Restaurants Struggle to Survive
How COVID-19 has impacted the industry.
The COVID-19 pandemic has profoundly impacted the restaurant industry as governments have implemented public health emergency measures closing down restaurants and bars to contain the virus. Consequently, loss of income for restaurant owners and massive worker layoffs are reducing the possibilities of many restaurants' survival with an imminent threat of permanent closure for the most.
The sudden restaurant shutdown order generated an abrupt drop in demand and consumption, as well as a significant reduction in investment in the sector due to the associated risks. According to Ivanova (2020), the reservation system OpenTable had an 83% drop in global sit-down traffic at restaurants.
The Food & Beverage Industry
In Canada, over the period 1997–2017, household expenditure share on food away from home increased from 20% to 30% (Goddard, 2020). The figure below shows revenues obtained for various industrial categories of food retail and foodservice in January 2004–2020. The sales of foodservice and drinking places have increased considerably since 2010, while sales at retailers remain almost flat.
In Alberta's foodservice segment, the total sales increased only by about 2.4% in 2019 due to the already set up economic downturn in the province. At this point, quick-service restaurants reported sales of $ 44.4 billion, full-service sales of $ 4.2 billion, and caterers $ 0.6 billion sales (Jeewani, 2020). This behavior is shown below.
In January 2020, commercial foodservice sales in Canada were forecasted to grow by 4.0% to $ 77.5 billion during 2020, and more than $ 100 billion in 2021 (Restaurants Canada, 2020). It was positioned as the 4th largest private-sector employer, with a workforce of 1.3 million workers (Dingwall, 2020).
However, during March 2020, as a result of COVID-19 restrictions in Canada, the total food services and drinking places revenues decreased from 3.81 billion Canadian dollars to 2.29 billion dollars in April 2020 (Lock, 2020). This illustrates the monthly sales of food services and drinking places in Canada from 2017 to 2020.
Prior to the pandemic, an estimated 54% of Canadian consumers would dine in a restaurant at least once a week (Stats Canada 2019), a consumer trend that came to a radical halt with the forced storefront closures to prevent the spread of coronavirus (Hiltz, 2020).
Timeline
COVID-19 declared world pandemic
COVID-19 outbreak was declared a pandemic on March 11, 2020, by the World Health Organization (WHO), “calling for countries to take urgent and aggressive action” to contain virus spread and build public health strategies to prevent infections and minimize its impact on communities and economies (WHO, 2020). Before that, the first official case of COVID-19 in Canada was reported on January 25, 2020, in Toronto.
Between March 13–27, provinces declared states of emergency and imposed severe measures to stem the virus's spread. Official orders included directives from public health officials to keep social distancing and stay at home, avoiding public gathering. As restaurants, bars, and casinos were ordered to shut down; many restaurants shifted to offer takeout and delivery services to customers.
On March 18, the Canadian government released the COVID-19 Economic Response Plan intended to relieve the economic stress from the economic emergency experienced by workers and businesses across the country. These measures include $22 billion in direct support and $55 billion in liquidity support (Wilson, 2020). Thereby, the Canadian government looks for regulating economic output by adjusting spending (government expenditure) to increase aggregate demand and boost economic growth to protect citizens ‘standards of living and businesses’ economies.
The Initial Impact
These sudden changes in consumer habits translated into an immediate and drastic dip in sales for food services and drinking places, with nearly every province and territory in the country seeing a more than 30% decrease in sales from February to March 2020, Alberta being no exception at -34.3%.
By April 2020, Restaurants Canada (Canadian Restaurant and Foodservices Association), estimated that 800,000 foodservice jobs were lost since March 1 due to COVID-19, with 1 out of 10 restaurants closed permanently, 4 out of 5 restaurants had layoff employees.
As illustrated in the figure below, Alberta's seasonally adjusted unemployment rate rose from 7.2% in February to 15.5% in May 2020, up from 6.7% in May 2019. Meanwhile, the national unemployment rate was estimated at 13.7% in May 2020, up from 5.4% in the same period in 2019 (Alberta Government, 2020).
According to Restaurants Canada (2020), annual sales losses have been estimated at $ 44 billion compared to 2019 annual sales. Also, many restaurants have been unable to pay rents, bills, and waves without subsidies or government assistance. A summary of the impacts of COVID-19 on the Canadian restaurant industry by March 2020 is shown below.
