The Dilemma of Restaurants: Pressed Between a Rock and a Hard Place

The six months that passed since the outbreak of the Corona pandemic have been particularly hard on restaurants. Restrictions on gatherings and contact between people, ordered in effort to curb the spread of the virus, are having a strong and critical impact on the ordinary operation of restaurants worldwide. The combination of forced restrictions and health concerns of the consumers lowered the business activity of some restaurants to a level that is barely viable. Restauranteurs are eager to receive customers as before the pandemic, and consumers vie to go out and dine in restaurants, socialize and enjoy themselves again. The shared urge to return to normalcy in restaurants puts them together in a non-formal, unspoken alliance. In a similar position next to restaurants are the coffee houses (cafés), and to a large extent also pubs or bars (particularly those who serve food dishes in addition to drinks).

The options for restaurants in dealing with this crisis are not easy — many of them are not satisfying and involve sacrifices. Actions such as reducing the level of service or removing items from the menu may have an adverse effect on customers’ willingness to come. Therefore it is important to gain customers’ understanding and patience. Coffee houses, for instance, forsake service once provided to tables and require the patrons to order and pay at a counter, then take their ordered drinks and food to the table self-service. This practice can be especially discouraging to senior citizens who are frequent visitors at these establishments. For customers who are already concerned and feel unsure about coming in, reduced comfort or absence of favourite items could make the effort and risk of visiting less worthwhile. The tolerance of customers may already be stretched when they need to take precautions, including wearing a face mask, using a sanitizer, and sitting outdoors. Small gestures like cordial treatment, making the customer feel welcome, and greater willingness to accommodate extra requests can help greatly in easing the stress and lowering objections to dine-in.

Restaurants have relatively little room for weathering a dramatic economic downturn as brought about by the coronavirus pandemic. During certain periods (e.g., a lockdown) the revenue has dropped by more than 50%. But for many restaurants that are small or medium businesses, a reduction of 20%-25% in revenue, business owners argue, can bring them to the brink of breaking-even. In the United States, for reference, restaurants generate a 4%-5% operating profit margin on an annual average revenue of one million dollars. An even greater problem yet for restauranteurs, their dependence on cashflow is more acute than in other sectors: American restaurants had cash reserves in 2016 to cover a time buffer of just 16 days, of the lowest levels among small US businesses [1]. Therefore, the difficulties caused by the depth of decline in activity and revenue are aggravated by the extended length of time that the crisis continues. Restaurant owners say they are prepared for certain shocks, but not of the duration and magnitude of the pandemic.

In order to hold on and maintain the restaurant an active business, owners have had to take significant and even drastic measures. Not all restaurants will find it sufficient to operate in a reduced format in one way or another — some will have to close down indefinitely due to the Corona crisis. Restaurants are trying to cut costs in different ways on food and labour, the two major categories of expenses in this sector (about 30% of revenue allocated to each category). But these savings have to be selected with caution not to damage too much the chances of the restaurant to recover and succeed at a later date.

Restaurants may reduce their waiting staff (e.g., keeping some of them in furlough) or cutting short their opening hours, and thus the working shifts (e.g., when customer flow is weak). As suggested above, restaurants and cafés may reduce the level of service to customers; it should be noted, however, that reducing waiting service may be required for health reasons to minimize close and direct contact between employees and customers. On the other hand, restaurant owners are likely to incur additional costs, and assign new tasks to employees, specifically to clean and sanitize different areas, equipment and furniture in the restaurant, and measure the temperature of guests, to reduce as much as possible the risk of virus infection at the establishment.

The preparation of food dishes introduces additional causes of concern and deliberation. Chefs or cooks face a dilemma what to do about dishes whose food ingredients have become more expensive, or specialty and high-quality ingredients that are now more difficult to obtain (e.g., by import). Raising prices of dishes at this time cannot be afforded. In this case, respected restaurants would prefer giving up a food dish temporarily, if their trusted ingredients cannot be obtained at all or at a reasonable cost, but maintain the quality standard at their restaurants (as told by restauranteurs in Montreal, [2]). The choice of excluding a dish temporarily from the menu, instead of using less costly and lower-grade substitutes, can further protect the restaurant reputation in the long run. This decision should be explained nevertheless to the customers.

