COVID-19: Restaurant Industry Outlook

Updated on: August 6, 2020

By Allen Wallace, awallace@sc.edu,

Covid 19 has hit the restaurant industry hard as businesses work to find safe and sustainable ways to keep serving. School of Hotel, Restaurant and Tourism Management director Robin DiPietro shares her expertise on the challenges facing owners, employees and customers in South Carolina and beyond. 

Professor Robin DiPietro spent more than 20 years in the restaurant industry.

How do things look for locally owned restaurants?

Because of the fluid situation with COVID-19 and the increasing number of cases in South Carolina and other states, things are difficult on many fronts.

With the initial shutdown, locally owned restaurants faced many issues. There was wasted food due to the short notice of the shutdown. Labor costs continued, which quickly led to layoffs and terminations. Rent and utilities still had to be paid. Government funds designated to help restaurants were difficult to come by and often went to corporations, like Shake Shack and Ruth’s Chris, rather than the small businesses they were meant to help. Loopholes prevented some locally owned restaurants from getting financial help as quickly as they needed it.

Once restaurants started to reopen in May, outside dining was OK with social distance, and indoor dining opened soon after with limits on the number of people and required spacing between tables. This challenged many locally owned restaurants because fewer customers were allowed inside. It is hard for an already small 50-seat restaurant to be limited to 15 seats and still pay its bills, labor costs and increased food prices stemming from limits in the supply chain.

Unfortunately, as the pandemic continues, the uncertainty of what will happen tomorrow has caused many owners to question how much longer they can stay open without their full capacity of customers.

The biggest challenges right now are

• a situation that changes almost daily with the virus and infection rates.

• fear of the virus keeping people from going out to eat.

• the difficulty of keeping restaurants open with such a small number of customers. There is a break-even number of customers and meals sold that allows restaurants to stay open and many restaurants have not been hitting that "sweet spot" for months.

Can restaurants survive long-term on curbside and delivery alone?

Curbside pickup and delivery are a good short-term fix for casual dining restaurants, fast-casual restaurants and limited-service restaurants. However, despite the fact that delivery containers and procedures have improved over the years, it still is not an option for some menus where food temperatures and presentation needs to be precise to ensure quality.

The concern is that many restaurants are not — or were not — set up for curbside pickup or delivery because of their menu and the perishability of the food, or the fact that they used the restaurant as part of the experience of their brand. For example, Planet Hollywood is a restaurant that uses its environment and movie memorabilia as a part of the overall meal experience.

Some restaurants have very large dining rooms with rent based on the overall size of the restaurant, so switching to curbside and delivery alone is cost-prohibitive. Rent would not decrease, yet the underutilized space does not bring in revenue.

Other restaurants’ food would diminish in quality if they delivered it. For example, Ruth’s Chris’ steaks may not be able to make the 20-minute drive to your house with the same level of quality you would get in the restaurant. Upscale and fine dining restaurants count on the level of service and quality of the food as integral components of the dining experience. Picking up food curbside or having it delivered does not compare to the dining room experience.

Are some sectors of the restaurant industry, like food trucks, doing well?

Food trucks and fast-food restaurants are doing very well, all things considered. With food trucks, the main challenge is to try to keep people socially distanced while waiting in line. Fast-food restaurants are already set up for success in this environment because about 70 percent of their business occurred through the drive-thru before COVID-19. They have mastered the drive-thru, double lane drive-thru and takeout orders. Over the past 20 years, many fast-food restaurants decreased the size of their dining rooms. I believe that fast food and other segments will decrease indoor dining room size even more as time goes on.

Home delivery meal services also have been successful during this time and I believe the trend will continue. The customer gets pre-portioned meals with fresh ingredients delivered to their home, helping them make fresher and healthier meals than they can get from some of the other dining options.

Many casual dining chains, such as Texas Roadhouse, have set up drive-thru and pickup areas in their parking lots to accommodate the changing requirements.

How does the fate of restaurants affect other businesses?

The restaurant industry is integral to many businesses. Food production, farming, the trucking industry, paper products production, fishing, food manufacturing and virtually everything we do is impacted by changes to the restaurant industry.

With the shutdown of restaurants in March and April, the demand for food products dried up. Products were expiring on the shelves of restaurants, and vending machines were left empty because no one was going out. Grocery stores had limited hours and high demand for certain items such as toilet paper, sanitizing wipes, canned goods and paper products. But in other parts of the food chain, there was no longer a need for things like school system milk cartons, plates for fine dining restaurants and large quantities of cooking oil.

Food cannot be saved indefinitely and therefore production had to stop on many products until more was known about the pandemic and the potential reopening of restaurants. A system that normally worked without fail had finally broken down due to the pandemic.

What are the biggest challenges remaining?

Despite the fact that many people miss going out to eat, the restaurant industry will be slow to recover due to the inconsistencies in following COVID-19 protocol, as well as the moving target we are facing related to regulations and clear guidelines.

The big question remaining is, who can survive for the long haul? Large chain restaurants have deeper pockets and a better ability to survive financially. But the small, independently owned businesses have the advantage of being able to change their menu and marketing options much faster than the larger companies.

The biggest challenge right now is not knowing when the pandemic will end. With numbers not showing any sign of decreasing, it is hard to know when, or if, to roll back new regulations. Despite the fact that COVID-19 is not a food-borne illness, the restaurant industry has taken a substantial hit.

One step we can all take to help our favorite restaurants weather this storm is to follow health safety regulations to reduce the spread of the virus and continue to support local restaurants by frequenting their pick-up, delivery and socially distant dining options.