The challenges that the independent restaurant operator community has faced this year have been well documented in this
magazine and elsewhere. There is much sad news for the industry, for neighbourhoods and, of course, for those whose livelihoods depend on these establishments. The fact is, the impact independent restaurants are feeling is not entirely due to COVID-19, though it certainly has accelerated the trend. The overall number of independent restaurants has been in steady decline in Canada for many years.
Where we were
The NPD Group’s ReCount data from 2019 shows the number of independent restaurants in Canada peaked in 2008, just as the
economic crisis took hold and has been in decline ever since. Since 2015, their ranks shrunk by three-per-cent per year on
average, or a net decline of about 7,000 units. Meanwhile, chains are on the rise, adding an average of one-per-cent new units every year since 2015.
Even so, the performance of independent restaurants was not entirely negative. NPD’s CREST data reports that for the five-year period ending December 2019, independent restaurants had outperformed the market by a ratio of almost two times. Their share of overall restaurant visits went from just over 21 per cent to almost 23 per cent. And, while independent restaurants hold a two-thirds share of the full-service restaurant (FSR) segment, they’re growing at a much faster pace in the quick-service restaurant (QSR) segment, where they now hold a nine-per-cent share. Do the math: fewer independent restaurants and more traffic equals more sales per unit or an increase of as much as one-third over this five-year period. While I’m not an operations expert, I know for certain this can’t be a bad thing.
How is it that independent restaurants have been able to grow their business, even as locations were being shuttered? The answer is in the customer experience. NPD’s data sources confirm many consumers prefer to seek out local and authentic food experiences when they choose their restaurant destinations. Independent restaurants are better suited to provide those experiences and consumers have been responding with their visits, dollars and loyalty. This trend is most evident among the younger cohorts (under 35 years old), which have been driving many spending trends in recent years.
On a related theme, CREST also reposts smaller chains (less than 500 units) have been growing their share of visits faster than the major chains (500+ units). These major chains may have a disproportionate share of the market and the foodservice landscape, but perhaps they don’t have quite the hold on the consumer’s psyche as we all thought.
That was then, this is now
In the earliest days of COVID-19 in Canada, the foodservice industry was hit hard. As restaurants scrambled to adjust to the uncertainty and new restrictions, consumers hid in their homes. Consequently, April foodservice-traffic declined more than 40-per-cent compared to the prior year. This figure had been cut in half by the end of August, thanks in large part to the industry’s ability to pivot to an off-premise service model.
One might have expected the strongest performers during this time would be the major QSR chains. They were well established with off-premise infrastructure and were also less inclined to close their doors. To some extent, this did happen. But something else happened, too — people rallied behind local and independent operators.
In the meantime, the very same small operators were quickly scrambling to re-invent themselves. In the FSR segment, independents were the hardest hit in the early months. Six months in, they’re pacing the segment’s strongest-performing chains, demonstrating the resilience and entrepreneurial spirit that pushed them into this business in the first place. In the QSR segment, the small but mighty independent operator group is holding its own, performing almost as well as the major chains. Interestingly, the mid-size chains (100 to 500 units) are performing strongest in both segments. By contrast, the major chains are negatively impacted by the disruption in consumers’ morning routines and the associated decline in breakfast and lunch traffic.
Technology has been a lifeline for many operators and consumers during this period. Digital-ordering rates jumped from about five per cent of traffic to as much as 17 per cent at the height of the restaurant restrictions. All operator groups have seen their digital-ordering rates skyrocket, but mid-sized chains lead the pack here. Clearly, this is a key factor contributing to their leading recovery rate. Interestingly, the independent-operator set is trailing when it comes to digital ordering, despite a five-fold increase in penetration. Instead, this operator set is using old technology — the telephone — to help fuel its survival plan, garnering almost one-third of all off-premise orders.
Delivery is a key component of the new foodservice landscape. It represents approximately 20 per cent of all orders within independent and smaller chains. Once again, the major chains are the outliers here, instead relying upon their well-developed drive-thru infrastructure for their incremental business.
It’s difficult to imagine (and even harder to accept) that the potential loss of restaurants — and particularly independents — as a result of COVID-19’s impact could result in several years of attrition in just a matter of months. Canada’s foodservice landscape will never look the same as it did just a few short months ago. But, smaller operators and independent restaurants’ ability to
maintain and even grow their share during these difficult times reinforces the belief that the industry will rise from this crisis stronger than ever.
Written by Vince Sgabellone