9 Things Restaurants May Do to Survive Post COVID-19 Era

As the world is coming close to global depression following the COVID-19 pandemic, and as restaurants will start receiving customers again, only those who understand the new norm and do abnormal things that, they never did in the past, will survive to see the day light again.

Restaurant industry along with other hospitality sectors were the most affected by the global lockdown and pandemic restrictions. Considering the fixed cost aspect of restaurant business such as rent, insurance and salary workers, micro-managing the cost will be the job of everyone in the industry moving forward. People will continue to eat out again. It is a fact of life and no one can say otherwise. It is the matter of when, not what. But how can restaurants cope with the new requirements and lower sales than breakeven figures to pass this upcoming critical 18 months?

Unless the pandemic status return back in the near future, in my assessment, the industry may go back to 2019 sales figures in the first quarter of 2022.  I am forecasting 60-75% of 2019 sales in 2021. Restaurants owners and operators must proactively adapt to such drop in sales and adjust their cost structure, communication channels and marketing strategies accordingly in order to survive for the next 18 months. Yes, it’s just to survive because I don’t believe the industry will start seeing profit again before 2022. It is not only because the lower sales level of the upcoming 18 months, but mainly due to the recovery cost resulted from the deferred payments and legacy obligations during the lockdown time.

So what should restaurants’ operators do for the next 18 months? I have listed 9 things they may do, some of which, are radicals and unprecedented:

1-     In my book “The 9 Traits of Hero Brands”, I have insisted that brands should always staff for growth not for revenue: more of a proactive approach. However, in this unprecedented time of survival, operators need to downsize their organizations to match their sales level. Forecast 50-60% of 2019 sales and staff your restaurants and your head office based on that. You can always hire people when sales increase. More of a reactive approach.

2-     Downsize your restaurant space. Renegotiate with landlords to give back part of your current space and pay less rent. Restaurants with waiting list is a good problem to have at this time.

3-     Close any restaurants that were not achieving breakeven sales in 2019. They will not survive in 2021.

4-     Use the current downtime to your advantage. Renegotiate all lease terms. Reduction in rent should match reduction in sales. In order for all to survive including landlords, turnover rent should be the norm for the next 18 months. No basic rent.

5-     80% of marketing messages and promotions should be directed towards off-premise business such as delivery, pick-up and drive through. You may also create a car-hub channel.

6-     Create value/safe message on all social media platforms. Remind customers that your restaurant/brand cares about their safety while providing value during this "cautious spending" time.

7-     Sacrifice some of your usual gross margin and focus more on cash flow vs. profitability. Companies that will survive are the ones that will have enough cash to take them through the next 18 months. So try to create value propositions that attract customers in such depressed time even if your food cost may rise.

8-     Micro manage all costs and freeze unnecessary spending. As a CEO, I am approving all payments including small ones that I never was involved in approving before.

9-     Comfort your team and get involved in their challenges during this time. They are the one will help you rebound back.

I have not mentioned the focus on food safety and hygiene as a practices because, this is a given. This should’ve been the focus before and after COVID-19. Customers need confidence to come back and we must provide this confidence in everything we do. Our communication, our food, our service and our facilities.

I know the industry will survive because food and eating out won’t just go away. The occasions may change from dine-in to carry out or to delivery, but people will continue to eat as long as restaurants communicate the right message of safety and value.

The pressing question everyone is asking: how many restaurant operators and chains will survive the next 18 months and how many will become history. If we learned anything from history, major economic events such as the current one will change the statics and dynamics of the market. In my assessment, the competition landscape will change drastically and saturated markets will become competitive and growth markets again as small players and single owner operators may exit voluntarily or involuntarily.

Last year, in one of the events I was speaking in, the host asked me if I believe the F&B market in the Middle East is saturated and if something needs to happen to reinstate the competitive advantage for operators. I insisted that some sort of governmental regulations needed to prevent small investors with no F&B knowledge from coming into the market and causing distortions then exit after creating notable damage to the same store growth for others and generating more supplies than demand. Something I called then “natural market restructures”.

COVID-19 has created such natural restructure as small players may exit the market. As a logical consequence to such restructure, landlords will be left with many unoccupied units and aggregators will have less restaurants on their platforms. As a result, the F&B market will become again, like any other industry, driven by supply and demand; a basic fundamental that some landlords and aggregators never understood prior to COVID-19 era.

 Finally, it is my view that whoever survive the next 18 months, will have a great chance to prosper in 2022 as the market competitive landscape will be totally restructured and balanced again.

 Hesham Almekkawi