Getting Creative
Many restaurants were able to refocus their business plans towards providing more takeout services. Unfortunately, their efforts were not enough to combat the changing consumer habits since most Canadian consumers (pre-COVID) were dining out for convenience and socializing reasons (Stats Canada 2020).
Grocery sales have been one of the three main food innovations that restaurants have turned to in the face of sudden declines in traffic and the closure of dining rooms. The other two were family meals and meal kits that require some assembly, reheating, or light cooking once the guest got them home. Operators say all three of those new offerings are likely to remain fixtures at restaurants in the post-pandemic world - and other innovations are afoot as well.
Some restaurants are looking at smaller menus that means that the size of kitchen staff will be reduced, as a result; the range of offerings is going to be limited. Supply disruptions that have resulted from the rapid shift in demand from restaurants to supermarkets and from the closing of meat-processing plants due to COVID-19 cases, resulted in restaurants shifting their focus to their essential ingredient needs. Simpler menus have allowed restaurants to dedicate their delivery and curbside take-out better.
Restaurant owners are discovering that these innovations were something they could have been doing all along. Businesses also have looked at adding virtual cooking and classes and other sources of revenue that do not take a lot of labor or time. Restaurant owners have said that the pandemic has made everyone become more creative.
Re-Opening…
On May 9, the Alberta Government released a set of guidelines for relaunch business activities before restaurants and bars can reopen their doors to diners starting on June 12. The guidelines were intended to keep people safe from potential contagion. They include aspects like recommended procedures of cleaning and disinfecting, employee and customer screening protocols, and how to deal with sick workers.
Particularly, restaurants, cafes, pubs, and bars in Alberta were permitted to reopen at 50% capacity, limiting the space between customers' tables as two meters at all times or keeping physical separation through Plexiglas barriers. Additionally, cleaning protocols were recommended, including masks, gloves, sanitizers for staff, one-way traffic flow, and frequent disinfection of reusable menus between sittings (CTV News, 2020).
However, after the economy reopening at the national level, many restaurants have been operating at a loss. A survey released in June 2020 by Restaurants Canada stated that “6 out of 10 foodservice operators are operating at a loss, and 22% of single-unit operators and 15% of multi-unit operators said they are just breaking even.” During the first quarter of the year, most restaurants have spent all their funds and savings paying bills and rents. Now, after reopening, they continue to lose money operating at reduced capacity. Indeed, 67% of restaurant operators affirmed that return to profitability could take at least between seven months to 18 months (Restaurants Canada, 2020).
Consequently, rapid recovery perspectives are still very pessimistic, worsening with the threat of a second wave of infections potentially coming. Thereby, more governmental support to provide subsidies, liquidity, and to achieve economic equity is crucial for restaurants to remain operational under current restrictions.
What the Canadian Government is doing to help
The Government of Canada (GOC) has been implementing a variety of policies to help small businesses survive COVID-19. Since every restaurant has different needs, there are a few options such as the following:
- Canada Emergency Wage Subsidy (CEWS) is a government policy in place that allows eligible employers to have up to 75% of their employee's wages covered in hopes to avoid layoffs (GOC, 2020). This is an excellent option for restaurants that are trying to offer takeout and need help to cover staff wages. This policy has supported employers as well as approximately three million employees who are able to keep their jobs (GOC, 2020).
- Temporary 10% Wage Subsidy is where 10% of the remuneration is subsidized. This allows eligible employers to reduce the number of payroll deductions required to be remitted to the Canada Revenue Agency (GOC, 2020).
- Canada Emergency Commercial Rent Assistance (CECRA) is in place to assist small businesses who are struggling to keep up with rent. This government policy is in place to help lower rent by 75% for eligible small businesses. The CECRA has helped 29,000 small businesses with over 209,000 employees, and the total requested funding of over $ 221 million as of July 3 (GOC, 2020).
- Canadian Emergency Business Account (CEBA). This is a huge help for restaurants who need a loan to get through this slow period. If accepted, this program grants small businesses a $ 40,000 interest-free loan to help cover costs. This loan will allow restaurants to stay operational. Best of all, “Repaying the balance of the loan on or before December 31, 2022, will result in loan forgiveness of 25 percent” (Canada, 2020). Meaning, if the business is able to earn back the money by the end of the year, they will get to keep $ 10,000! On July 3rd, the Canadian government provided an update stating, “688,000 applicants have been approved for CEBA for a total of $ 27.41 billion in funds disbursed, including $ 7 billion of which is forgivable if the loan is paid back before December 31, 2022 ”(GOC, 2020).
