The COVID-19 pandemic has disrupted most business worldwide and the retail industry is no exception. With a significant decline in out-of-home consumption and restaurants and pubs remaining closed for sit-down services, the impact on such retail properties is dramatic. On the contrary, restaurants offering pick-up and delivery options are experiencing a massive spike in their order volumes, Such polarising influence of the pandemic within the same industry is likely to shape the larger, more significant trends in the macrocosmic level of the food and beverage industry and restaurant real estate sector in 2021.
It is evident that restaurants that plan ahead to adapt and remodel their services to suit the ‘new normal’ will be better positioned to restore their sales to the pre-crisis levels. CNBC reports that in 2020, takeout and delivery sales increased to 59% while dine-in restaurants saw a decline of 69% in their sales.
Impact of COVID-19 on the food service sector
1. Off-premise VS dine-in services
Restaurants offering off-premise services fared well during the pandemic and consequent lockdowns. However, restaurants relying on dine-in services failed to secure sales.
2. Shutting down of retail outlets
Whether due to mandates or loss, several food and beverages companies and restaurants have shut down their retail outlets. A September 2020 survey by The National Restaurant Association estimates nearly 100,000 shutdowns. As people continued to stay and eat at home and continued indoor dining bans across the country, restaurants failed to stay afloat in the business. Almost 90% of full-service restaurants in the survey reported an average 36% decline in revenues. 37% of restaurateurs were expecting Government relief packages to rescue their businesses. Further, more than one in three operators were considering temporarily closing until conditions improved. Statista reports that 110 restaurants were closed either permanently or indefinitely as of December 2020.
3. Job losses
The pandemic and closures of dine-in restaurants cost the restaurant industry a loss of over 2.1 million jobs between February and November 2020.
4. Digital food delivery
Digitalization of food, drink and meal shopping experience emerged as the life-saving trend during the pandemic. There was unprecedented growth in demand for take-out and online shopping services. The contactless delivery of groceries to meal deliveries boomed. As a result, many restaurant and retail operators added off-premise options to their services to rebound their sales during lockdowns. Even with labour shortages and subsequent delays in delivery, consumers continued to shop online. A Cowen & Co. survey in July showed that 52% consumers would avoid restaurants, bars and retail shops even after they would fully reopen amid rising COVID cases.
5. A decline in dine-in demands in urban cores
Declines in restaurant traffic was the highest in densely populated urban areas. Restaurant visits in urban counties decreased twice than those in rural counties. As a result, densely populated cities such as New York, Illinois, Connecticut etc were among the hardest hit areas.
6. Breakfast sales saw a sharp fall
The pandemic severely affected the restaurants recording highest sales from daytime eating. With the majority of the people working remotely, the sales for breakfast meals or beverages in restaurants and coffee shops fell sharply. Breakfast restaurants like IHOP and Denny’s closed several outlets in 2020 due to decline in sales. IHOP franchisee closed all of its 49 restaurants and filed for bankruptcy in May. Coffee chain Starbucks reported same-store declines of 9% as it relies heavily on early morning commuters. Further, Taco Bell temporarily cut breakfast from their menus. As a result, their early morning meal reduced to 4% from their usual 6%. Hence, breakfast sales faced an abrupt reduction in the pandemic.
7. Drive-thru lanes soared high
Drive-thru lanes for handling and digital and delivery orders helped fast food restaurants to rebound faster than the full-service counterparts. As a result, NPD Group reports that drive-thru lanes accounted for over 44% of off-premise orders across the entire restaurant industry by December 2020.
8. Online grocery delivery
Supermarkets adapted quickly to the changing needs of the food and beverage industry at the peak pandemic period in mid-2020. They were swift to launch or expand online grocery shopping, delivery or pick up services to customers at their doorstep. An aversion to venturing to physical stores and supermarkets, the inability to get to the stores, and out-of-stock products led to the overwhelming demand for online shopping. Even after vaccines hit the streets and foot traffic was increasing in grocery stores again, safety remained a major concern for customers. As a result, grocers began investing in technology inside their brick-and-mortar stores. Since Q1 of 2020, Gen Zs and baby boomers, as well as consumers from rural and suburban areas largely shifted to online grocery shopping in the food and beverage industry.
How COVID-19 will shape the upcoming trends in the restaurant real estate sector
1. Retail property purchasing trend
PWC reports that retail properties will witness a sharp fall in their prices in 2021. Buyers looking to invest in commercial properties for retail purposes will have to consider the property’s location and size. Given that suburban migrations from densely populated urban cores was the predominant trend in 2020, purchasing retail properties in suburban centres would prove beneficial.
2. Area per sq. foot considerations
Retail properties providing ample space for maintaining social distance, air filtration, outdoor spaces and physical barriers would be advantageous for buyers.
