As if restaurant owners haven’t had it hard enough lately, cold weather is set to bring on a whole new set of challenges. With limited indoor capacity expected to continue throughout the fall and winter months, restaurants have to consider things they never have before, like weatherized patios, delivery as their core revenue stream, and competing for a smaller pool of willing winter diners.
To provide restaurants an idea of how their peers will be adapting (or not adapting) to the fall and winter months, we surveyed nearly 400 restaurants across the country about their upcoming business plans.
Limitations and consumer demand
A vast majority of the U.S. restaurants are operating at less than 100% capacity in their dining rooms. For the restaurateurs who responded to our survey, only 15% said they were allowed to dine at full capacity, with nearly half saying they were allowed 50% capacity. Of the restaurants who are operating at less than full capacity, only 29% said they could keep their doors open indefinitely. Nearly half of respondents said they would last less than a year, with 28% saying they would last between four and six months – enough to sustain through the winter. This tells us that another shutdown or further limiting of capacity prior to spring will likely cripple many restaurants. In fact, according to a survey by the National Restaurant Association, nearly one in six restaurants (representing nearly 100,000 restaurants) is closed either permanently or long term.
When asked what they believe consumer demand is for dining out now compared to before the pandemic, only 3% unsurprisingly said demand is the same as it previously was. The top answer by far was 50% demand, with nearly 45% of respondents selecting this option. When asked how long they could keep their doors open if less than full demand remained the norm (but there were no capacity limits), half said they could last indefinitely, with nearly one in five saying they would last only through the winter months.
Restaurant operators are clearly more optimistic under the full-capacity/lower-demand scenario than under the limited-capacity scenario, perhaps with optimism that the demand would pick up or they could find ways to entice diners.
Another identified problem that’s likely to continue for the foreseeable future: smaller party sizes. In fact, 87% of survey respondents said that party sizes are smaller now than before the pandemic. Of course, smaller parties mean smaller checks per table. If consumer demand trends downward as the colder weather approaches, combined with more capacity restrictions, and fewer people allowed per party, this can be a major drain on revenue.
Patio dining in colder weather
For the respondents who reported having outdoor seating (or planned to add outdoor seating soon) and whose climates allow them to seat people outdoors nine or fewer months of the year, the decision to “weatherize” the patio for the colder weather was split. Half of restaurants will invest in making their patio a cold weather seating option, while the other half will not.
One thing local restaurants know how to do is anticipate their customers’ wants and needs. Undoubtedly, they have an expert feel for how their communities will react to changes. Of the restaurant owners who plan to make their patio winter-appropriate, nearly two-thirds said diners will be very willing or somewhat willing to dine on the patio in the colder months. This is encouraging for restaurants, especially as only about 8% of respondents said that guests will be very unwilling. And since the respondents were split between weatherizing and not weatherizing their patios, this may tell us that the most optimistic owners are planning to do so because they believe outdoor dining demand will be there.
Owning the delivery revenue stream
Delivery has become a staple for restaurants who never thought it would have to be. A large number of restaurants launched their own delivery service just to stay afloat during the pandemic. It may turn out to be a good investment, since previous Rewards Network consumer surveys have indicated that people expect to order delivery more in the coming months than previous fall/winter periods. Of the restaurants we surveyed, 27% launched their own delivery service. Utilizing third-party delivery providers is not realistic for some restaurants due to the exorbitant fees cutting too far into profits.
The cost for launching an in-house delivery service was all over the board, ranging from $0 to $10,000. The average was $1,923. The cost to start a delivery service can depend on many factors, such as labor needs, POS upgrades, and marketing costs. For instance, if a restaurant could cross-utilize current staff to deliver food and already has the POS capabilities to handle delivery orders, the cost to launch could be minimal. We encourage restaurant operators to closely evaluate the true cost of third-party delivery services against the investment in their own delivery operation to understand the long-term return on each method.
We also set out to get a high-level idea of how profitable or unprofitable third-party delivery services are for restaurants. DoorDash and Grubhub were the overwhelming “primary” vendors used by our survey takers, with Uber Eats coming in third. When asked how profitable or unprofitable these services have been for restaurants, only 6% said very profitable, with the top two overwhelming choices being somewhat profitable and break even. While it seems that these services have helped nearly half of restaurants stay afloat, the other half have typically broken even or lost money. This statistic (along with 48% of consumers saying they plan to dine out less this fall/winter compared to past periods) further highlights the need for restaurants to consider launching their own delivery service, because most restaurants cannot afford to cut their margins for a sustained period of time.
Menu price changes
Finally, we asked survey respondents if they had raised or lowered their menu prices in response to the pandemic, and how their guests have reacted to those additional costs. Nearly 42% said they did raise their prices to make up for lower capacity and demand. Of those respondents, consumer reactions were basically split down the middle, with nearly half saying that most customers have not noticed, and the other half saying some have noticed. For customers that have noticed, one out of five customers have complained, while the majority are understanding. No respondents indicated that many customers have noticed and complained.
The bottom line
The road ahead may be rough, but with proper planning and listening to the local market, restaurants can survive (and some may thrive) through a COVID-19 winter. How is restaurant optimism for the business environment over the next six months? Well…we asked, and 69% said they were optimistic, with only 8% saying they were very unoptimistic. While that’s a far cry from the usual optimism generally seen from a group of passionate restaurant owners, it’s not bad given the current situation. Restaurants that can find a way to attract diners throughout the colder months and make delivery profitable will be set up for success through, hopefully, the last legs of the pandemic.
Looking for more suggestions on navigating the current and post-COVID world? Be sure to browse our dedicated COVID-19 restaurant resource section and follow us on Twitter.
We conducted this survey of Rewards Network partner members for approximately one week in early October. Customers were entered into a drawing for a $500 Visa gift card for answering the survey questions honestly and completely. All of the information contained in this article summarizing the survey results is provided for informational purposes only and should not be construed as providing tax, legal, accounting, career, or other professional advice.