Lessons for the upcoming post Covid-19 recession

Let’s talk about the elephant in the room. No, not Covid-19, though we do have menu suggestions and tips for that you can find here. Let’s talk about the upcoming recession, and what you can do right now to begin preparing for it. Events of this magnitude create a lot of uncertainty, and it will take the economy years to fully recover. While business may be in a tight spot currently with limited foot traffic and forced quarantines, the recession will present longer term issues and risks for restaurateurs. 

However, a recession doesn’t have to mean a loss of business for you, assuming you are willing to adapt and begin preparations now. When we view what happens during recessions for the restaurant industry, we should begin by dividing restaurants into three categories. 

1. Fast-food
2. Quick Service / Counter Service
3. Traditional Dine-in 

When recessions hit, spending by consumers is dramatically reduced. Thankfully, food is always a necessity, and consumers will still eat out at nearly the same rate, however where they eat will vary. This component is key, as consumers always need to eat, and this will become more value based. 

After the 2008 recession burst, several interesting trends developed in the restaurant industry, and the largest differences were in how restaurants responded. Quick-service restaurants had no meaningful slow down, fast-food actually saw an increase, and full-service traditional dine-in restaurants saw 3.1% decrease. During recessions like these, it is important not to attempt rapid expansion or growth in the full-service category, and instead prepare to alter your business. 

Total expenditures will decrease as less disposable income is available, so it is important to adjust your menu and offerings accordingly. Value is the key component, and you can look to deliver value in a few unique ways. Fast-food is generally perceived as the best value, and outperforms other restaurants growth during hard economic times, however it is near impossible to transition into a fast-food restaurant. 

When you look at the true value though, a couple of items will become more clear. Quick Service restaurants such as Chipotle are rarely much, if any, more expensive than things like McDonald’s. Next time you go through a fast-food restaurant, check out the receipt. You’ll often be surprised to see, unless you ordered exclusively from the value menu, your bill is likely very close to quick-service counter restaurants. 

You don’t always have to shift the game entirely, oftentimes it is most effective to find simple ways to provide what feels like a great value. Olive Garden has been doing this for years. Regardless of your opinions of their Italian authenticity, many people who frequent the popular chain often report feelings of great value. One of the simplest ways they accomplish this is with unlimited salad and breadsticks, helping to supplement the meal and fill customers up with relatively inexpensive ingredients. Consequently, you leave full, and almost always with a healthy portion of leftovers for the next day. 

Another commonly used tactic, especially in the United States, is huge portion sizes. Places like Texas RoadHouse serve up large meals, letting customers either get so full they have trouble leaving, or more likely walk out with another meal for later. When you know you are going to have lunch solved the following day, consumers are less likely to attribute the entire cost of the meal to just the day purchased. Additional portions, even with raised prices, help to alleviate customer concerns and can be very cost effective for the restaurant as food costs only make up a percentage of the total overhead occurring. 

The time to prepare for the recession is now, and to use this potential downtime to begin strategizing the methods to bring the best value to the upcoming market slump. Remember that consumers will focus heavily on perceived value, and with a few small tweaks, you can dramatically increase their value while limiting large overhauls to your restaurant.