The COVID-19 pandemic has had immediate and catastrophic effects on the hospitality industry, with stressed business models forced to change overnight. However, the scene is set for positive transformation.
In early February, before the pandemic had shut the country down, the crisis had already led to the closure of popular restaurants in Melbourne’s Chinatown.
This wouldn’t have been a surprise to those in the industry. Margins were the lowest they had ever been; staff and overhead costs had risen, and precious dine-in sales (historically the majority of a venue’s income) were being eroded by delivery platforms.
To make matters worse, lots of new local venues had increased the competition, making it harder to get bums on seats or increase prices. Many hospo brands felt it was death by a thousand cuts.
This pandemic shutdown has ripped the Band-Aid off, forcing venues to completely redesign their business models to survive.
Yet, as hard as it is to picture right now, soon we’ll look back on these survival measures as the catalyst for the industry’s transformation.
Surviving the shutdown
When Australian restaurants closed in March, taking dine-in revenue off the table, venues turned to their only option: delivery and pick-up.
Despite driving volume — food delivery spending is up by 192% according to data this week from Illion — the two biggest delivery apps charge 30-35% commissions, making it unsustainable for many restaurants.
The industry has had to find more economical solutions, using online ordering platforms with a fair fee structure or putting together their own e-commerce website using tools such as Shopify. In the short term, these measures and the government’s JobKeeper package are going a long way to support businesses.
This rapid transformation mirrors how the GFC forced retail to offer an omnichannel experience to their customers, allowing them to transact not only in-store but also online.
As consumers, we now view retail companies as brands, not physical locations.
Now, the same change is happening in hospo, and venues are already seeing the silver lining in COVID-19, with the opportunity to design a profitable and sustainable business model using the power of e-commerce.
Brick-and-mobile: Hospitality’s next level
The first thing many hospo businesses did after COVID-19 hit was create new channels to access additional revenue. These channels won’t go away.
Hospitality has learnt its lesson the hard way; it won’t make the same mistake again. Brands will adopt technology to ensure diversified revenue streams continue, allowing customers to easily transact online and in-store.
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They’ll pivot permanently from brick and mortar to ‘brick and mobile’.
When the world opens up, many venues will offer their customers mobile table-ordering to increase spend and create labour efficiencies, alongside a well-oiled delivery and pick-up model.
A new, sustainable delivery model
Venues can’t make the numbers work on the big delivery apps. Instead, they’ll use their own staff to run hyper-localised deliveries, incentivising customers to pre-order to make the logistics more predictable and easier to manage.
If they don’t have staff available for deliveries, they’ll leverage third-party logistics platforms such as Drive Yello to book drivers, as the combined cost of these services, alongside ethical food and beverage e-commerce platforms, can be half the cost of the commissions charged by the two big delivery apps.
Know the customer
Hospo brands have traditionally neglected capturing and using customer data. You could be a regular customer of a venue for a decade without it ever having your email address.
Now, venues will act more like e-commerce brands, ensuring they capture customer data for in-store and online purchases and tracking the customer journey so they can personalise their offering to each patron.
Savvy operators will use digital marketing more than ever to create customer engagement and loyalty.
Smaller dining room, bigger kitchen
Delivery will continue to grow, because customers won’t stop valuing convenience. This means each venue will offer a broader menu, catering for dine-in, delivery and pick-up, which will generally have different items and price-points.
Venues will need to increase their production capacity on-site, which will mean bigger kitchens, and a smaller front of house.
Brands will need to triple down on the wow factor of their dine-in experience to stand out from competitors.
Beyond the neighbourhood
With customers viewing restaurants as brands more than physical locations, they’ll want access to their speciality products at scale.
Cafes can sell their famous bacon to a large radius within their city. An Italian restaurant can deliver cook-at-home packs of their signature pasta and sauces city-wide or even sometimes nationally.
Leading brands will also do virtual pop-ups, using online ordering to sell signature items for delivery and pick-up into new, untapped geographies by leveraging under-utilised kitchens.
While these are incredibly tough times, it’s important to look forward and focus on the silver lining.
Historically, big hits to our economy have resulted in positive change afterwards.
The hospitality industry is adopting technology and innovation in a way it never has before, and will be stronger for it long-term.