Higher prices? Non-refundable reservations? How COVID-19 might change restaurants

Click to play video: 'Montreal restaurants struggling to survive in COVID-19 era'
Montreal restaurants struggling to survive in COVID-19 era
COVID-19 is eating away at local businesses in Montreal that just can't keep going when so much of their revenue has disappeared – Aug 7, 2020

The novel coronavirus pandemic has restaurants stuck between the proverbial rock and a hard platter.

On the one hand, the health emergency has caused supply-chain disruptions that sent food prices soaring. It also added new line items to the list of restaurants’ costs, such as hand sanitizer and personal protective equipment (PPE) for staff. On the other hand, social distancing means half-empty dining halls (if that) and considerably less revenue.

Around 10 per cent of Canada’s 98,000 restaurants are already as good as gone, says David Lefebvre of Restaurants Canada, a national association that represents the foodservice industry. But even among those who survived the lockdown, many are having to rethink their business in order to be able to continue to put food on the table, he says.

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So how will the pandemic change the restaurant experience for Canadians?

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Toronto restaurant stops accepting tips

Higher menu prices

One likely outcome of the COVID-19 upheaval is higher menu prices, according to Michael von Massow, associate professor in the food, agriculture and resource economics department at the University of Guelph.

“Restaurants have always been low-margin businesses,” Von Massow wrote in a recent blog post about the future of the industry. With the added financial pressure brought on by the pandemic, added costs will have to be passed onto the consumer, he argued, “or no restaurants will survive.”

Food inflation is up, Lefebvre says. COVID-19 outbreaks at meat-processing plants have caused shutdowns and pushed up the prices of things like beef, pork and processed meat, in particular, he adds. A lack of foreign workers has helped drive up the price of fruit and vegetables as well. And distribution costs have also climbed as distributors found themselves driving more to bring food to fewer clients, Lefebvre says.

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Weighing on restaurant budgets is also the cost of protecting customers and staff. While restaurants are used to cleaning thoroughly and often, PPE is “just a completely new expenditure category.”

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But the major blow to the bottom line, in many cases, is the cost of physical distancing, von Massow says. It’s not just that every other table, often, has to be kept empty, he says. Dining times are also frequently stretched out. That’s because restaurants have been changing practices in the kitchen to minimize the number of people touching an individual meal. And eating on the patio often means plates have to travel longer from the kitchen to the tables.

All this contributes to an increase in average meal times, reducing customer turnover for occupied tables, according to von Massow.

I think we could see capacities for some restaurants go down 60 or 70 per cent, not just the 50 per cent that we’ve seen,” he says. “And that becomes a big deal.”

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Von Massow believes the result will be price hikes for consumers. But it might not be an across-the-board increase.

Instead, von Massow thinks the industry will have to adopt the pricing strategies airlines and hotels have long been using, with higher rates for peak demand times to maximize revenue from those time slots and lower prices for less popular times to divert some customers to those slots.

While the model isn’t entirely new to the industry — senior discounts and happy hours, after all, have been around for a while — von Massow believes it will become much more common.

Another possible pricing change: non-refundable deposits for reservations. Restricted capacity, von Massow argues, means consumers’ no-shows have become even more expensive for restaurants.

A non-refundable deposit for reservations “makes sense and protects the restaurant without costing consumers who dine in anything,” he wrote.

Lefebvre says while he’s heard anecdotally of some establishments raising prices, the industry is also highly aware that many consumers are also stretched thin.

Raising prices is just one of many possible ways to adapt to the challenges of the new normal, he says. Some restaurants have added new revenue streams by taking on catering or meal-prep services, he notes, adding that it’s too soon to tell which strategies will go mainstream.

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Edmonton restaurant develops online system to keep business alive

Rejigged menus

Another way for restaurants to square the COVID-19 circle of higher costs and lower revenues is to offer smaller menus.

That allows restauranteurs to cut out some of the priciest items, says Lefebvre. It also allows them to keep up with orders from both dine-in and delivery guests with fewer cooks in the kitchen, says von Massow.

And some are rethinking their menus to make them more delivery-friendly, according to Lefebvre.

Delivery vs. dine-in

Food delivery and takeout have been the lifeline that’s kept many restaurants afloat — if only barely, in some cases — during the lockdown, says Lefebvre. Just under 80 per cent of restaurants in Canada right now do delivery, he adds.

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But von Massow says that won’t necessarily work well for everyone. Turning a profit in the business of delivering meals to consumers’ doorsteps has proved remarkably tricky both for food-delivery apps and restaurants.

Von Massow expects the biggest part of the delivery market to shift to what he calls “ghost kitchens.” These will likely spring up in lower-rent locations and be devoted entirely to cooking up food to be hauled to people’s homes.

The kitchen-only model will allow restaurants to handle “a critical mass of orders to sustain the delivery function,” he wrote.

Still, neither von Massow nor Lefebvre believes COVID-19 spells the end of the in-restaurant experience.

Some restaurants will likely go back to focusing on dine-in, von Massow says.

“There’s just something about dining in that you can fully reproduce when you do take out or delivery,” Lefebvre says. “I think this segment of the market is here to stay.”

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