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The restaurant industry was devastated by the effects of the pandemic, but the National Restaurant Association expects improvements ahead.

Restaurant sales projected to climb 10.2% in 2021, but not enough to recover from devastation of COVID-19, National Restaurant Association says

After a steep decline in sales in 2020, 2021 will be a year of transition and rebuilding, the National Restaurant Association State of the Industry report says

From 2019 to 2020, COVID-19 impacted the restaurant industry catastrophically, with sales plummeting 19.2%. According to the National Restaurant Association’s State of the Industry Report, 2021 sales are projected to climb 10.2%, though not nearly enough to recover from the steep hole caused by the pandemic.

This will be the “year of transition and rebuilding,” Hudson Riehle, senior vice president of the research and knowledge group with the National Restaurant Association said, and it will take time before the industry gets back to pre-pandemic levels. Last year ended with sales $240 billion below the forecasted levels, with approximately 110,000 foodservice establishments permanently closed (and nearly three-quarters of those operators saying they would not open another restaurant).

“On a positive note, 2021 will be better than 2020 and for most [restaurant segments] the operational trend is advancing, not retreating,” Riehle told Nation’s Restaurant News. With 2020 being the worst year in restaurant industry history it will take some time to get back to pre-pandemic levels across a variety of operating pararemeters.”

Despite the grim numbers, pent-up consumer demand will create a mad rush once things get back to normal. In April 2020, the number of adults who said they don’t offer takeout as much as they’d like rose from 44 to 52%, though by December 2020, that number had settled down to 33%. In April, 83% of adults surveyed said they were not eating out as much as they’d like, nearly twice as many people (45%) who were asked the same question in January 2020.

Here are some of the most crucial aspects of operations and hospitality that impacted restaurant industry performance in 2020, according to the National Restaurant Association’s State of the Industry report:

Off-premise was king, but not all forms were in high demand

It’s no question that as states and cities locked down throughout the pandemic — many for the majority of 2020 — that restaurant operators would come to rely more on off-premise experiences in the wake of their darkened dining rooms. Now, 68% of customers say that they’re more likely to purchase takeout or delivery now than before the pandemic.
Curbside pickup was also big, as “one of the least capital-intensive offerings” a restaurant could add during the pandemic (four in five family dining, fine dining, and fast-casual operators added curbside pickup during the pandemic).

And even as restaurant operators scrambled to get on third-party delivery apps (or expand their partnerships if they had not done so before), two-thirds of consumers still say that they preferred ordering directly from a restaurant.

"For cerain operators, the availability of third-party option has had utility and in comparison, certain operators have elected to basically insource that delivery component, depending on your business model/physical location, and because the industry is so large and widle-varied, experiences are different," Riehle said. 

Ghost kitchens are not in the public consciousness yet

Although ghost kitchens and virtual restaurants have been steadily on the rise for the past couple of years, they became a hot commodity in 2020 as operators sought to expand their reach and increase sales without spending the funds to open a brick and mortar restaurant.  

But even with their growth in popularity, only 5% of operators added a virtual restaurant or ghost kitchen since the pandemic began, and customers are still not keen on the idea: 72% of surveyed adults say it’s important that their delivery orders come from a location they can visit.

But Riehle thinks attitudes will change as virtual restaurants become normalized.

“The one characteristic accelerated by the pandemic is focusing on points of access rather than locations,” he said. “Virtual restaurants and ghost kitchens are an operational model that allows growth for the industry. That doesn’t mean they are the answer for all segments, but the pandemic really did focus operations into tapping into that off-premise potential.”

Customers want convenience technology

Not only is digital ordering technology a perk of the off-premise restaurant experience, but customers have come to expect it: one in four to-go customers say that app-based ordering would influence their choice of one restaurant over another.

“Consumers are more receptive to how they pay for restaurant meals now, in terms of technology,” Riehle said.

And operators are stepping up to the plate: 25% of operators say they added technology to allow customers to order through apps and 40% of operators across all segments say that they added a contactless or mobile payment option since March.

Experience narrowly wins over convenience

Despite the fact that customers are now looking for the frictionless digital ordering tools, traditional restaurant experience still narrowly wins out. Nearly 64% of customers say that they would choose to sit in a restaurant with traditional table service vs. an experience with a tablet or smartphone ordering.

The key is to learn to balance convenience with socialization: the two key aspects of the modern restaurant experience.

“Looking at the history of the restaurant industry over past decade, much of that growth was coming from the off-premise market and so obviously during the pandemic it was disproportionately skewed higher because the socialization driver is not available,” Riehle said. “Once the socialization aspect of the restaurant experience becomes possible again, consumers will shift some of their spending to the on-premise market, though it will not return to pre-pandemic levels.

Significant workforce challenges remain  

By far one of the toughest challenges remaining to restaurant operators is the workforce demand shift. Before the pandemic, the restaurant workforce was an oversaturated and increasingly competitive market. But the labor force has shrunk considerably across all sectors and age groups and there are nearly two million fewer 16-34-year-olds in the workforce during the pandemic than before the pandemic. Nine in 10 operators are reporting staffing levels lower than in pre-pandemic days, with two in five fast-casual, family dining, and casual dining restaurant operators reporting that they are having a hard time filling job openings.  

What’s next?

With COVID-19 still negatively impacting the success of the restaurant industry in 2021 (though the National Restaurant Association expects steady improvement as the vaccine is rolled out to more people), what will restaurants look like in the near-future?

The pandemic brought many operational changes, from off-premise investments to technology upgrades and menu overhauls, and 68-74% of operators across all segments say that they plan to keep at least some of these changes.

The most likely COVID-19-related shifts that will mold long-term operations strategies include trimmed menus and the popularity of more off-premise options including meal kits and cocktails to-go: 35% of consumers and 53% of Millennials say they’ll be more likely to choose a restaurant if they can get an adult beverage with their to-go or delivery order. More than half of adults say they’d be likely to order a meal kit from their favorite restaurant in the future. As the pandemic continues (and even beyond), comfort foods are a major selling point, with 33% of off-premise customers saying their food orders over the next several months will be influenced by if the restaurant sells their favorite comfort foods.

“The environment continues to change rapidly,” Riehle said. “But in the end, there will always be that underlying demand for meal solutions away from home.”

Contact Joanna Fantozzi at [email protected]

Follow her on Twitter: @JoannaFantozzi

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