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Restaurants contend with the practicalities of managing uncertainty

The licensed retail sector such as restaurants and pubs were among the first to be affected by the COVID-19 lockdown and recovery is not yet in sight. While UK consumer spending intention remains low, the online shift helped the sector persevere. Government schemes have undoubtedly caused momentum for dining out however, the new restrictions and localised lockdowns may require businesses to continue to depend on online and delivery options. As discussions on the much needed support continue, the recent restrictions could threaten the small advances made by the industry.
 

Consumer intention to spend on restaurants and takeout food remains subdued

UK consumers’ intention to spend on discretionary categories such as restaurants or takeout food remains low. In mid-April, the restaurant and takeout food category saw a negative net spending intent of -50%, which moved upward to -14% in the end of August. The upward movement was initially driven by the shift towards takeaway and delivery services, and then by the reopening of restaurants and pubs in July however, new restriction may soften the uplift. 1


Shift towards online spending slows as the industry reopens

The shift to online was initially accelerated by restaurant dining venue closures and lockdown measures where businesses had to quickly roll out online shopping and delivery options. Since then restaurants have reopened, and as a result, online spending saw a drop. From a peak of 56% in April, only 26% of the consumers surveyed in August are likely to buy from a restaurant, using online channels over the next four weeks. However, as safety concerns remain high and new restrictions are enforced, the digital channel may continue to play a key role for businesses.


The online and delivery experience will remain critical

Consumers planning to purchase takeout food and drinks online, and collect in-store, have seen a rise. 36% of consumers as of August said that they are likely are to buy from restaurants online and collect in-store in the future, up from 28% in the first wave conducted in April. The key drivers for takeaway food being collected are cost, stress and safety. Safety concerns dropped from 41% in April to 30% in August, as operators implement contactless technology and enforce social distancing measures.

Restaurants have had to rely heavily upon third-party delivery apps, websites and social media to communicate with customers, as a result making digital access and personalised communication critical. As consumers’ preferences change, businesses that improve the consumer experience, by investing in safer, simpler and cheaper delivery processes, will gain the advantage.


Reopening challenges concentrated on safety

UK respondents increasingly feel safe going to a restaurant or bar, sentiment has seen an uplift from just 18% in May to 40% in August. Restaurants have implemented effective safety measures by enabling a contactless digital experience and ensuring social distancing. Businesses have implemented apps to manage table bookings, register for contact tracing, view and order from a digital menu, and enable mobile-based payment, thereby limiting interaction between staff and customers.

Consumers’ economic fears are also likely to compound safety concerns, with 37% of UK consumers stating that they are concerned about losing their jobs. Rise in unemployment is likely to drive price sensitivity, with consumers seeking more affordable options.

Businesses that offer off-premise services, for example delivery or pickup, were able to rebound faster compared to those that depend heavily or entirely on in-dining services. Some operators switched to a multi-channel sales strategy, which includes a redesign of the menu to ensure more transport-friendly, locally sourced items, and an internal or external delivery strategy. Even quick service restaurants, that had evolved key aspects of the customer experience to digital even before the pandemic began, have begun to consider their business model and operations. For these operators, the focus is likely to be on an improved supply chain, delivery and mobile ordering experience. Operators have also reduced menu options and limited in-person interaction, to allow their crew to focus on tackling key challenges like safety, sanitation, delivery and profit margins.


Government schemes saw a welcome surge in revenue, in the short term

To support the rebound of the industry, the government has launched a few initiatives to encourage consumer spending, for instance the reduction of VAT for the tourism and hospitality sectors including restaurants. However, some companies do not intend to pass this price cut on to customers, hoping to help boost their cash flow instead. The ‘Eat Out to Help Out’ scheme that offered diners a 50% discount on food at restaurants and bars, on Monday to Wednesday in August, drove a surge in sales. The scheme saw more than 64 million discounted meals claimed in the first three weeks since launch.2 Data showed that the number of customers visiting UK restaurants was up 17% compared to the same period in 2019. However, food sales dipped by more than 60% week-on-week on Monday 7 September following the end of the scheme at the end of August, but remained 27% above those seen in 2019.3

The scheme may have also prompted more operators to reopen; data in August showed that over three quarters (78%) of Britain’s licensed premises are trading again, up by seven-percentage point’s week-on-week.4 Some operators have even decided to extend the scheme without the support of the government, as some saw an increase in new customers willing to explore new cuisines and brands. However, businesses that depend on workers coming into the office did not necessarily gain much from this scheme. Overall, the schemes and subsidies did trigger a sharp recovery in the sector, at least in the short term.

