What’s Ahead for Us Restaurants

It’s been a start-and-stop recovery for many restaurant operators across the United States. In some areas, restaurants reopened their dining rooms only to close them again weeks later, after a local surge in COVID-19 cases. In this episode of the McKinsey on Consumer and Retail podcast, McKinsey’s Stacey Haas and John R. Moran—coauthors of two recent articles about the restaurant industry—share their perspectives on what dining out could look like in the “next normal,” and the implications for restaurateurs across the country. An edited transcript of their conversation with executive editor Monica Toriello follows. Subscribe to the podcast.

Monica Toriello: Hello and thanks for joining us today. I hope you’re listening to this episode either before or after a really great meal. Many people’s eating habits have changed dramatically during this pandemic: as we’re all painfully aware, restaurants shut down their dining rooms for months, and people started cooking at home more often. Many continue to do so. This year has been devastating for some restaurants—and yet, there are other food-service establishments that have seen their businesses boom since the start of the COVID-19 outbreak.

Today, we’ll hear from two McKinsey experts who have recently coauthored articles on what restaurants can and should do during these extraordinary times. Their articles, titled “How restaurants can thrive in the next normal” and “Eating out(side): Restaurant dining in the next normal,” are both available on McKinsey.com. I encourage you to read these articles in their entirety; they include some very interesting and informative charts and graphs. And although the focus of this conversation will be the restaurant industry in the United States, many of the lessons and recommendations will apply to restaurants elsewhere in the world as well.

Let’s meet our guests. First, we have Stacey Haas, a partner in McKinsey’s Detroit office. Stacey is a leader in our Consumer Practice. She’s helped not just restaurants but also retailers and consumer-goods companies capture growth through portfolio strategy, innovation, and design. Also with us is John R. Moran, an associate partner in McKinsey’s Boston office. John has worked with a range of companies in the food-service value chain, including quick-service restaurants [QSRs], fast-casual chains, convenience stores, and ingredient providers. Welcome, Stacey and John.

Let’s start with an easy question. When was the last time you ate at a restaurant?

Stacey Haas: I ate at a restaurant last week. I took all my kids out for dinner because we just had to get out of the house.

John R. Moran: I haven’t eaten at a restaurant for six months, since the beginning of the COVID-19 outbreak. But we’ve done our fair share of drive-through and takeout and delivery, for sure.

The near-term outlook

Monica Toriello: Like you, Stacey, I ate at a restaurant last week—outdoors. And, like you, John, my family has done our fair share of—not drive-through because we don’t have a car—but our fair share of pickup and delivery. But it has been an exceedingly difficult year for many restaurant operators. Can each of you give us an overview of what the US restaurant industry looks like right now and what the outlook is for the remainder of 2020?

Stacey Haas: What we’re seeing right now is that after the terrible drop in revenue that occurred in March and April of this year, there was a pretty rapid increase in May, June, and July, once a lot of restaurants were able to start opening. But now it has flattened out. It’s a huge challenge for a lot of companies—particularly a lot of the smaller and independent restaurants—at the moment.

John R. Moran: Overall, it’s certainly the biggest challenge the restaurant industry has ever faced in the US. But the pain really has not been evenly distributed. Just as you said, Monica, certain players—like some of the pizza QSRs—have actually been doing great this whole time. Our best estimate right now is that the restaurant industry overall is down about 10 to 15 percent or so. But, of course, that’s an overall average. There are some restaurants doing better and some doing worse. For a lot of the ones doing better, even if they’re down a little bit, they still may be in a sustainable place. They may be in a place where it could make sense to continue operating. Even if their recovery continues to be a little slow, they’ll be OK, versus other places.

Then again, some restaurants, especially in a few places—for example, independent restaurants in urban areas—are doing meaningfully worse than 10 or 15 percent down; it’s still not sustainable. If that persists and if there are further surges, that’s when it becomes really difficult.

