We lay out potential timelines for the US restaurant industry’s recovery—and actions that restaurants should take to cater to consumers’ new dining needs and preferences.
After weeks of quarantine and physical distancing, what does the future hold for US restaurants—and for the more than eight million restaurant workers across the country who have been laid off or furloughed since March? How quickly will US consumers feel comfortable eating out again?
COVID-19 has not only been a devastating public-health crisis; it has also been the restaurant industry’s greatest challenge to date. Never before have so many restaurants been forced to cease operations; some will never reopen. Early indications—from China and other countries where the pandemic seemed to be under control—suggest that consumer demand won’t immediately rebound when restrictions are lifted. However, restaurants that plan ahead to adapt and refine their restaurant model for the “next normal” will be better positioned to bring sales back to precrisis levels.
In this article, we describe COVID-19’s impact on the US restaurant industry to date and explore two likely scenarios for recovery. We then recommend a set of concrete actions for restaurants to return to stability and help shape the next normal.
The pandemic’s impact to date
COVID-19’s economic toll on the restaurant industry hasn’t been evenly distributed. Whereas pizza chains have maintained or increased sales during the pandemic, casual-dining and fine-dining restaurants have seen their revenues decline by as much as 85 percent (Exhibit 1). For some fine-dining establishments, revenues fell to zero.
<h4>Each restaurant’s performance during the crisis has depended largely on the following factors:</h4>
- Off-premise versus on-premise sales mix. Unsurprisingly, restaurants with high off-premise sales prior to the crisis are faring better than those that relied more on dine-in sales.
- Reliance on day-part occasions. With many people working from home, restaurants that generated much of their business from daytime eating occasions—such as people getting breakfast or coffee on the way to work—have been disproportionately affected.
- Urbanicity. There are large disparities in restaurant-traffic declines across states. Declines have been highest in densely populated states such as Connecticut and New York (Exhibit 2).
- Digital maturity. A strong online-ordering presence, digital loyalty programs, and robust customer-relationship-management (CRM) systems have been lifelines for restaurants during this crisis, as levels of digital engagement among consumers have soared. If trends in China are any indication, consumers could remain more digitally engaged even after the crisis. Starbucks China, for instance, saw a 12-percentage-point increase in the share of digital transactions postcrisis—from 15 percent in January to 27 percent in late March (down from a peak of 80 percent in February).
- Role of value. Consumer perception of value and the prevalence of deals have buoyed some restaurants’ sales during the crisis, as customers—suffering financial losses and fearing continuing financial insecurity—increasingly look for ways to save money…