Though 2020 industry sales closed out a whopping $240 billion below projections, insiders didn’t need to see a financial report to understand how deeply COVID-19 has impacted the restaurant business. The past year has been a tumultuous period of transition as restaurateurs scrambled to adapt their operations to unfamiliar (and ever-changing) protocols.
“The pandemic has been both a catalyst and an accelerator,” says Paul Fetscher, President of Great American Brokerage in Long Beach, New York. “We have matured years in a matter of months.”
Takeout Takes the Reins
Whether that maturation is a point of pride or pain is debatable. For most restaurants that have survived the pandemic’s various closure mandates and occupancy restrictions, to-go orders have been the coagulation stopping a total bleed-out of sales. Food delivery business more than doubled as consumer daily habits changed and restaurants no longer had the option to welcome guests for sit-down dining — but it has been a love-hate relationship between restaurant owners and takeout service.
“Some of the things that have happened with third-party delivery services are challenging,” says Fetscher. “[Delivery drivers] are not necessarily prompt. They're not necessarily professional. They are not necessarily an extension of the way a restaurateur chooses to present their business.”
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And it’s the restaurant — not the delivery service — that most often takes the brunt of a negative review after a driver shows up late with vertical pizza boxes and leaking soup containers. But options have been limited for operators hoping to remain competitive through the worst of the pandemic. While cities around the United States are now taking meaningful steps toward fully reopening, it’s unlikely that the takeout craze is on its way out of fashion. As Fetscher describes it, “We’re training customers to order food. Click, point, click, and here comes the food.”
John Metts, CCIM, a Senior Associate at Wilson Kibler in Columbia, South Carolina, agrees. “People have gotten used to no-contact food delivery services; as well as the option to drive up and have food brought to them in the parking lot.”
The Rise of the Ghost Kitchen
In addition to working with third-party delivery companies and repurposing dining rooms or parking lots into socially distanced areas for order pick-up, restaurateurs have had to think outside the box to keep their businesses afloat.
“I have one client who runs a steakhouse and they got hit real hard, real quick,” shares Fetscher. “The first thing they did was say, ‘Well, let’s turn into a butcher shop,’ and you could go out there and buy their bestselling 28-day dry-aged beef.”
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Reports of restaurants turning into markets as a way to support communities and reduce food waste were not uncommon early on in the pandemic. As it became clear that COVID-19 was not going away in a matter of weeks, the ability to pivot to new (or creatively modified) business strategies was essential for survival. More than a year later, some of these pivots are pointing towards a new — and lasting — direction for restaurant real estate.
Since restaurants have now spent so much time operating out of sight and customers have grown accustomed to receiving food without the context of walking into a conventional restaurant space, it’s likely that the concept of hands-off service is here to stay.
“We’re going to see more ghost kitchens,” says Fetscher. “Once people are trained to order food, they will accept it from a ghost kitchen on a regular basis.”
The benefit for restaurateurs willing to adapt to this model? Vastly reduced overhead costs. Since ghost kitchens are purpose-built spaces intended for off-premise dining, the design focus is on optimizing food preparation rather than creating a customer experience. This translates to smaller, no-frills facilities and a reduced need for staff.
“A ghost kitchen will be one-third the size of a traditional restaurant, it will have half the capital investment, and it can do probably 60-70% of the gross sales,” Fetscher explains. As an added bonus, “Payroll is going to be way down because everybody’s behind the firewall; with maybe one expediter out front to interface for pick-up.”
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In newly constructed or renovated restaurant spaces, we can also expect to see an increase in dedicated counters for grab-and-go orders. As takeout and delivery continue as the norm, it only makes sense for restaurants to have a convenient area for customers and drivers to pick up food without disrupting table service.
“The shifts [in restaurants] are towards more convenience,” affirms Fetscher.
Make a Move — or Make Your Case to Stay
For operators in the market for a new or additional location, now is a great time to find one.
According to Fetscher, “Every deal I’m looking at in Manhattan is measurably less than what the last guy was paying.”
This can be explained through the classic law of supply and demand. In a city environment where tourism is drastically down and workers aren’t in the office five days a week, there’s simply less demand for the businesses that usually thrive on out-of-town visitors and end-of-day consumers.
In South Carolina’s capital, Columbia, “The biggest shift for downtown has been the office market. Less people are walking the streets during lunch or after work because employees aren’t in the office towers that make up our central business district,” says Metts. “We’ve seen numbers gradually returning, but most office users are still working remotely and downsizing office space to save on costs.”
It’s perhaps too soon to understand the long-term impact of the COVID-19 pandemic on commercial real estate, but this uncertainty can serve as a form of leverage for a struggling restaurateur who isn’t ready to throw in the towel.
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“Most landlords are willing to work with their tenants as they would prefer not to lose an occupant and have to go through the leasing process again,” says Metts. “In my experience, as long as the tenant is willing to pay a small amount of rent, the landlord is willing to concede or forego the full rent payment to assist.”
Though funding opportunities were largely exhausted prior to the time of this writing, the Paycheck Protection Program, or PPP loans, have been a valuable lifeline for operators to keep their restaurants afloat.
“The numbers don’t just work right now,” says Fetscher. “Thank heavens for PPP loans; if it weren’t for that, I don’t know how many restaurants would be out of business because they just can’t do it.”
Onwards and Upwards
As the vaccine rollout continues and restrictions are loosened, there’s a sense of nationwide optimism. Changes in the restaurant industry are inevitable (and often necessary), but now is the time to refocus and move forward — ideally, with a bit of patience.
“At some point, we’re going to be back. We got through 9/11, we got through Superstorm Sandy,” says Fetscher, speaking to New York’s own tumultuous history. In sentiments shared by operators around the country, he repeats: “We’re going to be back.”
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