7 ways restaurants can make themselves more financially resilient

By Rachel Savage

- Last updated on GMT

How can restaurants prepare for second wave

Related tags EY Rachel Savage Coronavirus Eat Out To Help Out Accountancy

As businesses face an uncertain future, here are the critical steps they will need to take to stay solvent in the weeks and months ahead.

Targeted government interventions have provided some relief to a hospitality sector under severe financial strain. But the industry now faces renewed financial pressure, with the furlough scheme ending, and social distancing measures continuing to limit capacity.

There are concerns over sustaining consumer demand over the coming months, following the end of Eat Out to Help Out and as staycation-driven activity declines. The most recent EY Future Consumer Index found that 54% of consumers say it will take months or longer before they feel comfortable eating in a restaurant, and a similar percentage feel the same about going to a bar or pub.

Pubs and restaurants face a drawn-out and potentially bumpy return to normal operations. But there are still actions that can be taken to build resilience. Actively planning for recovery and considering how your business is best placed for a post-COVID-19 world will be key. Here are seven critical actions 

1. Conduct site-by-site review and planning
It’s critical to understand the local catchment in terms of demand and competition. In particular, supply and demand in casual dining was out of balance even before COVID-19, and we may see an acceleration of outlet closures that were already likely. Consider what processes you can put in place to monitor real time demand and flex operations accordingly. Through a combination of reduced opening hours, closing facilities or locations, and a continued pivot to providing other services, such as food delivery or collection, some businesses will be able to continue operating.

2. Review your whole operating model
After Eat Out to Help Out, remember that consumer anxiety is not solely or even predominantly caused by affordability – it’s also fuelled by fear of catching and spreading COVID-19. Restaurants and pubs need to continue working to relieve these anxieties. This is not just important for customer wellbeing, but will help to optimise business profitability.  We’ve seen an acceleration of technology and especially ‘order at table’ apps. EY’s Future Consumer Index found that some consumers are expressing a preference for restaurants that offer digital ordering or contactless payments. If not already implemented, operators should seriously consider the technological solutions available.

3. Increase workforce flexibility
Employee rosters should be reviewed with the aim of both improving labour efficiency and sustaining flexibility. It is essential to continue assessing staffing levels and utilisation at each location. Consider if you can relocate staff to different sites or to oversee multiple sites.

4. Build a strong and flexible supply chain
The sector’s resilience will depend on the strength and flexibility of its suppliers. Operators should continue to review product sourcing and buying decisions to assess the best available options, and identify any constraints in the terms and conditions of their commercial agreements. Assess how quickly and effectively suppliers can react to change, and consider what alternative supply or arrangements are available if any key suppliers fail.

5. Actively target more accessible consumer groups
The proportion of consumers comfortable with eating out has increased steadily over the past few months, according to the EY Future Consumer Index. The Index also found that some consumer segments appear to be less risk-averse than others, with younger people and those in higher income brackets generally more comfortable. These trends will likely continue as the economy moves through its reopening phases. Operators should adapt their marketing and offerings accordingly and think about how to maximise each customer interaction as these become more technology-focused.

6. Assess short- and medium-term cash requirements
Liquidity continues to be one of the fundamental issues for hospitality businesses. Businesses need to establish their cash requirements, including under a ‘second wave’ scenario. Some companies may consider drawing upon contingency funding and speaking to lenders to increase or extend existing credit facilities. But they should also consider the attractiveness and long-term implications of any new and alternative forms of finance.

7. Look to negotiate key lease terms
As an overall trend, we’re likely to see a move away from quarterly rents in advance and upward-only rent reviews, toward monthly rents and turnover-based rent models. The latter will give both operators and landlords the common goal of increasing footfall and site turnover, resulting in mutual risk and reward. Businesses should proactively discuss these terms with landlords.

Rachel Savage is a partner at professional services company EY UK & Ireland.

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