Last week, along with our partners from Punchh, we put on the virtual Brand Innovators event — How Brands are Navigating the Coronavirus Crisis. We were fortunate to have a number of incredibly insightful guests including Jennifer Sey, CMO of Global Brands at Levi’s, Shivram Vaideeswaran, CMO of Jamba, Matt Repicky, CMO of Jos. A. Bank Clothiers and Paul Polman, former CEO of Unilever.
If you missed the live event, you can check out the recorded keynote “How Restaurants are Contending with COVID-19” presented by Hathway’s CMO, Kevin Rice and Punchh’s CEO, Shyam Rao below. Accompanying slides can be downloaded here.
We’re going to share a little bit of research that Hathway and Punchh have done over the last couple of weeks to analyze specifically some of the impacts that are happening in the restaurant category and retail food service.
So we’re clearly in unprecedented times. We have been through recessions before, but this element of health and safety really makes the situation so much more complex for companies that are really just trying to survive.
I co-founded Hathway at the height of the Great Recession and I remember well how businesses that leaned in, went on the offensive with creativity and ingenuity, and invested in the right areas actually came out stronger. So today hopefully we’ll be able to share some insights that are valuable to you as you kind of navigate the current business landscape. And I really want to encourage everybody to actively participate here at the end of each section ask yourself “so what” and then “now what”. The “so what” is about taking a moment to ask yourself, “what does this mean for my business”? And the “now what” is really committing to taking the right actions.
The agenda for today is pretty simple. We’re going to share some of the research that our companies collectively have been doing to better understand trends in the restaurant industry and how consumer behaviors have been directly affected by the outbreak of COVID-19. And then Shyam is going to take over and share some thoughts on action plans and priorities and really how to respond rapidly to the current landscape.
State of Affairs
So hopefully everybody is starting to get somewhat accustomed to quarantine living. I’m sure you’ve all seen your fair share of cats on keyboards and children barging in on Zoom meetings which is always adorable and probably gotten to know your coworkers in a little bit more intimate level than before. And you know, our lives are certainly changing and so specific to the restaurant industry, we are keeping a very close eye on what’s happening in China.
COVID-19 Boosts Chinese Online Food Delivery
It really did help inform our understanding of the potential impacts here domestically. So it helps to look overseas where many parts are actually emerging from lockdown. Forecasts are showing that online food ordering and delivery in 2020 is likely to increase by about 16% as a direct result of COVID-19. Anecdotally, we’re hearing a lot of reports of restaurants in China who’ve seen their mix of digital ordering since the end of government mandated lockdowns go from 25 to 40% digital to well over 50 to 60% digital. So while there’s a bit of normalization happening post lockdown, the shift to digital is persisting. And this is really what we’re talking about when we say there’s going to be a new normal. Consumers are learning new behaviors
Disruption of the Entire Foodservice Industry
Here domestically in the United States as shelter-in-place and restaurant dining room closures grow, we’re seeing a significant decline in year over year restaurant sales. I’ve seen estimates anywhere from 11 to 27% sales declines across the category. At the same time, consumers are turning to online ordering, curbside pickup and delivery to get their meals. So for some brands with strong off-premise and drive through operations or those who have invested heavily in digital, they’re seeing an uptick in digital sales that’s partially starting to stem the rate of decline.
The Effects of the Coronavirus are Widespread
A couple of weeks ago on March 21st, we actually worked together to run a study to really understand kind of consumer attitudes and intent related to restaurant ordering. So at this point, we basically have to assume every one of our customers has been affected by COVID-19 in some way, whether they’re under orders to shelter in place or working from home.
Virtually everyone has been forced to alter their normal daily routines. And I’m sure many people here are still adjusting to this new way of life. So it’s really important to be sensitive to all of this in our marketing communications and be careful not to be tone deaf to the situation. I think that’s actually one of our words of the day is “tone deaf”. If you’re one of the retailers that’s sending me all the promotions for 50% off rain jackets when I haven’t even left my house more than twice in the past three weeks and probably won’t do so for a few more months to come. You know, it’s time to stop. Like these communications and promotions are really insensitive and they’re ultimately going to hurt your brand more than help your sales.
Sales Decline Curve Lessened This Week vs. Past Weeks
We’ve also been monitoring sales trends pretty much daily across hundreds of restaurant brands where you can imagine we’ve seen week-over-week sales decline in the past week. We have, however, seen a lessening of the rate of sales decline, which is largely being buoyed by digital ordering and the higher average order values.
QSR and Pizza are Seeing the Largest Share of Stomach
When we looked at where people are ordering from QSR and pizza has really taken the lion’s share of orders. These are categories that are traditionally associated with value offerings. And given the amount of uncertainty in the world, it really makes sense that people are going to be cautious with their spending and they’re looking for the most bang for their buck.
