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Off Course: COVID-19 Has Chewed Up the Restaurants Industry

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by Matthew Barry
May 13 2020

The COVID-19 pandemic has profoundly affected the Restaurants industry, with revenue expected to decline by 25.1% in 2019-20, to $15.0 billion. With international tourism completely shut down and consumer spending in freefall, restaurants are expected to struggle despite significant financial assistance from state and federal governments.

In May, the Federal Government provided a 3-step framework for state governments to follow, which will progressively ease restrictions on businesses by July 2020. As restrictions are lifted, demand for dine-in meals is expected to rise, supporting the recovery of industry revenue. In addition, fiscal stimulus packages supporting small and medium sized enterprises are anticipated to enable a fast recovery for the Restaurants industry. In particular, the JobKeeper Payment scheme will help restaurants retain well-trained staff while operations are limited, allowing restaurants to quickly return to full capacity once restrictions are lifted. Overall, IBISWorld forecasts that the Restaurants industry will rebound in 2020-21, with industry revenue projected to grow by 16.1%, to total $17.4 billion.

Restaurants adjust to COVID-19

The Restaurants industry has been adapting to COVID-19 limitations, with many restaurants pivoting towards takeaway food and ready-to-eat meal options while lockdown measures are in place. Other players have begun to offer grocery boxes with recipes from their restaurant. However, the adoption of online food delivery platforms, such as UberEats, has been vital for most restaurants. These platforms have boosted takeaway sales, and have informed customers of which local restaurants are still operating during lockdown.

“Despite restaurants adapting to the challenges of COVID-19, enterprise numbers are expected to fall by 8.9% in 2019-20. Mounting fixed costs and COVID-19 restrictions are expected to push less profitable restaurants out of the industry,” according to IBISWorld Senior Industry Analyst Matthew Barry.

The shift to online food delivery

As restaurants have shifted to online food delivery, some restaurateurs have opened virtual restaurants that operate only through the Online Food Ordering and Delivery Platforms industry. The number of virtual restaurants is projected to increase while lockdown measures are in place, as they generally have lower operating costs and higher customer reach. Virtual restaurants typically rent cheaper, high-density locations and can minimise wage costs, as they do not require waiting staff, which supports profit margins. However, both physical and virtual restaurants have faced profit margins constraints during COVID-19, and have heavily relied on online food delivery platforms.

“Food delivery platforms such as UberEats and Deliveroo can take a commission of up to 35%. This has driven some restaurants to compete with online food delivery platforms by offering their own local food delivery service,” said Mr Barry.

Outlook

In April 2020, DoorDash announced it would be reducing commission fees by 50% to provide relief for restaurants during COVID-19. Other online platforms, such as UberEats and Deliveroo, have been offering free delivery to boost takeaway sales for restaurants.

“Over the next five years, IBISWorld anticipates that commission fees will fall due to greater competition and regulations. For example, some states in America have regulated online food delivery services by capping commission fees to 15% to protect local restaurants,” said Mr Barry.

IBISWorld reports used to develop this release:

For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Jason Aravanis
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: 03 9906 3647
Email: mediarelations@ibisworld.com