Restaurants are opening the doors again. But to a new reality.

Highlights

8 min readJun 22, 2020

20–30% of all restaurants are likely to go insolvent in 2020
Social distancing requirements heavily reduce available capacity
The magnitude of revenue declines vary by restaurant type
Consumer behavior and expectations will significantly change
6 things that restaurants need to do today
The industry going forward — turning the crisis into opportunity

Restaurants are opening their doors, but they are facing a totally new reality. Will they be able to avoid getting the door slammed in their face? The restaurant industry has received a punch in the gut in 2020. Never before have restaurants faced such a severe challenge as with the corona crisis leading many into a fight for survival. All will fight, some will struggle their way through — some will never reopen again. So what does the future of the restaurant landscape look like? OpenTable states that 25% of restaurants won’t reopen, McKinsey believes 20% of restaurants will die and at DiscoEat, our restaurant booking app based on yield management, we believe that 30% of restaurants will not survive 2020. Countries like China, where the pandemic initiated, provide a glimpse into the future as a testament to the change in customer demand. Regardless of easing restrictions in Europe, it is unlikely that customers will behave in the same way as prior to the corona crisis. Restaurants will open their doors to a new reality and have to adapt their restaurant operations if they want to stand a chance to reach similar sales levels.

Social distancing requirements heavily reduce available capacity

Social distancing is crucial to stop the spreading and avoid a second wave of the disease, that’s no question. However, even if restaurants operate at 100% with half their capacity, the maximum revenue potential yields only 50% of the pre-crisis levels. At DiscoEat, we interviewed more than 100 restaurant owners in Germany during the first two weeks after restaurants reopened their doors. On average, restaurants lost 45% of their capacity with some missing out on 75% due to the restaurant floor plan and setup. Customer demand has heavily decreased as people are still hesitant to take up their normal restaurant routines in concern about the risk of infection. Thus, on average, only 60% to 70% of the — much lower — post-corona crisis capacity is filled. In other terms, only 30% to 40% of a restaurant’s total, pre-crisis, capacity is utilized during peak periods while most restaurants remain basically empty in off-peak hours. Even if restaurants reach 100% of their newly regulated lower capacity, the revenue potential is dramatically lowered as compared to pre-corona times.

The magnitude of revenue declines vary by restaurant type

According to the above mentioned McKinsey study, the impact of the corona crisis varies by restaurant type revealing that casual and fine dining restaurants suffer the largest revenue decreases of up to 85% while pizza restaurants have experienced stable or even increased revenues.

Similarly, the recovery of restaurants won’t be uniform with pizza and quick-service restaurants (QSR) to be expected to recover first. Independent restaurants are especially affected by the corona crisis due to the limitation of digital capabilities and lack of financial capital. DiscoEat interviews supported this result as restaurant chains and hotel restaurants — while hit the same — report a more positive future projection due to stronger financial backing from investors. During the crisis, restaurants’ performance has relied upon the mix of on-and-off-premise dining options as restaurants that already applied off-premise delivery or take-out are more likely to leverage these channels to their advantage; dependency on specific day-time operations as the dependence on e.g. work lunches worsens the revenue position, and digital expertise as digital engagement has been a crucial pillar of staying in contact with customers.

Consumer behavior and expectations will significantly change

The corona crisis has influenced customer behavior during the crisis but changes in customer attitudes towards on-site restaurant dining are likely to prevail after the reopening of restaurants. The pressing questions remain: Will customers return and when? How did their attitude to restaurants and dining behavior change? What do they expect when returning to on-site dining?

A recent study states that 77% of respondents believe that the restaurant industry has suffered the biggest hit as compared to airlines and entertainment. According to Food Service, only one-third of Germans (33%) claimed that they are likely to visit a restaurant within the first 14 days after the reopening. Another study found that 28% of people will only return to dine in restaurants in fall 2020. A survey conducted by AMC Global suggests that 32% of people will continue to focus on home-cooking and 40% indicated the intent to save money after the crisis.