- Business Credit Availability Program (BCAP) is yet another government policy in place to ensure small businesses have the support they need with credit and liquidity (GOC, 2020). Through this program, small businesses can, “access up to $ 12.5 million in liquidity support, and a further loan of up to $ 6.25 million is available through the BCAP Guarantee Program” (GOC, 2020).
While these policies are a great start, many restaurants will need continued government support in order to stay open. According to Restaurants Canada (2020), “not only was the foodservice industry among the first and hardest hit by the impacts of COVID-19, but the sector will also be among the slowest to return to profitability.”
Our Proposed Solutions
Community Engagement
In a time when community members avoid being in public and making purchases online, an internet presence is especially important to a business’s operation. However, many local small businesses do not have the capability or resources to create and/or maintain a company website. Online search engines and business review websites like Google and Yelp may not show accurate information even if a business is listed on their websites. This makes these businesses harder to compete with other businesses or expand, or even maintain, their customer base.
Proposal: Create a website, that includes a database, specifically for local businesses in the food and beverage industry to share their information and business updates without cost. Businesses can include information on business hours, types of services offered, menu, promotion etc. Information regarding the COVID-19 safety measures that businesses have taken should be included. The database would be organized in a manner that is searchable and filtered to allow community members to easily identify businesses that match their needs.
The goal: To create a central platform that is specifically catered to the local community. It would help create or increase online presence for many businesses, making it easier for the public to learn about small, local businesses and support them during the Covid-19 crisis, especially when people are less likely to go out to explore their community now. This is accomplished by using both legacy and social media, allowing businesses to reach a larger audience.
Who it helps? Businesses and the public. Businesses have another platform that is supported and used by the local people. This is especially beneficial to small businesses that did not already have a website or had limited online presence. Those who are not familiar with technology and those who do not have the resources to reach out through the internet are facing an especially difficult time during the crisis.
Businesses that already have a positive public image and good standing relationship in the community can further strengthen their connections. This campaign allows the local customers to be informed on what their options are and learn about services and products that they were not aware of or familiar with.
Positive impact: Increased community connections and familiarity with local businesses. Increased exposure of small businesses, especially those who did not previously have the resources to have an online presence.
Negative impacts: Restaurants with no prior social media or community engagement are left scrambling with customers not aware that their services are open for business. In order to host a website for free content, it would either require volunteers or funds from other sources to manage and maintain the website. It may also increase competition.
Associated risks: 1. The potential increase of businesses’ exposure to the virus. This is an expected risk when a business is opened to the public, and they should have safety measures in place to ensure they can handle interactions with the public. 2. Inaccurate information on the website may lead to negative ratings of a business. This can be mitigated by reminding businesses to update their information if their operations have changed.
Diversification of products or services
Many restaurants have high staffing costs, which may not be effective when there is reduced business. Expanding their products and services would help increase revenue sources and expand their customer base.
Proposal: Food packaging companies, supermarkets, and other food retailers can collaborate with local restaurants to create an opportunity for restaurants outside of their properties.
Packaging companies could provide packaging services or containers at a lower cost if a large number of local businesses place a large order collectively, compared to each business orders materials for their single company. Restaurants may offer ingredient kits, like those offered by companies like Hello Fresh or Chefs Plate, or they can package their specialty ingredients such as soup base, sauces, or spice mix, etc. Bakeries can also sell their products frozen or unbaked, like Calgary’s ButterBlock frozen products. These new lines of products and services can be offered through their own business, they can also be sold at retailers to expand their customer reach. A single, common website for local businesses that are offering these products and services can create a chain effect on consumer exposure. A single checkout process for multiple vendors could increase efficiency and reduce costs compared to a single business offering the service on their own, as they can share delivery costs.
Who it helps? Businesses, packaging companies, food retailers, and consumers. Businesses that are able to offer their products in a different way aside from ready-to-eat menus can reach a larger and farther audience. Their products can be shipped, allowing them to serve outside of the local community and may even reach the international market. Packaging companies may have an increased customer base and create relationships with local businesses that may not otherwise use their services. Food retailers who participate may also increase their customer base as well as create a positive image in the local community. Consumers have more choices while staying home.
By shifting their strategy from in-restaurant purchases to delivery options some restaurants were able to thrive during Covid-19. It gave local customers who were forced to either cook for themselves or order local delivery more options to feed their families.