However, the levels of socialising, eating out and travel have decreased after increasing through the summer. Research conducted before the new restrictions in early September, indicate that more than nine in ten (96%) of respondents had left their home for various reasons in the week of 9th to 13th September. The percentage of respondents who had left their home to eat or drink at a restaurant, cafe, bar or pub decreased for the first time in that week, following continued increases since early July, 30% said they had done this activity, compared with nearly 38% two weeks ago.5

The recent gains may be undone as new restrictions on the industry are enforced. From localised lockdowns, working from home encouragement, to the rule of six, table service only, compulsory facemasks for retail staff and restricted opening hours of premises and curfews, may harm both business operations as well as customer confidence. The live sporting and conferences, which were due to reopen, will now remain closed. In addition, the sector faces other challenges, with the Government's ban on evictions ending in October. This means that legal action can then be taken to evict tenants from outlets such as, restaurants, bars and pubs.

The industry may still face job losses and closures despite the various measures offered by the government. The industry welcomed the extension to the eviction moratorium until the end of the year and the ruling that insurers should now pay out for valid business interruption claims. The new Job Support Scheme (JSS) may offer some relief, starting in November for six months, where employees working at least one third of their normal hours will be eligible for the scheme to have up to two thirds of their wages topped up by the government. In addition, further measures have been announced to help businesses preserve cash flow through the winter, including extending the VAT cut for hospitality to 5% until 31 March 2021, extension of loan schemes and the repayment terms stretched from six to ten years to reduce monthly repayments. Whether these measures will be enough to revive the industry is yet to be seen, with many operators hailing it as insufficient.
 

The future of restaurants is anything but business as usual

In the short term, with outlets and venues facing further restrictions, maintaining profitability will be the key focus for operators. The pace of business closures are expected to accelerate, as rental payments and deferrals are due, the furlough scheme ends, redundancies continue and lenders begin to increase pressure. While operators and investors are trying to mitigate the cash and working capital issues, and stay in close contact with their stakeholders, consumers will probably remain cautious about making plans and spending. Fears of further curfews or a second complete shutdown on the sector may see share prices of businesses fluctuate. As a result, the sector may need to prepare for a much longer recovery time, compared to other industries.

In the longer term, customers are likely to be more wary and demanding, not just limited to price, but in regards to their perception of safety and cleanliness from both operators and their suppliers. Restaurant businesses may face an increased level of scrutiny from both consumers and regulators on the food quality, hygiene and the entire supply chain. The online shift could potentially increase the influence of consumer generated reviews, making it imperative for restaurants to respond quickly to any concerns on quality and safety.

Restaurant businesses across segments may need to execute and operate differently going forward. Future restaurant design concepts are likely to reduce the dining room footprint, with further investments into cloud kitchens, contactless technology, and delivery and pick-up window options. The industry, which has spent years trying to be more efficient and to improve speed-of-service, may need to shift its focus to managing operational costs, cleanliness as well as improving both the digital and physical customer experiences.


1 Global Sentiment Survey 2020, Deloitte, accessed September 2020.

2 Eat Out to Help Out Scheme 2020, National Official Statistics, published 15 September 2020.

3 Sales dip after end of Eat Out to Help Out, The Caterer, accessed 21 September 2020.

4 Drinks Recovery Tracker, CGA, published August 2020.

5 Coronavirus and the social impact, National Official Statistics, published 18 September 2020.

For more specific consumer behaviour insight from our global survey, please access our Global hub

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