COVID-19 has been a devastatingly destabilizing force for the food service industry. This time last year, industry revenue was strong, job growth was evident, and small business diversity was alive. But a few short weeks would change everything, from in-person dining to supply chain access to consumer standards regarding health, safety, and sustainability. Now, after one full year of COVID-related complications, restaurateurs face a near-apocalyptic industry landscape.
Restaurateurs have left no stone unturned: they’ve employed third-party delivery services, moved further toward e-commerce, and set up outdoor dining to engage with patrons safely. But after four quarters of diminished budgets, decreased revenues, and dejected spirits, a main concern is the matter of space.
As the second wave brought stricter in-person restrictions, stress is at an all-time high for tenants and property owners alike. Caught between a rock and a hard place—more missed payments or the loss of longstanding industry relationships—there doesn’t seem to be a simple answer.
But a recent market analysis points toward a comeback in physical real estate. Patron demand is expected to return with a pent-up appetite for in-person dining. Restaurateurs who are able to innovate their offerings and cater to both delivery and in-person needs will be in the opportune position to survive this moment of despair in the industry. They’ll find themselves on the other side of the pandemic with renewed customer affinity.
The Matter of Space: A Look at the Market
With rent looming large overhead, many restaurant owners have been surviving with a two-fold solution. First, a pivot to e-commerce sales helped to facilitate online orders, deliveries, and curbside pick-up. Many brick-and-mortar spaces were repurposed as a place to package orders. With the help of second party services, many restaurants successfully and efficiently adapted to the delivery model.
Second, outdoor dining became a viable strategy, allowing consumers to enjoy the restaurant-adjacent atmosphere without the risks of viral transmission that come with sharing space indoors. With loyal consumers who were looking to support, and growing tired from cooking at home as the pandemic wanes on, this is another area in which owners found traction.
For some, the income earned between the two adaptation strategies was enough to mitigate a slower capital flow and cover a few months’ rent. However, many owners weren’t able to fully bridge the gap.
It’s certainly not a simple equation. A market report by CBRE tracked retailer’s COVID-19 strategies in the APAC region; 80 percent increased their use of e-commerce, and 52 percent decreased their brick-and-mortar demands. Landlords are left with vacancies and missed payments, unable to meet their own expenses.
But restaurants are an important part of a landlord’s retail ecosystem, and their interests are often aligned. By way of a survival-mode compromise, some landlords have pivoted to a percentage-based rent model, where restaurateurs offer a set amount of their COVID-era income toward rent payments, even if they’re not able to produce the full amount. While the sector has endured more than its fair share of the COVID-19 shock, it has a well-known history of resilience, employing 15.6 million people and still projected to achieve $899 billion in sales throughout 2020. Patience, collaboration, and open negotiation between both landlords and tenants will produce a mutual benefit as the sector recovers.
Dining in the Post-COVID Era
While survival remains the top priority, many food service professionals haven taken this time to invest in and innovate their customer offerings. For well capitalized owners, investors, and landlords, physical space is still an area that will offer dependable returns, and a spatial investment can go a long way. Dining areas with top-of-the-line cleaning protocols, COVID-friendly layouts and luxurious atmospheres that promote much needed relaxation will see a quick consumer return.
Furthermore, technology is always a sure bet when it comes to securing return on investment. Smart solutions have taken a forefront role in spearheading the COVID-recovery. Already, most restaurants have employed hands-free technologies to facilitate in-store menu browsing and payment. Many have gone further to optimize the online ordering and delivery fulfillment process, investing in new app platforms or partnering with existing industry giants for a seamless consumer experience.
Tech remains the perfect space to enhance, innovate, and personalize consumer offerings. With secure technology that allows guests to check in, reserve a table, access a menu, place their order, and process payment all from their personal smartphone, the restaurant experience will be transformed. Smart restaurateurs know that tech is setting the tone for the new normal, and those that are able to invest in their technology are getting an early start.
While a dip in the retail real estate market was to be expected, landlords, tenants, and owners should expect consumer demand for physical space to return. In the meantime, collaboration on rental terms and investments toward in-store and technological offerings will offer restaurateurs and food service professionals the best chance of survival. Hopefully, as the vaccine rollout continues to pick up speed, the focus will shift toward thriving in the post-COVID landscape.