Stacey Haas: Our current projections are that restaurant sales will stay relatively flat or slowly increase through the rest of this year. The biggest concern is that we’re starting to see some resurgence of COVID-19 cases in a few states. This is a state-by-state and city-by-city conversation. In Europe, they’re starting to pull back on opening hours again. So, if we end up having something similar here in the US, we could see a little bit of a dip. But thankfully, a lot of restaurants have shown a tremendous amount of innovation. A lot of restaurants, over the past six months, have pivoted toward more carryout, more delivery. So while there are still many challenges, there’s some light for some locations if they have to close down dining rooms again.

How restaurants are innovating

Monica Toriello: Say a bit more about the innovation that you’ve seen from restaurants during this time. Can each of you share a couple of examples of innovations that, perhaps, other restaurants can learn from, or innovations that you think are worth continuing even postpandemic?

Stacey Haas: There’s Lou Malnati’s and their Tastes of Chicago. It’s something they were already doing, where you can get delivery of your favorite foods from a number of different restaurants. It’s both fresh food and things that you can have for cooking at home. It has been a great innovation; Goldbelly has a similar approach.

Another innovation I’ve found—although, it’s not new—is the rate at which people have moved to delivery, to curbside pickup, to carryout, and everything that it takes to make that successful: having your app set up, having the ability to take and receive orders and turn them around, and new packaging to help keep the food warm when it’s leaving the restaurant. My local Mexican restaurant just cut a window out of one of their doors and put a flap over it so that you could walk up and feel comfortable doing a pickup from there in a safe way, without ever having to go into the restaurant.

John R. Moran: A lot of the big chains are making moves that are for the long term as well. They’re taking advantage of it and, in some ways, COVID-19 may have pulled forward things that they might have thought about long term anyway. You see some players like Starbucks: they’re essentially doing pickup-only locations. So even though Starbucks has long seen itself as a kind of “third place” for people to sit down and enjoy their cups of coffee, this has probably accelerated a trend toward more and more ordering ahead and consuming off premises—now they can have a microlocation that is only oriented toward off-premises consumption.

Taco Bell recently unveiled its “restaurant of the future” idea, with multiple drive-through lanes, again, prioritizing order-ahead pickup. They’ve actually got one lane for normal live ordering and then another separate lane—a fast lane, if you will—for order-ahead pickup. It’s almost like an airport experience, where you have faster and slower speeds of traffic in two different lanes. So that’s pretty interesting.

Those are large chains. There are a lot of independents that are having to be very scrappy and incredibly innovative just to get through this. We talked to executives from a sit-down pizza chain a few weeks ago that were saying things along the lines of, “While we’re still not getting the dining-room traffic and capacity we want, are there ways that we can bring food to neighborhoods, to cul-de-sacs? We could host a block party for people who aren’t getting to socially engage the way they want to, in a safe way. We can bring a ton of pizzas. We can invite everyone. We can get everyone in our neighborhood to sign up together.” Maybe there’s a new dining model that emerges from that. It’s those types of ideas that can sustain restaurants. We’ll have to see how much of that is sustainable for the long term.

Monica Toriello: Some of the things you’ve talked about involve changes to the physical layout of the restaurant and to real estate. Will there be a way for restaurants to survive without touching their real estate? Or do you think that that has to be a big part of their plans for the next normal?

Stacey Haas: We recently did some research with a number of different restaurants. A very high proportion are planning changes to their restaurant layouts for the long term. So we’re expecting that—because even if we got to a post-COVID-19 world where people don’t have the same level of anxiety about dining in, I think we’ll see stickiness of drive-through, stickiness of carryout, stickiness of delivery. That has implications on the size of the indoor space that you need. We already saw that with Starbucks, for example: they’ve announced pickup-only locations, particularly in high-traffic urban places where they get a lot of foot traffic anyway.

Also, [restaurants will need to make] changes to facilitate delivery, curbside pickup, and carryout—where a customer or a delivery person doesn’t have to walk all the way into the restaurant to pick up. The speed at which customers or delivery people can pull in, get what they’re looking for, and continue on their routes is going to be really critical, I believe, for long-term stickiness to that brand and ongoing ordering.