Revisiting the Casual Dining Sector

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Earlier this year, we investigated how the casual dining industry was dealing with the coronavirus crisis. We found that many casual dining outlets were struggling even before the pandemic told hold earlier this year. A range of problems contributed to casual dining’s slow decline, including customers wanting to save money, excessive discounting, and even Brexit uncertainty. Unfortunately, the pandemic was the final straw for numerous chains that fell into administration throughout the year. Roughly 30,000 pubs and restaurants are thought to have failed during the first lockdown in the spring. What has changed since we last investigated?

The Effect of Lockdown Two

Since we last took a deep dive into the casual dining industry in early September, the UK has been through another month-long lockdown which was arguably less strict than the first. However, the effect the second lockdown had on those within the casual dining sector whom have failed to evolve their offering was similar.  For those whom have sought other revenue vertical, it’s a different story. Seated restaurant diners in the UK sank between -86 and -90% during the second lockdown, only 10% higher than the first lockdown. The conditions of the November lockdown meant that thousands of people were in Tier 3. This meant that hospitality businesses such as bars, cafes and restaurants legally had to close.

Private Equity to the Rescue

Prior to the coronavirus crisis, Azzurri Group traded strongly with 301 restaurants across its three brands in the Italian casual dining sector: Zizzi, ASK Italian, and Coco di Mama. Up until recently, the group was considered a market leader in the sector. Unfortunately, when the coronavirus crisis struck earlier in the year, Azzurri faced unprecedented disruption. However, the impact of the crisis pushed the group into financial trouble. London-based international investment management firm Towerbrook invested heavily in Azzurri Group in July. They have committed over £70 million to restructure the balance sheet and encourage future growth. With the deal came the announcement that 75 sites would not reopen.

Towerbrook needed to think innovatively about how they could increase revenue to the Azzurri Group. They recognised that “it is impossible to predict consumer demand following such a lengthy period of uncertainty” and that they plan on “adapting appropriately to the new environment.” The investment firm saw the opportunity to combine restaurant-quality food without needing to go to a restaurant. In September, Zizzi released a range of pizzas that are available at Sainsbury’s for £4.50. The casual dining chain said that they plan “to make retail an important part of business” and that it was an “accelerated response to an increase in demand for in-home occasions because of lockdown in the UK.” Sainsbury’s buyer Natasha Metcalf explained that “with recent events, many more consumers are opting for options that give them flexibility and allows them to recreate restaurant experiences at home.”

microwavable meal

Meal-Kit Mania

It isn’t only takeaways and food delivery services that casual dining chains need to worry about – meal-kit purchases are on the rise. In our investigation into how lockdown made us all think about health and wellbeing, we found that the meal kit market is booming. There are some clear winners at present, such as HelloFresh, Gousto and SimplyCook. This year alone, HelloFresh expects full-year revenue growth of between 40% and 55%. In early December, the meal kit delivery company saw its shares up by 14%, the highest surge since 2019. How can casual dining compete?

Casual Dining Jumps on the Meal Kit and Ready Meal Trend

In the face of declining customer numbers and the threat of future lockdowns, casual dining chains are thinking innovatively. Some casual dining chains had already created restaurant-style meals to eat at home in the form of ready meals. Nationwide chains such as Wasabi and Nandos ready meals and meal kits are available at UK supermarkets. In 2019, the casual dining chain Leon reported record sales for the fifth year in a row, with a 24.5% rise.

Unfortunately, the coronavirus crisis reduced revenue significantly, as it did for all casual dining businesses. The restaurant attracted attention in September when it released microwavable ready meals in an effort to increase sales during the coronavirus crisis. This was done alongside a more general reinvention of the business. Leon also launched an Ocado-style home delivery site. They also turned 57 restaurant locations into shops selling groceries and takeaway dishes when restaurants were shut under the lockdown. During the coronavirus crisis, casual dining chains realised that they needed to offer consumers a way to eat food from restaurants, but at home. This formula means that restaurants can make a profit by selling consumers meal kits with the ingredients and instructions to make premium meals at home. Many chains offer nationwide delivery on their meal kits, meaning they aren’t limited by location. 

meal kit

The Takeaway Threat

In our investigation, we found that one of casual dining’s most significant threats was online orders for both takeaway and delivery. 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. In September, Nandos entered into an exclusive partnership with food delivery service Deliveroo to deliver meals from 360 Nandos restaurants to homes in UK towns and cities. The exclusive partnership is part of Nando’s plans to serve customers with both restaurant-quality food and seamless digital experiences.

What was expected to take years, took months instead. The casual dining industry was aware of the threat that takeaway posed, but the pandemic increased the momentum significantly. With the continuing uncertainty around lockdowns and restrictions, restaurants must be ready to offer takeaway or delivery options to customers. If they don’t, consumers will simply go elsewhere.


Has Casual Dining Spread Itself Too Thin?

What is clear is that some casual dining chains are attempting to spread themselves across the entire eating market. This includes restaurant dining, meal kits, and takeaway services. This way, they can embrace the move towards digital delivery that will continue to flourish and protect revenues at least partially from restaurant closures due to government-ordered restrictions. The worry for some chains may be that they have spread themselves too thin financially. If their meal kit and ready meal strategy does not bear fruit, what then? Thankfully, the news of approved coronavirus vaccines has prompted an increase in customer confidence casual dining. Once the bulk of the UK population receive the vaccine in mid-to-late 2021, will casual dining experience significant recovery? Only time will tell.