Over the course of the last few months, the COVID-19 pandemic has affected multiple industries and businesses, and the players in the Food & Beverage sector have been especially hit by this pandemic. Across the globe, restaurants and cafes are witnessing a drastic drop in customer traffic compared to the same period in 2019. Shake Shack’s sales dropped by 70%, The Cheesecake Factory had to layoff 41,000 workers, and many more restaurants had to turn to revolving credit as a means for financial support. In the GCC alone, restaurants witnessed a decrease in customers by 60% during the weeks leading up to the lockdown orders. By the end of March 2020, restaurant visits and reservations in the MENA region were almost zero.
Challenges such as decreasing consumer spending and demand, along with more and more people preferring home delivery over on-premise purchases, have forced F&B players to change their operational dynamics to not only keep up with the competition, but also to remain open. For on-premise purchases at restaurants in Saudi Arabia, the customer experience has been completely revamped due to government regulations: customers’ temperatures are to be checked, the number of customers on a table is to be limited to 5 unless they are all members of the same family, and a space of at least 1.5 meters is to be kept between customers. This might not only decrease footfall but also increase the restaurant’s expenditures. So how can F&B businesses overcome all these challenges and stay afloat?
- Cloud Kitchens, Delivery, and Drive-Thru
A restaurant will generally earn sales from various order channels such as Dine-In, Take Out, Drive-Thru, and Delivery. But during COVID-19, the number of dine-in consumers at sit-down restaurants dropped by more than 50% in less than 2 weeks and dropped by 85.2% overall since the start of the pandemic. With revenue from dine-in reducing drastically and fewer and fewer people wanting to visit the branch to pick up their orders, F&B players can shift their focus to maximizing sales generation from the other order streams.
Restaurants like Applebee’s, Chuck E. Cheese and Chipotle Mexican Grill are currently doing this by operating as “cloud kitchens”, also known as “ghost kitchens” and “virtual kitchens“. These are centralized and licensed commercial food production facilities where multiple restaurants rent space to prepare delivery-optimized menu items. Think of it as multiple units of rows of stainless-steel food preparation tables, ovens, stoves, and sinks set up to handle direct customer orders. Not only are a lot of restaurants operating certain branches as cloud kitchens, but some have decided to switch to them completely. For companies such as Domino’s Pizza, whose delivery customers are more than dine-in customers, such a business model is extremely viable.
This business model offers various major benefits: low overheads, improved efficiency, easy access to user data, real-time adaptability, and low-cost digital brand awareness. Foodservice IP, a food industry consultant, even predicted that revenue from ghost kitchens in 2020 could grow up to 42% this year.
However, there are certain challenges as well which could interfere with cloud kitchen operations: heavy reliance on third-party delivery apps (aggregators), standing out in a crowded digital marketplace, ensuring food quality, and keeping up with local food and health regulations and licenses.
In the long run, the benefit of cloud kitchens is a reduction in operational costs since they forego the concept of opening up multiple branches in a single area. Instead, the focus is on operating a select number of cloud kitchens covering a larger customer base and area of delivery. Also, by focusing solely on online orders and delivery, cloud kitchens are able to achieve a certain level of operational automation allowing them to maximize capacity and boost revenue. This business model allowed KLC Virtual Restaurants in Kuwait to overcome the economic challenges of 2020 posed by COVID-19 and remain competitive over other players in the market.
Kuwait London Company (KLC) was established in 2008 as a delivery restaurant company. They found gaps in the market for a variety of cuisines and dishes, and over the years, they have created delivery-only virtual restaurants to fill those voids. Their business model is to create delicious food made for delivery at an affordable price. Today KLC is the largest virtual restaurant group in the GCC, owns and manages 23 virtual brands through 18 virtual kitchens, and has successfully delivered more than 2 million orders.
“During the last several months the restaurant industry was drastically impacted by the spread of COVID-19. Virtual restaurants that operate from cloud kitchens were also affected but in some territories were still able to operate and meet market demands during city-wide lockdowns of dine-in establishments. Operating delivery only locations prior to the lockdown meant a simpler transition to the current landscape, along with all the other efficiencies that come with operating a cloud kitchen. For example, dine in restaurants with higher overhead expenses weren’t able to utilize their entire infrastructure whereas virtual restaurants were able to during the lockdown.”
