The novel coronavirus, known as SARS-CoV-2, is having significant negative effects on a number of industries, from healthcare to hospitality and travel. The restaurant industry is undoubtedly one of the hardest hit by shelter-in-place orders and, in some cases, the mandatory closure of all restaurants in certain jurisdictions.

Even in restaurants that have remained open, the effects of the coronavirus pandemic are still being felt in many ways! Here are some of these effects, including their prices.

Downward price trend

In 2019, analysts predicted that restaurant prices would jump 2 to 4 percent in 2020. But things have changed dramatically since then with the coronavirus pandemic, which was brought to the world’s attention in December 2019. The trend is today on the decline with the double blow of limited operations and temporary closures.

Our own report found that price increases in the restaurant sector stopped or slowed during the peak months of the pandemic.

Given the rapidly changing economy, researchers are still unable to provide forecasts with confidence. But one thing is certain: Restaurants that remain open and those that plan to reopen with the lifting of quarantine restrictions need to be more competitive in their prices!

Indeed, full-service establishments will compete fiercely with fast food chains, fast food restaurants, and pizza chains, among others, when it comes to the takeout budgets of their target consumers. With fewer customers sourcing their food from restaurants, particularly due to rising unemployment rates, restaurants will not compete as fiercely with each other as ever.

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The bottom line: Most restaurant chains will likely stick to the prices they charged before the pandemic, for fear of losing more customers. Many will even offer incentives for customers to patronize their delivery and takeout services, such as free delivery fees.

Rising trend in delivery services

It should be noted that many large restaurant chains use third-party delivery services for their operations.

The coronavirus has become a boon, so to speak, for delivery companies as well. The increase in turnover in the field of take-out catering is accompanied by an increase in their power over restaurants. Before the pandemic, restaurants only did 5-15% of their business through delivery and, as a result, only paid 2-3% of their total sales. With the pandemic, their delivery business increased by 70-80% and they paid delivery services 15-20% of their total revenue.

What does this mean for customers who ultimately pay the price for these changes? Luckily, there doesn’t seem to be any effect on menu item prices! As previously reported, prices have remained stable with restaurants seemingly taking over.

But as industry analysts point out, the situation is untenable considering that many restaurants only make a 10% profit on average, even in good times. The situation must change quickly, lest limited operations and temporary closures escalate and lead to permanent closures.

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The fact that restaurant prices have remained relatively stable may not be that way for long either, given that the restaurant industry doesn’t operate in a bubble – far from it. The general economic slowdown, combined with distress in public markets, the near-total shutdown of the tourism industry and interruptions in supply chains, has affected the restaurant sector.

There is also the fact that consumers are staying at home more, which translates into a drop in attendance at many restaurants. Many regular customers may also be reducing their restaurant spending in anticipation of tougher times ahead.

Regarding the drop in restaurant attendance, the figures do not lie. OpenTable, an online restaurant reservation system, is a good indicator of restaurant traffic. There is a sudden drop in the number of customers in restaurants across the country.

The declines worsened in other cities as well, such as Los Angeles and Chicago, with orders to close their restaurants and bars to sit-down customers, with only takeout and delivery services available. Even when seated customers are still allowed in certain areas, there have been significant restrictions. Thus, restaurants are only allowed at half their capacity, with a distance of at least two meters between diners.

The good news amid the pandemic: Many restaurant chains continue to open new locations, but with changes to account for the pandemic. Even on the other side of the Atlantic, KFC is opening around 80 stores, but with strict safety and hygiene measures to protect its employees and customers. Prices of menu items are not expected to increase significantly, a glimmer of hope in the dire situation the world seems to find itself in.

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