To the casual observer, it might look like the economic impact of the COVID-19 pandemic has been particularly hard on the Canadian restaurant sector. After all, in many areas of the country, lockdowns and other restrictions kept consumers from going out for a sit-down meal and even where they could, restaurants often could only accept a relatively limited handful of customers.
Yet the reality is perhaps startlingly different, according to Jacob Mancini, AVP, Franchise Restaurants at CWB Franchise Finance. In fact, Mancini says, some Canadian restaurant operators “have had their best years ever.”
How can that be, when COVID restricted so much of what Canadians used to do, including going out for meals?
“It’s really a tale of two market segments,” says Mancini, who oversees the restaurant-lending division for CWB and has worked in the sector for 20 years. While full-service establishments have faced a host of challenges related to customer traffic, consumer spending and health and safety considerations, quick-service restaurants (QSR, for short), which comprise about two-thirds of the market, have enjoyed both robust sales and strong traffic growth that has expanded their bottom line.
Part of the reason: the pandemic has changed how, when and where people consume food. And over the longer term, Mancini says that shift – along with owners’ ability to adapt to it – could open new opportunities for the entire sector.Not surprisingly, the key determinant in whether a restaurant has seen a “pandemic boom” has been whether it offers takeout and delivery. When the pandemic hit and just about everything was shut down, those QSRs that already offered drive-through or had established takeout services – think pizza chains – reaped immediate rewards.
“They saw a massive increase in sales,” Mancini says. Branded QSRs in particular saw as much as 20-30% increase in revenue, and while “that has come down a little bit as the economy gradually opened up, sales are still very high and probably better than they were before,” Mancini adds.
Not all QSRs have done so well, of course; for instance, those that operate in downtown food courts have been decimated. Others that rely on breakfast or coffee sales have also been hurt, simply because people are no longer going to work. But even those QSRs are seeing more business in the mid-afternoon and other non-peak periods. “They’re seeing a pickup in what we call snacking day parts,” he explains. “People aren’t buying coffee, but they are grabbing something in the afternoon, because they want a break and a chance to get out of the house.”
Perhaps even more importantly, owners have been innovating, especially when it comes to physical space.
“Takeout and delivery is so important now that everybody is looking for ways to reduce seating and focus on delivery,” he explains. Some are adding more drive-through lanes or takeout windows; others are repositioning dining rooms, for instance by taking away seats and creating space for third-party delivery services to make the takeout process more efficient."Innovation, Mancini emphasizes, will be key to the future of full-service restaurants, as well. Many have already re-engineered their operations to provide takeout, and they are also exploring how to operate more efficiently and reduce their footprints. “If you’re a full-service operator, you might be thinking that takeout might be 10-15% of your business going forward, where before it was two percent or less,” he says. “The question is how to right-size your dining room, your kitchen and so on for the new reality, so that you’re not wasting space.”
That ability to innovate is one reason Mancini says he is optimistic about the full-service segment. Another is pent-up demand. He points to summer 2020 and summer 2021, when most restaurants across the country were open (many at reduced capacity) or for outdoor dining.
“Even though they were operating at limited capacity, many owners were doing 85-95% of their pre-pandemic sales,” he says, because customers spent more money per visit and stayed at the restaurants longer.After a second consecutive strong summer for restaurateurs through the pandemic, Mancini expects the increasing comfort of customers to dine out again along with a more open economy will result in a far stronger fall and winter season compared to last year. The continued growth and relevancy of take out and delivery, as well as pent-up demand for the restaurant experience brings positive expectations for 2022-2023.
“The pandemic has reminded consumers of the role restaurants play as a source of entertainment and engagement,” Mancini says. “People want to go out and get together, and restaurants are a natural place to feel connected again.”
Over the longer term, the picture might be even rosier. For QSRs, the pandemic has provided an opportunity to consolidate their advantage by expanding takeout and drive-through services. “You’ll see a lot more growth in QSR,” Mancini says. He expects a resurgence in investment even in the full-service space, not just because customers will want to go out for meals, but also because solid operators and brands have capital and resources set aside for growth. They’re ready to jump on sites vacated by those operators who were not able to adapt and adjust to the pandemic environment.
Mancini sees a bright future for the sector. “I don’t think operators are looking at what’s happened and saying restaurants aren’t for me. I think we’ll see a boom in growth in 2022 and beyond.”The questions, of course, are when the pandemic will truly end, how long the post-COVID rebound will last, and whether all the pandemic-inspired innovation around takeout and delivery will continue to pay off. Mancini thinks there will inevitably be some regression to the norm, but he also suspects COVID will change the industry fundamentally. He likens the situation to e-commerce, which has exploded as the pandemic forced consumers to buy online.
“For restaurants, all these trends were already happening – the move to takeout and delivery, smaller square footages, and so on,” Mancini says. “But it took COVID to put them into overdrive and make it happen in six to 12 months instead of six to 10 years.”