60% of Britons feel uncomfortable about going out to bars, restaurants, or sporting events once lockdown is lifted. How will this impact the food industry sector?
COVID-19 had clearly hit the food service sector hard, and there are likely to be more casualties before we return to some kind of normality. However, with the lockdown soon to be relaxed operators must be thinking about how to re-emerge and adapt to the ‘new normal’. There is pent up demand for coffee shops, restaurants, and pubs to reopen, however footfall will be lower than pre-COVID, meaning businesses need to act now in order to survive.
As the government signals the loosening of lockdown operators are now considering if it makes economic sense to reopen, and if so when. To remain viable, and operate at an acceptable margin, operators must manage costs, simplify operations, and potentially take some unprecedented steps to increase revenues. The new normal may provide the permission for this, but will this be enough, and can all businesses achieve this?
With the safety measures, 50-60 percent of tables will have to be removed, capping revenue. With breakeven occupancy above this level opening for business is unlikely to be viable unless costs can be reduced. This required a greater focus on cost to deliver an acceptable margin, including COGS, distribution, indirect spend and waste. EBITDA was tight before, but what margin can operators sustainably operate at, and for how long?
There will be more cautious customers, returning in small ‘family groups’, further limiting revenue. Reducing choices can channel volumes through core SKUs, helping to simplify kitchen operations but also simplify the supply chain and help defend against price increases. Sustainability was becoming more prevalent in decision making before COVID-19 occurred and the community spirit and concern for each other during the fight against COVID-19 is also becoming embedded in relationships between customers and businesses. As communities come together, sustainable and locally sourced products may influence menus, supporting local business.
Adapting to business as unusual
The relationship between buyers and suppliers will be increasingly important. In order to survive, they will need to work together, and compromises will be made. Supply chains will need to be more resilient, and with the reduction of globalisation, we will need much closer ties between each other. Localisation, transparency and collaboration will be the new normal and these will require different skillsets in addition to the current supplier management approaches, moving the discussion away from price.
Social distancing is likely to remove the industry’s raison d’être to socialise, and the reduced dine-in capacity could mean that takeaways will become a default cost-effective solution. But takeaway does not suit all parts of this sector. The industry will need to be more creative, and chefs are already considering other ways to provide the restaurant experience at home. Cote at Home provides restaurant quality food from their central kitchen, Michelin star chefs are considering more intimate (and socially distanced) dining experiences, to name a few ideas. Eating out may once again become a special occasion event… but that will dramatically reshape the industry.
Buying habits may not ever return to the way they were as many customers will have reconfigured their priorities, operations may need to be restructured to deal with increased cautionary measures, and supply chains need fundamental reviews. There is only so much that can be done to manage costs, and in the case of distribution costs are likely to increase in the short term.
If EBITDA is to be protected operators must also consider simplifying operations and potentially increasing prices and reviewing the role of promotions to increase revenues. But, in this new normal will consumers be willing to pay more for the privilege to eat out?
BY Gavin Bowen-Ashwin is a Director at 4C Associates. He has over 14 years of consulting experience in procurement and supply chain, specialising in transformation and cost reduction in Retail, Consumer Products and Hospitality sectors. Gavin has lead the transformation of FTSE 100 procurement functions and delivered savings from direct and indirect spend categories, taking an end to end value chain approach to reduce cost and improve margin.