– Mubarak Jaffar, Co-Founder & CEO of KLC
For those customers who still prefer to pick-up their orders, restaurants can have them shift to drive-thru. One of the reasons for McDonald’s success during the pandemic can be attributed to its strong drive-thru infrastructure. A major benefit of this is that servers get the opportunity to suggest food items to customers to add to their order, and this can help boost sales and trials of low-performing menu items.
- Reduce Preparation and Delivery Time of Orders
Due to the strict curfew that was in place, many restaurants must have reduced their Order Preparation and Delivery Time as much as possible so as to maximize the number of orders executed and delivered within a limited period. The pizza industry was one step ahead of the game during the pandemic since many pizza firms had spent the last few decades perfecting order delivery within 30 minutes or less. This was even more important since through delivery, firms now also had to cater to customers who were previously visiting or picking up their orders on-premise but who were now hesitant to wait for their order to be completed. Although confidence in venturing out is slowly returning, there are many restaurant patrons who are currently still preferring to order-in rather than personally go and pick up.
- Menu Analysis: conduct an in-depth analysis of the menu items to understand how each product is performing in terms of profitability, popularity, and preparation time. Temporarily forego products that take an exceptionally long time to prepare and are not as profitable compared to the rest. This will also help in reducing inventory and operational costs.
- Decrease Order Execution Time: focus on optimizing the supply chain of high-selling and profitable menu items, after temporarily dropping out unpopular or unprofitable menu items. This will in turn reduce the product preparation time and total order execution time, allowing the restaurant to cater to more customers on average.
- Decrease Order Delivery Time: ensure in advance the readiness of the delivery staff and that they have all the necessary information needed to deliver the order.
- Benchmarking: learn from the best practices of specific branches and even restaurant employees who are operating efficiently and achieving or exceeding KPIs. These practices can then be emulated throughout the business via training and peer observations and supported via incentive programs.
- Strengthen partner network: constantly engage with transporters, aggregators, suppliers, and other partners to conquer the playing field.
- Streamline Payment Process
Due to the health and safety hazards associated with dealing in cash, a lot of customers are now relying on payment by cards, Apple pay, coupons, etc. For this reason, restaurants should make sure that they allow multiple cash-less payment options to reduce the risk of virus transfer between individuals. Although this might increase technical or IT-related costs, the benefit in the long-run is a reduction in health hazards and employee cash embezzlement.
- If ordering via restaurant’s own application, allow customers to deposit cash into the online ‘wallet’ on the application so they can make purchases even quicker.
- Increase integration with different e-payment methods to cater to a wider customer base (e.g. STC pay, Apple Pay, Mastercard, etc.).
- Harness Customer Loyalty and Be Nimble
Pandemic or no pandemic, there are always a group of customers who will continue to patron a restaurant or café. The loyalty of these customers should be appreciated, and special promotional schemes can be created for them. As a restaurant manager, it is important to study the customer retention and engagement rates along with monthly order frequencies, as it is likely that these rates might have dropped drastically.
Customer Engagement Rates = total number of active customers from recent orders / total customers
To retain existing customers, it is important for the business to be agile and to be able to plan and operate differently, given the turbulent environment and the sudden announcement of new regulations. It is also important to remember that some regulations also affect the consumer base and in turn their spending behavior and so it is important to cater to them differently depending on their spending ability and preferences.
- Increase customer engagement rates via targeted marketing, promotions, and discounts (SMS campaigns, delivery promo codes, etc.)
- Constantly reassure customers about the hygiene and safety precautions the restaurant is taking to ensure food quality and safety.
- Communicate (religiously) with customers through all digital channels.
The recommendations suggested above to face the post-COVID-19 economic after-effects will have to be applied differently and customized according to each restaurant’s conditions. Also, these suggestions aim to ensure higher financial returns in either the short-term or long-term depending on the implementation methodology, and this needs to be kept in mind while deciding whether the business wants to see immediate or steady gains.
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