As COVID-19 continues to spread around the world, it’s leaving a toll on virtually every business community. In Canada, the $90-billion foodservice industry continues to reel from its effects. In a webinar earlier this week, hosted by industry advisor Robert Carter of Straton Hunter, the analyst explained that as of the end of March, the industry was down by approximately $3 billion, representing a 72 per-cent loss in sales and 800,000 lost jobs.
As Howard Migdal, managing director of SkipTheDishes said, “There’s no playbook for this and we have more questions than answers.” Migdal notes his company has “learned a lot in the past 10 weeks.” By observing what happened in China, it gave the third-party aggregator a good window into understanding how this pandemic will play out. “Wuhan was also restricted, way more so than Canada, but the rest of China was operating. [It] saw a huge growth in online [sales] during the crisis.” After the crisis, he explained, people were still reluctant to go to restaurants so they “made more online purchases during the crisis, staying away from highly congested places and staying in local neighbourhoods, dealing with the places they trust and know.”
For Sylvain Charlebois, professor in Food Distribution and Policy at Dalhousie University, the observations gleaned during the crisis between the grocery and foodservice businesses have been revealing.
“A month ago, we were at the Restaurants Canada Show and we never expected this to happen,” noted the professor, stressing just how fast this crisis took hold. Still, despite the challenges, and the reality that the industry has been decimated almost overnight, the food-safety specialist sees many opportunities. He finds it interesting to note that on March 3, pre-COVID-19, a survey showed 18 per cent of consumers said they intended to avoid grocery stores,” while post COVID-19, that number grew to 52 per cent, noting consumers viewed going to grocery stores as an inherent risk to their health. “They see it as an open system, whereas people realize restaurants are a closed system and that can be an advantage to restaurants,” moving forward. He believes given what has happened in recent weeks, COVID will fuel the rise of dark kitchens. “A tsunami is hitting the foodservice industry.”
Not surprisingly, consumer behaviour has changed dramatically during this crisis. According to Vince Sgabellone, foodservice industry analyst, The NPD Group, “The trends that were taking place before are going to continue, pointing to the continued growth of delivery. Delivery was already booming,” said Sgabellone, “but now there’s been new opportunities come on board, and the ease of using these platforms makes delivery strong.”
Sgabellone explained that in China, sales in February fell by 60 per cent, but delivery was up by 10 per cent. He believes a big increase in delivery will come from displaced workers, noting that those working traditionally in offices, who are now stuck at home, will fuel online sales. “This giant social experiment of working from home will have huge implications for the industry.”
On the rent side, operators continue to worry about landlords’ expectations that rent still be paid, despite the restaurant closures. According to Chad Finkelstein, partner, Dale and Lesseman Legal Counsel, “As of today, I’m happy to say we haven’t had any examples of our restaurant clients that have been evicted.” Finkelstein noted New Brunswick remains the only province to legislate that commercial tenants cannot be evicted for not paying their rents. The lawyer advised operators to check their contracts to see if a force-majeure clause exists, but warns that even if such a clause does exist, it will not necessarily “relieve tenants of their responsibilities.” The important thing to do, he said, to avoid any misunderstandings, is to have a conversation with your landlord. “These relationships matter.”
To help operators deal with the fallout of the economic crisis, SkipTheDishes has undertaken a few initiatives. First off, said Migdal, “we’re helping restaurants with trust and safety — dealing with how orders are passed off to a customer, introducing contactless delivery and sharing best practices.”
Secondly, the company introduced a 30-day support package of reduced commissions. “It’s essentially a rebate or a reduction in commission,” said Migdal. Thirdly, in an effort to help drive sales, at the top of every menu the company provides a way for customers to provide tips for restaurant employees, a measure he said consumers have happily taken advantage of to show support for the beleaguered industry.
Moving forward, what kind of landscape can be expected? “The all-you-can-eat buffet seems risky these days,” said Charlebois, “and some cuisines are more affected than others without a doubt.” But the professor said he’s impressed with how some of these apps have adapted to this new reality and connected with a fearful consumer. “All these things will need to continue.”
He’s also quick to add that “e-commerce becomes a legitimate option when ordering food either from foodservice or retail and it changes everything. It could democratize the entire supply chains from farm to fork, and you’re seeing it already, spurring some farmers to sell direct. A month ago, ordering food online was a far-fetched concept for most but now that’s changed.” He cited a recent survey that shows 27 per cent of consumers will order online after the pandemic is over.
Given the job losses, Sgabellone believes the importance of deals will increase. “Dealing is going to become the new reality,” he says. “You don’t want to get into price wars… but combo deals and coupons are popular,” he said, adding “dealing is all about value.”
Charlebois agreed. “We monitor food prices very carefully,” and while COVID hasn’t impacted retail prices so much, on the foodservice side, he’s expecting to see “a price war as operators become desperate to get people into dining rooms. Prices are going to become very attractive as we’re witnessing through the apps, where you are seeing 15 to 20 per cent “confinement” discounts.” He’s quick to add that will also create pressure on the supply chain, which has been squeezed during this crisis. “The food industry has never had so much attention on it,” quipped Charlebois.
And, of course, once the dust settles, the foodservice landscape will look vastly different from a year ago. “Ten per cent of restaurants have dropped off the map,” said Sgabellone, adding that prior to COVID-19, it took a decade to see the same kind of declines. “Independents were having a resurgence, but that will be hampered now,” said the NPD analyst. And, added Finkelstein, there will be massive changes in brick- and-mortar restaurants. He also expects a number of companies to acquire distressed brands. “Independents are the largest victims of this crisis,” stressed Charlebois, which means more and more Canadians will need to support local restaurants once the pandemic is over.
