiles. If working from home becomes an established trend, previously high performing city centre sites may deliver lower sales levels; conversely, historically lower revenue sites in commuter towns may do better. 

In addition to offering more takeaway and delivery, the closure of sites has accelerated innovation around offerings. Businesses need to look at what they have and what they can do to generate revenue, whether that’s an expansion into selling meal kits or grocery items or putting products into supermarkets. For some, these options may have been on the agenda for some time but not prioritised because of a focus on day-to-day trading. It will be interesting to see how the economics of new business streams stack up and whether they represent long-term incremental business for operators. 

Operators need to be responsive to any lasting changes to consumer behaviour. Many expect less eating out, some trading down to cheaper options and more use of promotions, all of which we normally see in an economic downturn. We’re also likely to see greater use of takeaway and delivery, in line with the already established growth trend in these areas, as well as the increased use of well-known brands, which are trusted by consumers or perceived to have better hygiene controls. 

What does this mean for the industry?

This is an incredibly difficult time for the sector and it is likely to remain difficult for some time. As well as focusing on surviving in the short-term, operators should use this as an opportunity to transform into the business they want in the future. While the industry faces serious challenges over the coming weeks and months, we remain positive over its long-term prospects. Those which emerge from the crisis will be leaner and more focused on target customers and core competencies, which will position them well to benefit over the long-term.

Contact us

David Trunkfield

David Trunkfield

Hospitality and Leisure Leader, PwC United Kingdom

Tel: +44 (0) 7764 235 446

Eleanor Scott

Eleanor Scott

Director, Strategy& Travel & Leisure, PwC United Kingdom

Tel: +44 (0)7748 965165

Robert Johnston

Robert Johnston

Director, Transaction Services, PwC United Kingdom

Tel: +44 (0) 207 2131030

Lisa Hooker

Lisa Hooker

Leader of Industry for Consumer Markets, PwC United Kingdom

Tel: +44 (0) 7802 882 562

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