How is Coronavirus Affecting Restaurant Prices?
The novel coronavirus, known as SARS-CoV-2, has significant adverse effects on a number of industries from the healthcare industry to the hospitality and travel industry. The restaurant industry is undoubtedly among the most affected with the shelter-in-place orders and, in some cases, the mandatory closures of all restaurants in certain jurisdictions.
Even in restaurants that have remained open, the effects of the coronavirus pandemic are still felt in so many ways! Here are a few of these effects including on their prices.
Downward Trend in Prices
In 2019, analysts forecasted that the restaurant prices will jump by 2 to 4 percent in 2020. But things have drastically changed since then with the coronavirus pandemic, which was made known to the world in December 2019. The trend nowadays is on the downward with the double blow of limited operations and temporary closures.
Our own report found that price increases in restaurant industry have stopped or slowed down in the peak months of the pandemic.
With the rapid changes in the economy, researchers are still unable to provide forecasts with complete confidence. But one thing is for sure: Restaurants that remain open and those that are planning on reopening with the lifting of quarantine restrictions have to be more competitive with their pricing!
This is because full-service establishments will be in fierce competition with the takeout budgets of their target consumers with quick-service chains, fast-food restaurants and pizza chains, among others. With fewer customers having food sourced from restaurants, particularly in light of the increasing unemployment rate, restaurants will not be competing as fiercely as ever with each other.
The bottom line: Most of the restaurant chains will likely stick to their pre-pandemic prices lest they risk losing more customers. Many will even offer incentives for customers to patronize their takeout and delivery services, such as free delivery fees.
Upward Trend in Delivery Services
Emphasis must be made that many of the large restaurant chains use third-party delivery services for their operations. Cheesecake Factory and GrubHub, for example, have reportedly expanded their partnership to cover more delivery areas.
The coronavirus has become a boon, so to speak, for the delivery companies, too. As the business in takeout dining increases, their power over the restaurants has increased, too. Before the pandemic, restaurants only conducted 5 to 15 percent of their business through delivery and, consequently, paid only 2 to 3 percent of their total sales. With the pandemic, their delivery business increased between 70 and 80 percent resulting in their payment to delivery services of 15 to 20 percent of their total revenues.
What does this mean for customers who ultimately pay the price for these changes? Fortunately, there doesn’t seem to be an effect on the prices of the menu items! The prices, as previously mentioned, have remained stable with the restaurants apparently taking on the slack.
But as industry analysts point out, the situation is untenable considering that many restaurants only enjoy a 10 percent profit, on average, even on good times. The situation has to change as soon as possible lest limited operations and temporary closures become worse, perhaps in permanent closures.
The fact that restaurant prices have remained relatively stable may not be for long, too, considering that the restaurant doesn’t operate in a bubble, far from it. The overall economic slowdown coupled with the public markets in distress, the tourism industry at a virtual halt and the interruptions in supply chains have affected the restaurant industry.
There’s also the fact that consumers are staying home more that, in turn, means reduced patronage for many restaurants. Many regular customers may also be decreasing their restaurant-related expenses in anticipation of more difficult times ahead. The coronavirus pandemic doesn’t seem to be slowing down even with previous shelter-in-place orders in most states.
And speaking of decreased restaurant patronage, the numbers don’t lie. OpenTable, an online restaurant reservation system, is a good indicator of restaurant patronage. There has been a sudden dip in the number of dine-in customers in restaurants across the country. In Boston and New York City, for example, the occupancy rate was down 64% year-to-year, from March 14, 2019 to March 14, 2020.
The declines have worsened in other cities, too, such as Los Angeles and Chicago, with the order for their restaurants and bars to be closed to sit-down diners with only takeout and delivery services available. Even when sit-down customers are still allowed in some areas, such as Washington, D.C., there have been significant restrictions. These include restaurants only allowed half capacity with at least six feet distance between diners.
The good news amidst the pandemic: Many restaurant chains are still opening new locations but with changes to account for the pandemic. Even across the pond, KFC is opening about 80 stores but with stringent safety and hygiene measures to protect their employees and customers. The prices for the menu items aren’t expected to increase significantly, a silver lining in the doom-and-gloom situation that the world seems to be finding itself in.
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