Positive impacts: Increased community connections and familiarity. More revenue sources for businesses and more options for consumers. Better use of their kitchen staff that is already in place.
Negative impacts: Higher competitions for businesses that have the customer base that may be lost to new competitors. And, higher environmental impact, especially if packaging materials are not reusable or recyclable
Associated risks: 1. Potential for contamination during packaging and transporting process. 2. Increased food waste and cost to businesses if products are not sold and have a short shelf life. This can be mitigated by having a pre-order process.
Restaurants without the ability to leverage instant market research on what local customers want may make assumptions and waste money on options that drive them further into debt. Spending money on changes without market research could prove fatal to the business.
Educating Customers
Restaurants who are able to get the word out that they are following the provincial/federal Covid-19 guidelines will surely be the winners in this new delivery/curb-side local economy.
Proposal: Businesses to include additional information regarding their safety measures for COVID-19 prevention on their websites.
Who it helps? Local businesses that are able to show the public that they are not only following the guidelines but are going above and beyond are able to make their customers feel safe and confident in their operations, which would be rewarded with additional sales. Customers are able to feel good about their purchases even when a lot of them are limiting their unnecessary spending.
Positive impacts: Increased customer confidence.
Negative impacts: Businesses that do not have similar information may be viewed as less prepared or less safe, which may hurt them; including businesses that do not have a website.
Associated risks: 1. Dishonest businesses may not be doing what they claim to be doing, creating false security for their customers. 2. Constant information on Covid-19 prevention throughout the community and media may lead to negative responses due to perceived information-overload, which may deter customers.
Restaurants Canada Recovery Plan:
To Conclude
Beyond the short-term policy measures that have already been announced by the Canadian government, associations and leaders in the restaurant industry should formulate their long-term solutions to make the sector less vulnerable to future pandemics, technology change, and future economic crises. Long-term solutions must include significant investment in technology, stimulus to innovation, and development of novel business strategies to achieve economic efficiency.
It is unlikely that restaurants and the food sector, return to the levels of earnings and food market dynamics it had in 2019 and January 2020. For the restaurant industry, the only choice left to continue staying afloat will be to adjust their business procedures to the “new normal” in this uncertain time.
Over the course of this assignment, our team reached out to several restaurateurs and restaurant managers. We found that while some restaurants had actually increased revenue, the vast majority had not. Some had gone completely out of business. Several of the restaurants we visited while doing research in Calgary had changed names since being shut down initially in early March. It’s not clear whether the ownership also changed but we suspect that several businesses were declared bankrupt, and a new business entity was put in place. Why else change the name? At these locations the staff had mostly remained the same since before Covid-19, so we are not exactly sure what changed at those locations and their underlying business strategy going forward. More research needs to be conducted on this front.
One thing was clear about all of the research we conducted. Businesses with a strong online presence and community engagement before the Covid-19 outbreak were far better positioned to ride out the economic storm. Some restaurant’s used their online engagement to give back and remind the community why it’s so important to support local businesses after all. With everything going on in the world economy right now it is essential to support the businesses you want to see around in the future.
Businesses that failed to invest in any online presence this late in the 21st Century are no doubt in trouble. The online trends we were already seeing in business strategy and planning are spreading up due to the health crisis. If investing time and money into an online presence wasn’t a priority before the health crises, it certainly is now. Sadly many of them will never open their doors to customers again. Hopefully, some of the restaurant owners that closed down an existing establishment are able to utilize some of the government programs to launch new businesses with these costly lessons learned.
The ability to leverage technology at this point is essential for any business. By learning and using the correct tools, business owners are able to run more efficiently and are then able to increase profit margins. As the costs are always transferred down to the customer, every advantage needs to be taken to stay competitive in an already ruthless market.
