Over the last twenty years, the USA and the UK have endured several economic crises that affected almost all industries in varying severity. One sector that is hit particularly hard by periods of economic downturn is casual dining. As consumers have less income available for non-essential spending, casual dining suffers. Pre-coronavirus, the industry was already having problems. But despite the ups and downs of the past twenty years, the UK restaurant industry was worth over £40 billion in revenue before the pandemic. Even more staggering is the figure for the United States restaurant industry, which sits at over $800 billion.
Casual dining restaurants were experiencing financial difficulty and reduced consumer demand before the coronavirus pandemic began. What does this mean for sector recovery post-coronavirus? Can the casual dining industry get back up on its feet? Will significant changes need to be made to ensure survival?
The 2008 Financial Crash Eats Into Restaurant Revenue
The 2008 financial crash was devastating for the global economy. In September 2008, the stock market crashed as the Dow Jones Industrial Average fell 777.68 per cent. Several national economies plunged into a deep recession which permeated all industries. As the housing crisis worsened in the USA, consumers had to find ways to save money. Many restricted the amount of money they were spending on non-essential activities such as eating out. For example, in the UK, households cut spending by £12,000 on average.
Declining consumer confidence ate into restaurants sales and their profits either side of the Atlantic. This led to several major casual dining chains to declare bankruptcy and close branches. For example, coffee giant Starbucks was significantly affected by the crash, and this led to the closure of 600 stores in the USA. Unfortunately, many other casual dining outlets had to make similar sacrifices.
What Did Recovery Look Like for Casual Dining Chains After the Financial Crash?
While many casual dining restaurants struggled in the wake of the financial crash, fast-food outlets experienced a boom as consumers turned to ‘cheap and easy’ food options. In late 2009, as the financial crash continued to damage many sectors, the number of fast-fast chains in the top ten UK cities rose 8.2 per cent in the year to October. Larger chains were able to take advantage of the reduced rent prices in city centres due to the recession. As a result, more consumers could access the growing number of fast-food outlets.
However, casual dining chains did not fare well after the financial crash. Consumers were more protective of their money in the wake of the recession and turned to affordable fast-food. This was the case in both the USA and the UK. Previously high-performing chains such as Ruby Tuesday and Applebee’s struggled to attract customers. Casual dining restaurants were encouraged to focus on takeaway operations which could stop customers from choosing fast-food instead.
From Crisis to Crisis
The casual dining chain Ruby Tuesday managed to survive the financial crisis. However, the chain has not experienced sustained recovery. After numerous strategy shifts and a buyout by the private equity firm NRD Capital, the company is at another crisis point. Business Insider recently revealed that Ruby Tuesday was closing branches without warning staff due to extreme financial difficulty.
The chain has closed 150 locations in the wake of the coronavirus crisis. The Ruby Tuesday case reveals the sustained damage that financial downturn does to businesses, especially businesses with stiff competition from fast-food multinational corporations. The combination of the financial crash and a consumer shift to cheap fast-food has meant that casual dining chains have to reevaluate their strategy.
The Coronavirus Pandemic Leads to Job Losses and Closures
On 31st December 2019, China informed the World Health Organization that several cases of unusual pneumonia had been detected. No one knew what devastation the virus would cause. Cases increased exponentially and the virus spread across the globe.
When the lockdown came into force in the UK on the 23rd March, all non-essential businesses closed until further notice. The lockdown led to a staggering £30 billion revenue loss across the hospitality sector, with sales plummeting by 87%. Falling sales have led to an unprecedented number of restaurant closures. A recent survey suggests that more than £30,000 UK pubs and restaurants stayed closed after the lockdown was lifted earlier in the year. The hospitality industry was struggling pre-lockdown. 2,800 bars and restaurants closed down in the 12 months before the crisis began.
According to data from CGA’s Business Confidence Survey, when coronavirus restrictions were lifted, pubs reopened the quickest, followed by bars and restaurants. The survey also found that 90% of business leaders suggest that fragile consumer confidence will have a negative impact on the eating and drinking out sector over the next six months.
Is There a Future for Chains Post-Coronavirus?
Casual dining chains that saw significant success in the last decade are battling for their survival. In the UK, Pizza Express, Prezzo and Gourmet Burger Kitchen are all struggling financially. In August, Pizza Express announced their plans to close 73 outlets, with 1,100 jobs on the line.
The Italian casual dining chain said that its restaurants have been profitable for the last three years, but that earnings have been steadily declining. Entrepreneur Hugh Osmond, who turned Pizza Express public and expanded the chain in the 1990s, said that he believes that casual dining chains have “no future” after coronavirus.
Surveys show that consumers are less inclined to eat out at restaurants due to the coronavirus pandemic. A survey conducted by Global Web Index found that respondents in the USA and the UK are reassessing their casual dining habits.
When asked if they would eat out at restaurants less often after the outbreak is over, 37 per cent of UK and 40 per cent of USA respondents agreed. The future appears brighter for fast food chains, with 25 per cent of UK and 22 per cent of US respondents agreeing that they will eat at fast-food outlets less often post-pandemic. Casual dining outlets need to do all they can to regain customers from fast-food chains.
According to the CGA Business Confidence Survey, business leaders have expressed that maintaining consumer experience has proven more challenging than ensuring their safety. 52% said their greatest challenge since reopening was ‘ensuring customer experience’, closing followed by ‘ensuring staff safety’ at 40%. Despite this, The Eat Out To Help Out scheme improved customer confidence by 56%, and appeared to aid industry recovery. Casual dining chains need to ensure their customers have a positive experience, even without government schemes.
New Problems Require New Solutions, or Do They?
Many casual dining chains have endured periods of economic downturn by changing their strategy. The Ruby Tuesday example has demonstrated that some chains can endure sustained difficulty. Casual dining chains must now react to the crisis to ensure their survival.
The coronavirus pandemic has increased demand for takeaway and home delivery options from casual dining eateries. Home delivery options were growing in demand even before the pandemic. According to Deloitte’s 2017 ‘Changing Tastes: The UK casual dining market’ report, home delivery in Britain is growing 10x faster than the eating-out market.
Takeaway and home delivery options from casual dining restaurants is not something new. While it will not fix all of the current problems, it may help chains to continue to operate during the pandemic. Numerous chains chose to offer delivery on apps such as Just Eat, Deliveroo, and Uber Eats for the first time.
The Casual Dining Group (CDG), who operates Bella Italia, Las Iguanas and Cafe Rougé, explained that the group was trying to think “beyond walk-ins” as it had seen success with delivery-only outlets. A representative from CDG said that chains should embrace the shift in consumer demand, and that “delivery and digital is not going away.”
Can Casual Dining Be Delivered from Failure?
In a July 2020 study by Global Web Index, 15 per cent of UK respondents said that they will use food delivery services more frequently. Out of all of the respondents, 16 to 24-year-olds were the most likely demographic to use delivery services. The USA figure was slightly lower at 12 per cent, with the same results regarding demographics. As digital technology adapts to consumer demand, the market changes and food deliveries are becoming more prevalent as a result.
Either Side of the Atlantic, Casual Dining Chains Must Embrace Change
The financial crash caused havoc for both businesses and consumers for several years, and recovery was a slow, incremental process. As consumer demands change, casual dining chains must react and adapt their operations to supply customers with what they want. The implementation of efficient and high-quality delivery services may draw customers away from fast-food and small takeaway-only businesses. Chains are not doomed to fail if they implement changes to the business model that reflect changing customer demand.
Do you want to learn more about industry recovery rates? Read our article on recovery rates in the travel industry.