In addition, restaurants need to take extra care in handling and keeping the hygiene of cookware and equipment used in the kitchen for food preparation, and subsequently also when serving it. Restaurants are more likely now to hand out disposable menus, plausibly shorter than usual (e.g., one page only). It is still advisable to plan thoughtfully the composition and design of the menu to keep it appealing. Cafés also change the display and serving of items such as sandwiches, patisseries, and cakes (e.g., selected sandwiches are wrapped in nylons, other fresh items are displayed in transparent cabinets but inaccessible to customers). There are clearly more difficult decisions restauranteurs have to make during the pandemic, and actions to be taken, some with extra cost implications.

Owners of restaurants and coffee houses (including chain franchisees and licensees) complain that they struggle to continue paying high rental fees, even after they were forced to shutdown. Some municipalities have given businesses discounts on city taxes (property-based), but property owners are much less inclined to offer exemptions or discounts from rental charges to the retailing occupants. Restauranteurs argue that compromises have to be made, for example on rental fees, in order to compensate for reduced capacity of diners allowed on site [3]. Restauranteurs and chefs in Israel indicate that their declared objective should be to hold on, keeping the restaurant alive and kicking, and not to expect making profits during the pandemic period [4].

A particularly contentious issue during the pandemic crisis relates to allocation of space for diners and the effects of restrictions on customer occupancy. Essentially, restaurants, cafés, bars and pubs are required to keep a double distance than usual between tables (circa 2m), limit the number of diners at each table, and overall restrict the number of customers dining-in at the establishment, indoors and outdoors (outdoors areas in open air are usually allowed to host a larger number of guests). However, instructions are not always consistent and logical. In some cases, as dining business owners argue, the instructions sound rather confused and arbitrary. For instance, the quotas may not take into account the size of sitting area available, and quotas are stated in absolute terms (e.g., in Israel, allowing maximum 20 persons sitting inside and 30 persons outside) when it is more reasonable to state quotas relative to the normal capacity of the establishment. Actual customers occupancy levels reported are often between 25% and 50% of maximum capacity. The absurd is that during some periods the actual number of diners is lower than the absolute quota imposed, hence setting new and even harsher quotas has only one effect — scaring off the remaining customers.

Establishments that have a dining space only indoors face the most difficult situation, but the condition can also be challenging for those with only outdoors sitting areas. Unfortunately, restaurants and other establishments as well as their customers can be ‘rebellious’ by disregarding the rules of protection from transmitting the virus (e.g., customers are sitting too crowded, even outdoors, and not wearing a mask whilst talking without being engaged in eating or drinking).  Such cases are giving health officials and doctors a justified reason to be worried, and to demand harsher rules if not just applying a stronger hand in enforcement of the current ones. Kaufman, Goldberg and Avery (Harvard Business School) include among the main difficulties of restaurants modifying the floor plan, by keeping distance between tables and diners, and plausibly also raising physical barriers between them; additional difficulties listed are wearing face masks (by both staff and customers), sanitation, and reducing interaction (e.g., shifting to self-service). But more generally, the primary challenge facing restaurants is finding an acceptable balance between trust and confidence, vis-à-vis  health safety, and hospitality and comfort for making customers feel welcome [5]. Achieving such a goal should reasonably require the co-operation of dining businesses and customers-patrons, yet also the display of sensitivity and flexibility of authorities in setting their instructions and guidelines in order to be conducive and gain better co-operation.

At least part of the restaurants as well as coffee houses managed to continue serving customers by means of delivering meals to their homes (even during lockdown), and also by allowing takeout (or pick-up) of orders by customers at their venues (but without letting them sit on site). Some restaurants, particularly American chains, provide drive-through service to customers in their cars. Kaufman, Goldberg, and Avery suggest that restaurants relying on dine-in (vs. takeout, drive-through, etc.) suffer the most. Restaurants pivot as much as possible to takeout and delivery but it does not payoff well enough [6]. Restaurants in Israel, for instance, claim that offering their food dishes through delivery and pick-up contributes just around 30% of their usual revenue, and hence it is hardly sufficient to sustain their business for long.

