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Restaurants are beginning to reopen after COVID. But many will have to adjust to recurring new costs and industry changes long-term. Happy woman in a restaurant window putting up an open sign.

For Restaurants Coming Out of COVID, Adaptability and Pricing are Everything

It’s an understatement to say that 2020 was a bad year for restaurants. 

The National Restaurant Association’s 2021 State of the Industry report confirmed that 2020 was the industry’s most challenging year ever. At the beginning of 2020, restaurant and food service sales in the U.S. were projected to total $899 billion for the year. In reality, they fell a staggering $240 billion short of that projection. By December, more than 110,000 food and drink establishments were temporarily or permanently closed. Relatedly, millions of restaurant jobs had disappeared and the National Restaurant Association expects the return to pre-pandemic employment levels to take longer for restaurants than for any other industry.

Slowly but surely, restaurants are coming back. Retail food and drink sales in the U.S. totaled more than $66 billion in April 2021, according to Census data. It was the best month for restaurant sales since February 2020—and it was an increase of nearly $2.5 billion in sales compared to April 2019. In other words, restaurant and hospitality businesses are officially rebounding and even returning to pre-pandemic sales. Success, however, may not last for restaurants that can’t adapt to the new reality.   

Adjusting to New Consumer Habits and New Costs

Restaurants are full on Friday nights again—but some diners have been converted to the takeout life. When the National Restaurant Association compiled its report in early 2021, 68 percent of consumers said they were more likely to get restaurant takeout than they had been pre-pandemic. More than half of consumers said that takeout and delivery is essential to the way they live. 

Of course, the country was still in lockdown when those results were gathered. Midway through 2021, many Americans are newly vaccinated and starting to resume their normal pre-pandemic activities like traveling, visiting bars and dining out. Yet even as in-person dining rebounds, it’s likely that takeout and delivery will continue to be more widely used than they were pre-COVID. 

Providing both in-person service and takeout/delivery service requires a difficult balance, and it can be an expensive adjustment for restaurants that were already struggling to absorb unplanned pandemic-related costs. Some things, like Plexiglass barriers, were one-time purchases. Other costs are a necessary part of offering a hybrid takeout/delivery/in-person dining model. 

Restaurants will have to adjust for these recurring costs long-term, some of which include:

  • Takeout containers. Restaurants that primarily offered in-person dining may have been unprepared for the significant cost of providing takeout containers for every order. Packaging all the components of a single meal may require using multiple containers plus plastic utensils, sometimes adding as much as a dollar to the restaurant’s cost for the meal.
  • Delivery costs. Delivery services like Grubhub take fees of up to 30 percent per order, devastating restaurants with thin profit margins. But the alternative, managing delivery on their own, leads to costs for hiring their own delivery drivers and new staff to manage takeout and delivery orders. 
  • App development and maintenance. Diners need a way to order from home, which is another new cost for restaurants.  Some opted to use the delivery platform (which charges fees) while others created their own apps during the pandemic. Developing its own app may cost a restaurant anywhere from several hundred to tens of thousands of dollars upfront, with additional fees for ongoing maintenance. The National Restaurant Association’s report found that nearly two-thirds of takeout diners prefer to order directly from the restaurant, with only 18 percent preferring to order through third-party platforms. 
  • Credit card payments. Cash is no longer king. In fact, cash became nearly obsolete in restaurants during the worst of the pandemic. Businesses went cash-free in an effort to protect staff from potential exposure to contaminated bills, and mobile ordering necessitated credit card payments. Having to pay more in credit card processing fees further degrades a restaurant’s profits. 
  • Outdoor dining. Creating or expanding an outdoor seating area allowed some restaurants to attract more customers, but it often meant buying new tables, chairs, heaters, umbrellas, or even tents. Businesses that plan to continue offering outdoor dining may need to plan for higher landscaping costs and outdoor dining permit fees in the future.

Adaptability, Proper Pricing are Keys to Post-COVID Success

“We’re not out of this by a long shot,” says Dylan Welsh, owner of Boston-based restaurant group Hawkeye Hospitality. New costs, staffing shortages and shifting service models are all going to continue to be a challenge for restaurants through the rest of 2021 and beyond.

Moving into the second half of 2021, Welsh says that restaurants are struggling with bigger concerns than getting customers through the door. Demand is there, and people are coming out to eat again—but restaurants are still being battered by new problems every day. “The challenges are coming at us so fast,” Welsh says. 

Staffing continues to be a major hurdle. With unemployment benefits extended into the fall, restaurants are struggling to fill positions this summer. Welsh says that two of his restaurants still haven’t reopened for lunch because they don’t have the necessary staff to give customers a good experience. “We would love to get back at full operational hours and deal with demand in the proper way, where we’re putting out a good product and taking care of guests the way we want to… but you can’t force people to come back to work.” Staffing issues are also compounding supply chain issues; Welsh says that distributors have recently had to cancel deliveries to his restaurants because they didn’t have enough workers. 

Welsh expects that funding is going to be a problem for many restaurant owners over the next year. SBA loans were a great step to solidify the restaurant industry, he says. But now that PPP loans have run out and the Restaurant Revitalization Fund is empty, a lot of people are still buried in debt without an obvious path forward. “If they don’t re-fund the RRF you’re going to see a lot of restaurants fail in the next six to eight months,” he says. “If you start seeing restaurants fail, you’re going to see a huge economic effect across all ways of life.”

Restaurant owners can’t fully control what happens with staffing or government relief funding, but there’s a lot they can control—like how much to charge. The only way for a restaurant to make a profit in a post-lockdown world is to take all its new and recurring costs into consideration. Managing food costs and setting appropriate prices are absolutely essential to a restaurant’s success going forward. 

Sure, this is more complicated now than it used to be! Restaurant owners and managers are still seeing their costs fluctuate, and it can be difficult to reconcile in-person dining costs with takeout costs. Just because these calculations are more complicated now doesn’t mean they’re impossible. Restaurants have been through the wringer over the last 18 months, but they always have one thing working in their favor: The people who gravitate to this industry are good at adapting, Welsh says. “Restaurant people in general are largely made up of creative resourceful people that are hard working. We adapt to challenges every day.”

How can restaurant owners prepare for an unpredictable future? Taking control of pricing is an urgent task. Having a clear accounting of past and current costs is the first step. From there, restaurant leaders can turn to trusted advisors for help assessing their prices, comparing funding options and putting plans in place for long-term success. 

Sassoon Cymrot Law LLC is eager to help our restaurant and hospitality clients adjust and adapt to the post-COVID marketplace. Our attorneys understand the unique challenges affecting restaurants in the current landscape, and are here to assist these clients increase profitability and prepare for whatever  comes next. For specific guidance and support, contact us today!

Lewis Sassoon has been practicing law since 1970. Mr. Sassoon’s focus is in the areas of business law and corporate reorganization through the Bankruptcy Court or by common law restructuring. Mr. Sassoon’s other areas of expertise are hospitality, commercial law, aviation law, business acquisitions and litigation. In the international arena, Mr. Sassoon represents businesses with contacts in Bulgaria, Canada, China, France, England, India, Israel, Thailand and throughout South America.
Dermot Doyne came to the law after a successful career as a real estate entrepreneur and serial award-winning restaurateur.  He has a proven track record of securing community support for mid-size real estate developments and multi-family housing (200-400 units), restaurants and bars, as well as procurement of full liquor, beer and wine licenses.
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