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I was going to use this newsletter to write about pandemic profiteering and the report that Uber wants to buy Grubhub. Then this gem of a dire headline hit: one in every four restaurants will go out of business because of coronavirus quarantines.
So says a new forecast by OpenTable, which Bloomberg reported on this week. According to OpenTable, total reservations and walk-in customers from its network (which has over 54,000 restaurants) were down 95 percent on May 13 from the same day one year ago.
That number shouldn’t surprise too much, seeing as most states have been on lockdown for the last six weeks. But according to the company’s data, even in states where restaurants are slowly reopening (at reduced capacity, of course), numbers are “still far below where they were last year.” Consider Scottsdale, AZ, which had no reservations from March 21 but saw that number change to -72 percent for May 13. Houston, TX was next, recording a -82 percent change. Other cities in Texas and Arizona, as well as those in Florida and a few other southern states saw some uptick in reservations, too.
As much as I’d like to put an optimistic spin on this, I can’t. There are too many elements out there that make the idea of one quarter of American restaurants going under totally plausible.
For one thing, restaurants are not doing nearly as much business right now, and some none at all. Even those that have transitioned to off-premises formats struggle with the operational aspects of the model, and more and more restauranteurs say that delivery doesn’t make them any money. Full-service restaurants specializing in haute cuisine are even worse off because their food isn’t meant to be eaten out of a to-go box.
As OpenTable data shows, restaurants are slowly reopening. But those same numbers also clearly tell us restaurant traffic isn’t bouncing back to pre-pandemic rates. They can’t. States have mandated businesses operate at reduced capacity, as low as 25 percent in some cases. Diners are wary of going out to eat right now, which further reduces foot traffic. And while some states say their restaurants will be operating at full capacity by July, we’re simultaneously getting warnings of a second wave of coronavirus that could lock us all down again.
The bitter pill from all this is that we’re going to lose a lot of local restaurants. There is no way to sugar-coat that. Now we have to figure out what we can do to save at least some of them. That’s going to take a combination of government assistance, charitable donations, technological innovation, and a rethinking of what the restaurant experience means. It’s a tall order — and one we have to accept as we continue the fight to save restaurants.
More Regulation Comes for Third-Party Delivery Caps
Fee caps — another hot-button topic in the restaurant biz — got their fair share of news this week as well. New York City, which has considered placing limits on the commission fees Grubhub et. al charge restaurants for a while, finally voted to cap those fees at 20 percent while NYC is in a state of emergency.
The original bill, which was debated at a recent public hearing, had fees capped at 10 percent. The bill was modified over fears that delivery services would offset the revenue lost from fee caps by lowering workers wages.
At the same time, Chicago’s 5 percent cap got an upgrade this week when Mayor Lori Lightfoot imposed additional rules over transparency around commission fees. Third-party delivery companies like Grubhub will now have to provide itemized recipes of all the charges involved in each transaction, including the cost of the meal, service fees, delivery fees, and, yep, commission fees.
Right now, the average consumer doesn’t necessarily understand where their money goes when they purchase food via a third-party delivery app. They may not know, for example, that there’s a difference between a tax and a service fee. Many certainly don’t know that third-party services charge up to 30 percent per transaction in commission fees for the restaurant.
Chicago’s new rules seem aimed at making consumers more aware of this. Of course the question is, will knowing that Grubhub is gutting your favorite restaurant keep you from conveniently using the Grubhub app to order?
I doubt it — for now. what needs to happen simultaneous to these rules and regulations is this: restaurants need simpler, faster ways to offer convenient off-premises options through their own digital properties. Due to time and cost, independent restaurants are unlikely to have the resources to go DIY when it comes to food delivery. Restaurant-tech companies are responding, and a number of different solutions exist that claim to reduce or eliminate fee caps. As of now, though, it’s hard to tell which tools actually deliver on that promise.
One thing that may come out of the pandemic will be a more standardized set of tools for native food delivery. A restaurant could work with a single third-party tech company that would provide them with the infrastructure to create and manage a mobile app, from updating menus to processing orders. Restaurants would still need to pay someone to actually deliver the food, which is a huge cost in and of itself. In that case, third-party delivery services would still be relevant, and restaurants would still owe some commission fees, though not nearly as much.
Only with a solid platform for native delivery will restaurants be able to convince consumers to drop the third-party apps and order direct. If this happens, maybe someday we won’t need to rely on government regulation to give restaurants a fair playing field.
Dive Bar, Meet Your New Reservations System
In a lot of states, bars didn’t make the cut when it comes to foodservice businesses allowed to reopen. It’s not hard to see why, since they tend to be dark, crowded rooms in which strangers mingle, often in a shoulder-to-shoulder capacity. On a busy night, there might also be scores of used glasses lying around. None of that exactly instills confidence in would-be customers emerging from a pandemic.
To combat that, bars, when they do open again, will have to stick to the same reduced capacity guidelines restaurants do, and in some cases may even have to start accepting reservations.
OpenTable clearly anticipated that development, as the company just announced it has added bars and wineries to its platform. Once “drink-focused destinations” open again, customers will be able to book a table at their favorite watering hole, join a virtual waitlist, and, at participating wineries, prepay for tasting menus. A couple famous spots — the Flatiron Room in NYC and The Roosevelt Room in Austin, TX, have already signed up with the platform in preparation for reopening.
To be honest, it’s not hard to picture spots like those two taking reservations. They’re upscale — dare I say chic — spots you would hit for a classy night on the town. In other words, they are not your average dive bar. It’s the latter category that’s going to struggle more when bars are finally allowed to reopen. Your average bar sells $6 beer-and-shot specials, not $80 bottles of wine that could help make up for reduced capacity. Reservations will certainly help with social distancing efforts, but for bars that specialize in selling huge quantities of small-ticket items, they may not make a difference in terms of keeping a lot of places in business.
The larger question is, How will the pandemic change bar culture in general? Once bars are allowed to turn the lights back on, your average Friday night out could look a whole lot different.