References
Alberta Government. (2020, June 5). Unemployment rates, 2015–2020. Economic Dashboard. Retrieved from https://economicdashboard.alberta.ca/Unemployment#alberta
ButterBlock. (n.d.). Frozen Pastries. Butterblocyyc.com. Retrieved from: https://butterblockyyc.com/frozen-pastries
CTV News Edmonton Staff. (2020, May 12). Here’s what the Alberta government is telling businesses ahead of relaunch. Retrieved from https://edmonton.ctvnews.ca/here-s-what-the-alberta-government-is-telling-businesses-ahead-of-relaunch-1.4936377
Goddard, E. (2020, April 23). The impact of COVID‐19 on food retail and food service in Canada: Preliminary assessment. Canadian Journal of Agricultural Economics. Wiley Online Library. Retrieved from https://onlinelibrary.wiley.com/doi/full/10.1111/cjag.12243
Government of Canada. (2020, June 4). Canada’s COVID-19 economic response plan: Support for business. Retrieved from https://www.canada.ca/en/department-finance/economic-response-plan.html#businesses
Government of Canada. (2020). What is the Canada emergency business account (CEBA). Retrieved from https://ceba-cuec.ca/
Hiltz, J. (2020, June ). Where’s the Beef? Economics for Business — Medium. Retrieved from https://medium.com/economicsforbusiness/wheres-the-beef-bf41eb3cef1c
Ivanova, I. (2020, March 19). See how much business U.S. restaurants are losing because of the coronavirus. CBS News. Retrieved from https://www.cbsnews.com/news/coronavirus-restaurant-business-decline-cities/
Jeewani, F. (2020, April). Trends in Retail. Economics and Competitiveness Branch, Alberta Agriculture and Forestry, Government of Alberta. Issue 17, Winter, 2020. Retrieved from https://open.alberta.ca/dataset/a5da1d67-d5fe-407b-bf9c-6f28e6d680d2/resource/651c7e0e-74eb-4fa4-b7bb-960a238b75d2/download/af-trends-in-retail-issue-17-winter-2020.pdf
Lock. S. (2020, July 6). Sales of foodservices and drinking places in Canada from 2017 to 2020, by month. Statista. Retrieved from https://www.statista.com/statistics/870680/canada-sales-of-foodservices-and-drinking-places/
OpenTable. Ivanova, I. (2020, March 19). See how much business U.S. restaurants are losing because of the coronavirus. CBS News. Retrieved from https://www.cbsnews.com/news/coronavirus-restaurant-business-decline-cities/
Restaurants Canada. (2020, April 2). COVID-19 has cost the foodservice sector 800,000 jobs since March 1. Intrado, Globe Newswire. Retrieved from https://www.globenewswire.com/news-release/2020/04/02/2010579/0/en/COVID-19-has-cost-the-foodservice-sector-800-000-jobs-since-March-1.html
Restaurants Canada. (2020, June 11). Even as restaurants are reopening, most are still operating at a loss. Retrieved from https://www.restaurantscanada.org/industry-news/even-as-restaurants-are-reopening-most-are-still-operating-at-a-loss/
Restaurants Canada. (2020, July 6). Most restaurants will need continued government support to survive Canada’s recovery from COVID-19. Retrieved from https://www.restaurantscanada.org/industry-news/most-restaurants-will-need-continued-government-support-to-survive-canadas-recovery-from-covid-19/
Restaurants Canada. (2020, January 15). The outlook for foodservice sales in 2020 and beyond. Retrieved from https://www.restaurantscanada.org/resources/the-outlook-for-foodservice-sales-in-2020-and-beyond/
Restaurants Canada. (2020). Recipe for Growth. Retrieved from https://info.restaurantscanada.org/feedingtherecovery
Restaurants Canada [@restaurantscanada]. (2020, April 5). Our latest survey sheds light on the impacts of the #COVID19 has had on the Canadian restaurant industry. Instagram. Retrieved from https://www.instagram.com/p/B-mXK0dhT7u/?utm_source=ig_embed
Restaurants Canada. (2020). Infographic: Road to Recovery. Retrieved from https://info.restaurantscanada.org/feedingtherecovery
Statistics Canada (January 10, 2019). Eating out: How often and why?. Retrieved from: https://www150.statcan.gc.ca/n1/pub/11-627-m/11-627-m2019003-eng.htm?utm_source=airdrietoday.com&utm_campaign=airdrietoday.com&utm_medium=referral
Statistics Canada (May 26, 2020). Food Services and Drinking Places Sales. Retrieved from: https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607-x2017003-eng.htm
Wilson, C. (2020, March 24). Canadian Government Announces COVID-19 Economic Response Plan. SCG Legal. Retrieved from https://www.cwilson.com/canadian-government-announces-covid-19-economic-response-plan/?utm_source=Mondaq&utm_medium=syndication&utm_campaign=LinkedIn-integration
World Health Organization. (2020, June 29). Timeline of WHO’s response to COVID-19. Retrieved from https://www.who.int/news-room/detail/29-06-2020-covidtimeline