3. Changed physical layouts
As the second wave has hit the country and safety regulations are likely to remain, restaurants may need to change their physical layouts. Restaurants will reduce the seating capacity to allocate sufficient space to the consumers for maintaining utmost hygiene and social distancing protocols. Several restaurants reduced the seating capacity to less than 50%. They also rearranged the tables to be kept at least 2ft apart. Others introduced plexiglass attachments between community tables for booth seating. They are also introducing spacing decals for separating the people in the queue. In addition to this, outdoor seating will largely be a part of the standard restaurant layout. Eateries are also installing hand sanitizing stations in the extra spaces.
Hence, existing restaurateurs or new owners will prefer large spaces to implement these changes. However, some retailers will remodel their layouts or move to smaller spaces. This is largely due to reduction in the seating arrangements and lesser foot traffic.
4. The age of online delivery
Digital contactless food and grocery delivery options are being considered as the safest bet till the virus subsides. With the rising consumer preference towards e-commerce has forced retailers and food to provide faster same-day deliveries. As a result, the demand for larger distribution hubs with improved cold storage facilities is increasing. Further, last mile distribution centres are witnessing a steady growth in suburbs near the urban city cores. Investors are also reusing closed down retail centres as logistics centres. Developers are preferring large fulfilment centres as warehouses in close proximity to ports, interstate highways and gateway markets.
5. Ghost kitchens
Another crucial trend in the food industry is the emergence of Ghost Kitchens. These kitchens are virtual kitchens that exist online and do not have any dine-in space. Ghost Kitchens or Cloud Kitchens allow multiple restaurant brands to prepare delivery-only food orders exclusively. This model is extremely useful for both new and existing market participants. This is because they require significantly low initial costs and hence are favourable for new participants. Moreover, running a cloud kitchen requires only a fraction of what it costs to operate a physical restaurant.
Further, existing restaurant owners can shift to distressed commercial and infrastructural properties for their cook-and-collect sites. Hence, repurposing of old properties will be beneficial for both the building owners and the restaurant operators.In addition to this, restaurants can turn any property in any location into their Ghost kitchen. As a result, they can operate within these small spaces with low rents and help building owners to generate additional income.
6. Operational Innovations
As the virus continues to be a cause of concern and off-premise dining continues to be favourable for consumers, restaurants need to revamp their operations. To recover and rebound their sales, dine-in restaurants need to develop a dedicated strategy for online delivery, catering or pick-up services. In addition to this, they need to introduce cost-effective packaging and changes in the menu. Further, digitizing the customer experience and assessing the store footprint must be part of a restaurant’s priorities post COVID.
7. Creating brand awareness
In order to entice customers to step foot in their outlets for dining-in, restaurants need personalized approaches. By creating a strong virtual presence on social media platforms restaurants can attract potential customers. Moreover, digital marketing through emails, websites, apps and local media channels also targets potential customers. In addition to this, restaurants can incentivize food purchases by offering attractive discounts, deals, promotional codes, free shipping and cashback offers.
How COVID-19 will shape the upcoming trends in the food and beverage industry
1. Demand for local produce in the food and beverage industry
With increasing safety concerns, consumers are becoming more conscious of a product’s origin. Moreover, some retailers could not source various items from overseas suppliers due to lockdowns and supply chain disruption. Hence, the demand for local items has gained traction over the last year and it continues to rise in the food and beverage industry. Ranging from fresh fruits and vegetables to meat and dairy produce local farms are witnessing a steady growth in demand. Furthermore, many local farms have also adopted quick-turnaround delivery and touchless collection for ensuring further safety and customer satisfaction. Hence, local farms and businesses are profiting and subsequently contributing to the local economic growth. Additionally, local produce from locally grown and sourced ingredients ensures consumers of the transparency and sustainability of the products.
2. Demand for Plant-based food in the food and beverage industry
Although the demand for chicken continues to increase, new plant-based “meats” are emerging as a growing alternative in the food and beverage industry. With the success of “Beyond Meat and Impossible Foods”, plant-based foods and beverage businesses saw a 36% spike in their demand globally. As a result, more local restaurants are offering plant-based vegan foods in their menu.
3. Demand for packaged foods in the food and beverage industry
Prolonged lockdowns and home quarantines led people to stock up on non-perishable and frozen foods. This trend led to food producers investing in equipment and facilities to produce and supply processed, canned, prepared, and frozen food items.
The COVID-19 pandemic has severely impacted the retail sector in general and the food and beverage industry and restaurant real estate sector with colossal challenges. From supply chain disruptions to maintaining stringent safety protocols and investing in digital innovations- it is clear that retail and restaurant owners need to implement a well-planned risk management strategy to navigate this uncharted territory of uncertainty and return to pre-covid levels of profits and business.