Businesses that have been organised to make deliveries or provide takeout service were better prepared for this crisis and thus are better off. Other businesses still managed to set up and arrange for supplying meals through delivery, yet restaurants that need to rely on outsourcing to delivery service companies claim their commissions make this operation even less economically justified; they prefer under these circumstances to provide food orders to customers who come to pick them up at the venue. Restaurants that are left practically reliant on customers dining-in (especially restaurants with no sitting area outdoors) are at the greatest disadvantage during the pandemic, and they may be at the greatest risk of not surviving this crisis, the longer it extends.

  • The British government launched a commendable initiative during August 2020, the Eat Out to Help Out Scheme, in aim to incentivize consumers to dine at restaurants and other dining businesses. Briefly, consumers are invited to receive a discount of 50% on their orders (up to £10 on food and non-alcoholic drinks) on weekdays Monday to Wednesday at any time of day when dining in participating establishments; the balance in value of the bill is funded by curtesy of the UK government. (For more details also see this article from the BBC, 8 July 2020.

During the spring (2020) wave of COVID-19, restaurants were ordered to shutdown during lockdowns imposed on the population in many countries. Most significantly, they had to close their doors to dining-in, but even delivery and takeout options were rather limited. This scenario might happen again in a future wave in the next autumn or winter season. Even in periods that restaurants are allowed to operate the restrictions imposed on them might levy a heavy burden that some owners find too difficult to bare. Moreover, dining establishments face the risk of having to shutdown and their employees being ordered to self-quarantine if a potential infection has been located on their premises. Under such somber circumstances, some restaurants chose to take a pause and to ‘hibernate’. That is, they chose to close down until the pandemic storm is over, or at least recedes considerably. Everything inside such restaurants seems to be ‘frozen’, left behind folded and untouched. This must be the weapon of last resort to cut costs but stay relevant for future and better times.

The Corona pandemic has created a new reality across the board; it led to new rules and required setting modified priorities for businesses and customers. That of course applies also to restaurants, coffee houses, pubs and bars. A salient priority brought to the fore  by the pandemic is cleanliness on premises. Cleanliness should be preserved through everyday maintenance actions but it may start already with interior design of the restaurant. Restauranteurs are responsible for keeping a higher standard of cleanliness and hygiene to assure the health safety of the establishment to their employees as well as their customers. Kaufman and his colleagues argue that cleanliness will become more important, but to be persuasive the place needs furthermore to look clean to customers; design (e.g., furnishing), to begin with, will play a vital role in making the place visibly clean. They anticipate that the health crisis is likely to give birth to innovations such as safe packaging for food takeaway, technology-based (e.g., contactless) methods for ordering and payment, ventilation and sanitation [7].

It is frequently claimed these days that our ways of living have changed and will not return to how they used to be. Yet, it is hard to believe that consumers will not return to eat out, dining in restaurants and taking a break in cafés. Consumers were shifting from cooking at home to eating out in recent years prior to the pandemic; delivering and bringing the food home could be nothing more than a temporary necessity that consumers will be happy to cut back again in favour of going out themselves to dine to their enjoyment. However, we will see some changes in how dining establishments are managed and serve their customers which would improve the dining experience.

Ron Ventura, Ph.D. (Marketing)

Notes:

[1] “Restaurant Revolution: How the Industry in Fighting to Stay Alive”; Michael S. Kaufman, Lena G. Goldberg, & Jill Avery; HBS Working Knowledge, 16 July 2020

[2] “Restaurant Owners Worldwide Struggle to Strike Balance Between Safety and Revenue”; Karl Moore (contributing writer); Forbes.com (Leadership), 19 June 2020

[3] Ibid. 2.

[4]“The Sector on a Brink of Erasure” on the struggles of restaurants and coffee houses in Israel, but not a destiny (origin in Hebrew), Globes, 8 May 2020

[5]; [6]; and [7] Ibid. 1.

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