The U.S. restaurant industry needs to fill a big order: determining how to operate as states ease coronavirus restrictions while consumers remain fearful of dining out.
Restaurant operators like McDonald's Corp., Starbucks Corp. and Chipotle Mexican Grill Inc. are adapting their operations to accommodate the need for social distancing and capacity restrictions, placing a big emphasis on hygiene measures, and ramping up their focus on digital operations like mobile ordering, experts say. Starbucks on June 10 said it will accelerate plans to bring pickup stores to major cities such as New York, Chicago, San Francisco and Seattle.
The U.S. Centers for Disease Control and Prevention's guidelines for reopening restaurants and bars include suggestions like changing layouts to make sure customers remain six feet apart and letting dine-in customers order ahead of time to limit how long they spend at restaurants. Some states have started allowing restaurants to reopen dine-in operations at limited capacities.
U.S. restaurant traffic, which was all but wiped out during the pandemic, is crawling back toward normal levels. Seated dining across the country was down 75.3% on June 9 compared to a year earlier, according to data from the online reservation platform OpenTable. States with looser restrictions like Oklahoma posted year-over-year declines in the 30% range and Rhode Island grew seated dining by 9.2%.
Companies are also rehiring workers laid off during the crisis, as U.S. restaurants and bars added 1.4 million jobs in May after shedding 6.1 million jobs in April and March.
But the slow return of business and potentially long-lasting impact of the shutdowns are forcing restaurants to rethink almost every aspect of their operations, experts said.
"Opening at 50% capacity and trying to activate your restaurant like it used to be just won't work," said Keith Durst, a principal at FOC, a company that advises developers and restaurants. "The margins are way too slim for that."
The push to reopen has brought hygiene and safety, along with technology, into greater focus for restaurants. Keeping sick employees out of the workplace, and implementing strict handwashing practices and strong procedures for sanitizing surfaces are some of the ways experts say restaurants can mitigate coronavirus concerns. Contactless payment systems and mobile ordering apps are taking on greater importance, too.
But experts caution there is no one-size-fits-all answer for the restaurant industry because it contains companies big and small that offer different types of services, and jurisdictions are taking different approaches to reopen.
"There's no cookie-cutter template," said Alex Diaz, a restaurant consultant with TRG Restaurant Consulting.
Restaurants need to woo customers who are still wary about eating in restaurants. While more than half of consumers want to return to personal services like hair salons, only 31% of consumers anticipated dining in person at restaurants immediately after easing of the restrictions, while 40% said they would return to restaurants within three months, according to a survey of 1,250 consumers conducted between April 30 and May 18 by 451 Research, an offering of S&P Global Market Intelligence.
Casual dining chains and independent restaurants — viewed by experts as most vulnerable to the pandemic — are getting a lift from the reopenings. They were among the top venues for U.S. customers who had gone out to eat over a recent two-week period, according to a May 27 survey by Nielsen CGA. Of those surveyed, 40% had gone to a casual dining chain and 35% had gone to an independent restaurant. Those who had not gone back out to eat said outdoor seating and social distancing measures were the most encouraging features for them to return, suggesting confined spaces may be a deterrent, Nielsen CGA said.
Half of the respondents to a Gordon Haskett survey of over 300 U.S. households for the week ended May 29 said they would be comfortable eating in a restaurant at some point over the next month. That would rise to 63% if a vaccine were available, according to the survey, which also found similar increases in the likelihood that consumers would feel comfortable returning to malls and other retailers if a vaccine becomes available.
"People want social experiences," said Dan Simons, co-owner of Farmers Restaurant Group, which has seven restaurants across the Mid-Atlantic. "So now it's just about changing our models so that we can deliver that."
Diners are paying extra attention to cleanliness and want to see evidence of that when they enter a restaurant, TRG Restaurant Consulting's Diaz said. "If you can offer that to your customer the minute they walk in the door, it will give them the peace of mind."
McDonald's has made 50 different adjustments to its operations including enhanced cleaning and hygiene measures, though the company has come under pressure for allegedly not doing enough to ensure worker safety. The company's store-reopening procedures include a deep cleaning prior to reopening, adding social distancing floor decals, and closing beverage stations or having them sectioned off and staffed.
Chipotle, meanwhile, added a steward who will be responsible for directing customers, managing the dining room and sanitizing things as people finish their meals, and Tabasco bottles and cutlery will no longer be self-serve, spokesperson Erin Wolford said in an email.
"We've always had sanitizer in the restaurants, but we've made it more visible now," Wolford said. "The steward position will not add additional labor costs since we're allocating roles within the restaurant to better suit the needs of the business."
Starbucks is putting more of an emphasis on cashless transactions to address concerns about how viruses spread. The company is also speeding up plans to improve on-the-go service including adding more pick-up-only stores, more curbside pickup options and delivery.
"This strategy aligns closely with rapidly evolving customer preferences that have accelerated as a result of COVID-19, including higher levels of mobile ordering, more contactless pick-up experiences and reduced in-store congestion, all of which naturally allow for greater physical distancing," Starbucks said in a June 10 filing.
Cracker Barrel Old Country Store Inc. limited its menu offerings when the coronavirus shut down its dining rooms, but the company is transitioning to menus with more variety at reopened dining rooms, executives said during a June 2 call with analysts. Safety actions the company implemented include wellness and temperature screenings for employees, frequently cleaning tables and chairs between sittings, and social distancing measures.
"The situation remains fluid, but presently, we hope to have substantially all dining rooms open by the end of June," said Cracker Barrel CFO Jill Golder. "However, it will likely be some time before we are able to completely lift restrictions at all of our dining rooms."
Apps to start
Experts expect technology to play an even bigger role in the restaurant industry as companies look for ways to further streamline their businesses and minimize contact.
"Increased digital engagement is the first and most visible change restaurants are undergoing as a result of Covid-19," Morgan Stanley analyst John Glass said in a May 28 report.
Chains with lower usage of their mobile apps prior to the pandemic are seeing an uptick in downloads as customers look for to-go options. Shake Shack Inc.'s app had about 1,400 downloads per store from late February through May 11 and Chipotle's app had about 700 downloads per store in the same period, Glass said, citing data from Sensor Tower and AlphaWise. Meanwhile, chains with larger and more established app ecosystems such as McDonald's, Starbucks and Domino's Pizza Inc. all had less than 400 app downloads per store during the same period, according to Morgan Stanley.
Other bets to grow online sales are paying off. Chipotle's investment in digital operations showed strong results with digital sales growing 81% during the first quarter and accounting for 26.3% of its $1.41 billion in sales for the period, the company said. Chipotle has a "digital kitchen" in nearly all of its locations with a dedicated ingredient station and team focused on online orders.
Shake Shack plans to give its website an improved customer interface and eventually let customers order delivery through Shake Shack's app or website, according to a June 2 report by William Blair analyst Sharon Zackfia. The company has picked up to 10 U.S. locations for early testing of separate interior or exterior pickup windows for digital orders, she said.
"Improved digital access remains a key initiative as management looks to retain a sizable portion of the digital sales it has achieved during the closure of dining rooms," Zackfia said of Shake Shack.