Weekly Sales Decline is Observed Across Restaurant Types, Some More Impacted Than Others
Some categories as you can kind of imagine, again, they’re seeing larger declines than others. Eatertainment brands, full service, casual dining overall have been hit the hardest. They rely heavily on the in-store experience and many of these brands in these categories just really haven’t invested in digital and loyalty and different types of handoff modes as much as their other QSR counterparts.
Roughly 3 in 4 Americans Still Plan to Order Food From Restaurants
So as bleak as that sounds, and it’s not my intent to paint a dire picture, the reality is consumers are still ordering from restaurants. In our study we found 3 in 4 Americans are still either currently ordering or planning to order from restaurants during the current outbreak. So this does mean, however, that the competition for share of wallet or, as we often say like the share of stomach, will be more difficult as there’s just less to go around. So while consumers are still ordering from restaurants, they’re just doing it differently. In aggregate, we’re seeing two times increases in digital ordering as a percent of total transactions. And many brands actually are at virtually 100% sales coming from digital if they’ve had to close their dining rooms.
So as we’ve kind of started to see in China, this trend will likely normalize a bit, but it’s reasonable to assume that the restaurant industry as a whole will just never be the same again. Digital will continue to grow even after the virus is contained and people start to emerge from their homes.
QSR and Fast Casual Restaurants Continue to See Increase in AOV
And as consumers are ordering more through digital channels, which historically and typically has higher average order values than in store transactions. Presumably people are ordering at home for more than just themselves and now we are seeing an uptick in average order values. The highest AOVs kind of coming from the QSR category, again, where consumers are looking to get the biggest bang for their buck. his category is also strong in cross selling and upselling tactics and promotions and leads the pack in terms of digital maturity
Slight Rise in Orders During Afternoon and Evening Dayparts
As we think about how people’s daily routine and rituals are disrupted, people aren’t leaving their house, they’re not going to work in the mornings so therefore on their way to work, they’re not picking up coffee. They’re not out and about in the evenings. So the late night day parts, basically mornings and late night day parts, are seeing the most decline. Sales are shifting further towards afternoon and evening orders. For me this totally rings true. You know, I’ve got kids at home and I’m trying to continue working and the thought of just offloading dinner by ordering to a restaurant is pretty appealing to me. So as marketers, we do need to think about how these shifts can inform the way we communicate tactfully with our customers.
Younger Consumers are More Likely Than Their Older Counterparts to Order
We did dig in to take a look at age and understand how age is impacting ordering intent. As you might expect, the 60+ age group is the least likely to order from a restaurant right now. Age groups between 18 and 29 and 30 and 44 are approximately 40% more likely to order from a restaurant than their older counterparts. So while age isn’t the only indicator propensity to order, as a restaurant marketer, we do need to think about how we segment messaging, if you can buy this type of customer attribute, segmentation and it’s really more important than ever because it allows you to hone your messages, communicate in a more contextually relevant way. And again, when we’re communicating, it’s not promotional. It’s not one size fits all. It’s communicating in a very tasteful way that is not tone deaf.
Ordering Frequency Also Skews Towards Younger Ages
We also kind of took a look at frequency and age also seems to play a role in predicting the propensity to order from a restaurant. Eighteen to 29 and 30 to 44 age groups, in these age groups, approximately 2 in 5 people who’ve ordered multiple times from a restaurant during this current outbreak. This is where it’s important to kind of dig in and focus our efforts. Frequency and loyalty often go hand in hand, or loyalty members that is, so doubling down on loyalty programs really is critical right now. But we really need to flip the way we think about the concept of loyalty. It’s not about asking for their loyalty. It’s really time to demonstrate your brand’s loyalty to your customers and there’s many ways to do that. Promotions or relevant promotions might be a start, but there’s many ways to think beyond the promotion and the discount.
Off-premise Dining is Surging Even More Than it Already Was
When we look at handoff modes, the way a consumer chooses to receive their food at the in store pickup and drive through are still the most commonly preferred handoff mode. But that’s really just likely because they’ve been commonplace for so many years. When you look at the rate of growth, curbside pickup is by far seeing the fastest rate of growth at about 55% increases in curbside pickup. So in a landscape where share of wallet is even more competitive and handoff mode availability is playing a bigger role in the decision making process, a restaurant just simply cannot not afford to not offer all of these ordering methods.