Overall, the consumption behavior of customers has changed. They consume less and spend increasingly online. Customers’ future spending decisions regarding the amount and channel will influence restaurants’ revenue potential. Findings from the DiscoEat interviews reveal that customers became increasingly spontaneous with fewer pre-bookings and lower likelihood to plan the restaurant visit ahead. Additionally, the pre-booking time on the restaurant booking app decreased significantly on the DiscoEat app.

When returning to on-site dining, customers expect a different dining experience. As much as 86% of customers rate a safe environment with visible proof of the adherence to cleanliness and sanitation protocols as the key factor. Before considering the food and menu, customers are concerned with social distancing and safety protocols. Great food is important, but making customers feel comfortable has climbed up on the priority leader. Through compliance with hygiene measures and the establishment of a safe and secure environment for staff and customers, restaurants build trust.

Yet uncertain, the changed customer behavior may prevail to have prolonged effects on the restaurant industry past the easing of the current crisis.

6 things that restaurants need to do today

1.Train your employees. The first priority should undoubtedly be to train your employees according to the safety protocols (see US National Restaurant Association & US Food & Drug Association, see Dehoga & Berlin.de). Employees are required to wear protective gear including masks covering mouth and nose as well as gloves and clean surfaces according to increased disinfection protocols. In order to create a safe environment, you may need to reorganize the restaurant setup according to regulations of 1.5m social distancing of tables and seats.

2. Inform your customers. Secondly, customers need to be informed about the safe restaurant environment by reassuring that the right measures have been followed in order to create trust. Methods you can use include a digital menu through a QR code to minimize physical contact and a digital contact tracing option in order to inform customers in case of infections. You should be strict about the adherence to the rules while maintaining graciousness. Happy Baristas in Berlin is doing a great job to ensure customers that all necessary precautions are taken:

https://www.instagram.com%2Fp%2FCAM6vfsqCsj%2F — Source: Happy Baristas Instagram, Berlin

All restaurants on the DiscoEat platform that are following strict hygiene guidelines communicate a safe restaurant environment to their guests by using the outside customer information board:

3. Know and control your costs. Additionally, you need to know and control your costs which may entail revising the menu and offering. Make sure that the menu is up to date with changed customer demands. It’s vital that you know the cost of every single dish and price accordingly.

4. Leverage off-peak hours. In order to fill underutilized capacity, you can leverage off-peak times by using yield management to increase revenue potential. As your capacity is currently decreased, it makes sense to extend the peak-times into the much emptier off-peak times. Dynamic pricing can help to encourage your customers to come to your restaurant off-peak. A detailed post on how dynamic pricing can be the secret weapon to help you survive the Corona crisis can be found here.

5. Consider new verticals. It can be lucrative to venture into new verticals including food delivery or pick-up options to capitalize on additional distribution channels. During the lockdown, third-party platforms became a crucial pillar to business survival. That being said — you should choose wisely with whom you want to work with as fees of third-party platforms can be excessively high. You could also consider much cheaper white label solutions, yet those only work if you already have sufficient traffic on your website or social media channels. Either way, the shift to off-premise dining is likely to continue, therefore, it may make sense to deepen the commitment to a multi-channel strategy.

6. Improve your digital presence. As the crisis has clearly shown, it is crucial to improve restaurants’ digital presence as well as reassess the used technology solutions and potentially try new ones. The digital customer experience is a main driver in attracting new customers, keeping current customers and leveraging future loyalty. As an example, Maloa Poké Bowls has done a great job in keeping up the communication with customers through their digital presence, especially through their Instagram account.

The industry going forward — turning the crisis into opportunity

The impact on the restaurant industry has been devastating, some restaurants may not survive and hope is a rare commodity these days. But there will be a time after the corona crisis. Uncertainty remains how restaurants will recover from it and how quickly customers will feel comfortable to dine out again. It is undeniable that customer behavior will not immediately rebound and that restaurateurs will continue to be faced with difficulties. Now more than ever, restaurants need to assess their operations and refine their approach to cater to customer needs of a new reality. If they do that, I am sure the door slammed in their face can be seen as a chance, as opportunity knocking.