Is the need to implement social distancing COVID19 during the lockdown the final death knell to the independent restaurant and café sector, an industry which has long been suffering from costs pressure on all sides?
Not necessarily, it would seem; and in the spirit of British innovation in the face of adversity, several smaller restaurant/café operators are leading the way in the struggle to evolve to survive and develop new business models.
The business data company Pomanda.com has analysed the financial performance of the 35,683 restaurants and cafes across the UK with reported annual sales of between over £50k and under £5m (thereby excluding the major restaurant groups). “These businesses have historically made small losses on average turnovers of around £550k and suffered high employment costs of around 43 per cent of turnover” says George Pennock, Director at Pomanda.com. “They have average cash reserves of just £25k, which represents less than one month’s costs.”
Take-away
Many of these businesses already operate to a small degree in the take-away sector as a means of supplementing their incomes. They may now see their future shifting away from the traditional eat-in-restaurant model, to one which revolves around offering new, innovative ways of serving their customers in the new world of social distancing.
Lockdown and the challenges of social distancing have seen consumers looking for more cooking options at home than ever before. In addition to the usual takeaways, consumers are now looking to their local restaurants to help them source and supply higher quality and more unusual ingredients. They are looking for pre-prepared options as a bridge between cooking at home from scratch and the traditional takeaway.
Ingredients only
Examples include the Milk Café in Balham which has created an online shop where regulars can purchase all their usual favourites, or Patty&Bun which has created its own lockdown DIY burger kits. Parlour is a pub/restaurant in Kensal Rise which has recently turned grocer and Nonna Tonda, an Italian around the corner from Victoria Station, which has now converted to delivering freshly cooked pasta to your home. Rather than going out to their local gastropub for Sunday lunch, punters can choose between the full priced ‘take-away’ option, a middle-priced ‘prepared’ alternative – think roast ready to go into the oven and parboiled potatoes – or lower priced ‘ingredients only’ option.
New delivery platforms
Many consumers who have tried different forms of home food delivery with mainstream operators such as Hellofresh or Gousto, may now look to their local favourite restaurant/cafe to provide them with more personalised options as they search out different eat-at-home solutions. Innovative delivery platforms are now emerging, such as Stuart.com, offering customised delivery and data solutions for local operators, which should help accelerate this process.
Clearly this a la carte set of options will be difficult for the large restaurant groups to implement on a bespoke basis. However, Pomanda.com believes this may be good news for some of the 36,683 restaurants/cafés that they have analysed, who can reinvent themselves around this model and become local champions. Assuming a 50 per cent reduction in property costs through a much smaller eat-in restaurant space and a 25 per cent reduction in employments costs through fewer waiting staff, the average restaurant cost base could shrink by up to a third per year. Even with a reduction in average gross margins by 10 per cent, the average restaurant/café could potentially deliver a 9 per cent pre-tax profit margin, a significant improvement on their current net loss.
It is only the beginning and clearly much of this evolution will depend on how aggressively social distancing is implemented into the future. But could this be the start of a renaissance for those locally focused, owner-operated restaurants and cafes prepared to innovate?
Related: How small businesses are navigating their way through the Covid-19 storm