Convenience and Safety are Primary Decision Criteria When Selecting Handoff Mode
So we look at why consumers are choosing their preferred handoff modes. As always, convenience is a primary decision criteria, Americans largely will choose convenience over quality any day of the week. However, this is probably the first time we’ve ever seen safety be such a large concern. I mean, it sounds kind of obvious, but in many years of doing these kinds of studies, the safety hasn’t been a concern, has been top of mind for consumers and at least any of our research. So this means that pairing convenience and safety themes in all marketing communications are critical when reaching customers.
So if any of this benchmarking data is helpful, I’d encourage you to check in on our sites. We’re going to be posting more information like this weekly. So continuing to update trends and publish studies. At this point, our goal is to just be helpful to the community. You know, the industry that we’ve served for many, many years is really in dire straits so our goal is to provide as much information as we can and try to be helpful.
Rapid Response Plans
I think there’s a really strong correlation between the situation where we’re facing now, which clearly, to use a very overused word, is unprecedented. But there is a corollary in Japanese consumer behavior pre and post tsunami and nuclear meltdown.
Pre-earthquake and tsunami nuclear meltdown, Japan was very high touch, very service oriented and pretty much overnight after the unfortunate tragedy, consumers behavior shifted to folks were scared to go out of their homes, delivery-oriented, online behavior oriented. And today, it’s not that in store has gone away, but consumer behavior has shifted to become really truly omni-channel; the omni-channel we’ve spoken about for the past 20 years.
So we believe that’s what’s going to come out of this in the long run, but in the short term, there are a few things that we think everyone should be looking at.
Short Term Preparation
Clearly the shift to online ordering and various channels is here to stay and for brands that don’t have this ability, we know from our experience through our partnerships, we’ve been turning these on in a matter of weeks with partners like Hathway and other providers instead of the traditional ‘months’.
The shift to curbside pickup to, in store pickup, but really an emphasis on contactless is what we are seeing. And for folks that don’t have their own owned channels (for example, a delivery like the pizza vendors do), it’s really important to spin up third party delivery partnerships and in particular offer something like delivery as a service, via their own properties own channels, I’m happy to discuss this in a moment. Of course, communications and marketing is paramount and this environment, again, double clicking on what Kevin mentioned, it’s really important to be authentic. It’s really important to, number one, express safety both for your consumers and for your employees, then market in a very appropriate manner.
I think for families today with kids, there’s a real opportunity there to help out with providing meals for the entire family, things of that nature. Clearly there’s a shift away from breakfast, the data shows this, and towards more lunch and dinner. And so the opportunity now is that instead of just one person you’re potentially providing meals for an entire family. One general comment here, I’m paraphrasing, but Warren Buffet said very famously, “it isn’t until the tide goes out that you see who wasn’t wearing…”, You know, I think in this environment folks that aren’t well capitalized and don’t have a sort of bench, may unfortunately find it difficult to survive these times.
Now the last point is, just a small little point. I think you’re hearing from a lot of experts today, and there’s a ton of data, but ultimately what this environment and what this situation mandates, is really being nimble and adapting to the situation with whatever resources you have on hand. There’s this concept in certain countries in India’s culture of improvising with very little resources. In Italy, they call it “improvvisare”. I think it’s really about using whatever you have in front of you and pivoting as you can.
Long Term Preparation
So at the same time it’s very critical that we also focus on the longer term. Now coming out of this, and it’s anyone’s guess how long it’s going to take us whether it’s 6 months or 12 months, but omni-channel is here to stay. Consumers are just going to want to be able to be served through whatever touchpoint they prefer. Clearly, if you have the ability and if you have the size and scale to be able to do this or even improvise with this, a shift to own channels is really important. So by captive delivery, what we mean is, we are seeing more and more brands express an interest in spinning up their own delivery as a service and through their own workforce. Certainly right now there isn’t a need per se, for having as many resources or staff within a restaurant but perhaps that brings up an opportunity to pivot them to deliver for the brand themselves. In the long run this is an opportunity to not get dis-intermediated by consumer networks, but an option to spin this up on your own.
Contactless payments. We really think that coming out of this, there will be a fundamental shift away from using physical touch, whether it’s through Apple Pay or Google Pay or through tapping your credit card. That shift is going to come and it will be here to stay. From a consumer point of view, we also think there’s going to be a significant blurring between in store, at home dining and at home cooking.
So really it’s about providing even meals as meal kits and things of that nature, groceries etc. So flexibility is really, really important in this time period, especially coming out of it. There is a massive opportunity in our point of view to enable tailored pricing as a key lever going forward. Certainly we’ve heard a lot of our larger brands express an interest in thinking about things like surge pricing, but there may be a flip side option here, especially as the recessionary trends accelerate to providing discounts when you need, to the consumer, it could change that behavior.
Finally, last point, I think in this environment where folks are so uncertain and hearing conflicting pieces and views both from governments and from press, trust is going to be really paramount. Reviews and sentiments coming in from that ecosystem are going to be really important from a brand perspective to harness both owned channels and third party channels.
Restaurant COVID-19 Action Plan
So what is an actionable plan that you can work on? I think we have a sense of very concrete things that folks can lean on and in this immediate timeframe:
- Communication and marketing
- Technology enablement.
- Menu adjustments
- In-store operations
Communications & Marketing
Clearly right now consumers are thinking about what they want to hear from the brands and it centers around safety. This is centered around, “Hey, we’re taking care of our employees, and we’re taking care of you, the consumer, through a variety of means.”
Then expressing, switching to, and providing more communications around ‘being available’, ‘businesses still open’, ‘we’re here’ and focusing on providing that optionality for consumers. So health and safety communications first, then really expressing a ‘door’s open’ mentality.
The next piece of the communications and marketing strategy that we think a brand should pursue is doubling down on loyalty. What we’ve seen through our data with the brands that we service is that in a ‘business as usual’ environment, we’ve seen many brands have upwards of 50% of their transactions being loyalty transactions. So clearly these are folks that are vested in the brand success, that have proven some sort of affinity. And now’s the time to really leverage those amazing connections you have with these consumers and express, not only that you are adapting to the new reality, but that there are ways for us to service those folks even more effectively.
Finally, clearly in a recessionary environment value is going to be important. Here it’s about not necessarily rifle shooting a one size fit all promotion and devolving into that, but really using the data to understand what levers to pull with what segment of consumers, through what channel to drive incrementality. And some of this can be used to shift consumer behavior towards things like do it yourself kits and more sort of meal kits and things of that nature. The second prong of strategy that we are recommending is technology enablement.
We have three very actionable things. One is that off-prem handoff mode is really, really important. The point here is that with consumers in this new reality, you should be able to enable very quickly through all your channels, whether it’s web, mobile, desktop; the preferences of consumers to be able to get served the way they want, whether it’s contactless delivery, curbside pickup etc. is really important. And being able to express that as a preference through these channels and then fulfilling those is really important.
The second piece, is the shift to digital and ordering ahead. Clearly, again, I won’t belabor this point, but this is here to stay. Really, the thing I would express is that for the brands that don’t have this locked down, it’s about being able to turn this on in a matter of weeks, not months. Punchh, Hathway and a handful of other vendors, we’ve done this for a lot of our customers already, but really turning this on is critical right now.
And finally, on the technology piece when in store does come back in having this ready for that environment down the road is also important, not just from a pickup perspective or drive through perspective but also in the long run. But contactless payments are really, really important and here to stay. So the folks that offer this today, we are seeing that their transaction volume and AOV, all of it is trending upwards or at the very least not declining as much as the wider industry.
I’m pivoting now to menu offerings and three very simple concrete steps that we see. Number one, it’s important to streamline menu offerings in this environment so that your ops can catch up and provide the level of service & execution that your consumers expect. Brands that can limit their menus to focus on fewer items, but really nailing those and delivering those with high quality through all of these various channels, are the ones that are going to succeed.
Next is driving day parts through segmentation. Here we’re seeing an opportunity as Kevin mentioned, as breakfast and late night goes down, to really use the data to segment and drive consumer behavior through to the specific day parts. And it needn’t even be through necessarily discounting. Trader Joe’s has done this really well. They’ve opened up specific hours for senior citizens so that they are able to shop without fear of contagion, we know this has been very successful and segmentation will help reinforce, not only that community outreach aspect, but also fulfill the business need.
Finally, it’s really about menu innovation. We’re seeing certain brands do a really good job with this. For example, Freebirds has offered Taco kits. CPK has done the same, that’s around the restaurant concept of allowing folks to build your own meals for your family or alcohol delivery for example. But it’s really about widening the region and being innovative with whatever you have to drive demand.
Last but not least is around store operations. I think there’s an opportunity to reconfigure layout to drive takeout, whether it’s curbside takeout or contactless in store pickup. An example from KFC in China, putting a table out in front where folks can pick up their packets with their names printed on it so there isn’t any interaction. Really, again, it’s around reducing touchpoints and respecting social distance as well, whether it’s for curbside pickup or in-store or down the road when stores actually open up. Some of this may still be a fundamental shift in consumer behavior, again, around contactless etc.
Then finally, a lot of folks have a square footage that is being unused and underutilized. There’s an opportunity to pivot and again, seeing these grocery/restaurant type of ideas pop up in with certain businesses. But really it’s about thinking creatively on your feet and pivoting with what you have. And certainly the in-store, square footage can be used for ideas like this.