Sep 22, 2020
Over the past six months, the pandemic has severely affected individuals, businesses, and entire categories, with a particularly strong negative impact on the foodservice industry. The foodservice industry is struggling to survive, and the future trajectory is highly uncertain.
The Cambridge Group team has helped foodservice suppliers and operators navigate this uncertain time by forecasting the impact of COVID-19 and advising on how they should react. For the foodservice business, understanding plausible future scenarios and how best to address shifting consumer demand will be critical to bringing back customers and returning to a trajectory of growth in the coming year.
In 2019, restaurant spend continued its decade-long positive trajectory, accounting for over half of all spend on food and beverage, closing in on an all-time high of $900B. Now, the restaurant industry is looking at a 20%+ year-on-year decline.
The impact of COVID-19 on the foodservice industry has been swift and devastating:
As a result of plummeting demand and health mandates, estimates indicate that between one in four restaurants will never reopen, even after state restrictions are lifted. Other estimates are even grimmer, projecting that over half of restaurants that closed will never reopen.
Our analysis suggests three key factors will be responsible for driving foodservice sales in the near future:
Foodservice sales are expected to ebb and flow as the U.S. population enters and exits varying levels of regional restrictions. In March, when 95%+ of the U.S. population was in shelter-in-place or cautious reopening, foodservice spending totaled only 47% of typical levels. As restrictions loosened heading into the summer, many states still capped indoor dining at 25-50% of total capacity, and that was only in states where indoor dining was even permitted to reopen.
Consumer comfort eating out
Across these restrictions, and moving into the new normal, consumers have varying levels of comfort with different types of restaurants and eating experiences. In general, most consumers are open to consuming food from foodservice establishments. However, one in four (26%) consumers say that they do not foresee feeling comfortable visiting any restaurant in the near future (including for takeout or delivery). While only 10% of consumers are comfortable in cafeterias and dining halls, over 60% of consumers are comfortable with drive-through, carry-out, and delivery. 
Large scale unemployment
U.S. unemployment is at a significant high, skyrocketing from less than 4% in February to over 13% by March, setting in at just over 8% by August 2020. Large scale unemployment results in negative financial effects both directly on those who become unemployed, as well as indirectly, by the corresponding tightening of purse strings as consumers prepare for potential income loss.
These three drivers determine the most likely outcome. Ultimately, in the most likely unfolding scenario, in which many experts expect a weaker second wave of restrictions in the fall, The Cambridge Group projects foodservice revenue to reach around $700B, well below the pre-COVID forecast of $899B.
Once in the "new normal," there will likely be a lasting change in demand. Consumers will likely continue to be wary of indoor dining. At home, more people will stick with their return to cooking. Even after a vaccine has been released, our calculations project foodservice to rebound to only 94% of baseline foodservice sales for the year after widespread vaccine distribution.
Several initiatives can help foodservice suppliers and operators ensure survival and perhaps even bend the curve in their favor. To succeed, restaurants must consider:
Internally, amplifying cleaning and hygiene practices to help consumers feel comfortable with safety is a new ante. Our studies suggest that 42% of consumers would feel more comfortable visiting a restaurant if the staff wore masks, and 36% of consumers would require staff to clean more frequently before they even considered returning. Additionally, building out more outdoor dining space will allow more patrons to dine safely in high-air flow environments.
Externally, restaurants must communicate these enhanced hygiene and safety procedures. Restaurants should communicate repetitively and often to their consumers both their commitment to protecting their consumers and these specific new safety protocols the restaurants have implemented. Additionally, foodservice operators can entice consumer back by buying media/advertising (especially in areas with low or declining positivity rates) and offering new promotions.
Not all types of foodservice establishments have been impacted to the same degree. While restaurants that rely predominantly on in-store dining have been the most negatively impacted, many have already begun pivoting to takeout and delivery. Fast food chains and restaurants with drive-thrus, on the other hand, are, in some cases, experiencing growth. Some restaurant chains -- mostly chains with strong delivery and well developed digital ordering platforms -- have experienced more demand and faster growth than ever (e.g., Domino's, Papa John's). Other chains are swiftly shifting their long-term strategy to adapt to this new environment. For example, Chipotle opened its 100th "Chipotlane" and will continue to expand into this drive-thru format.
Restaurants can adapt to these changing times. While in-store dining has significant barriers to overcome before consumers are comfortable, other foodservice models are shooting through the roof. Consider which alternative platforms appeal to your base the most: bundled "family meals," online ordering, delivery, or even drive-thru.
While 2020 will be an extraordinarily challenging year for the foodservice industry, there are a range of levers available to mitigate the negative impact of COVID-19 in the near-term, and accelerate business performance responsibly as we move towards the new normal.
About the Authors
Matt Gonwa is a Partner with The Cambridge Group. He focuses on identifying profitable opportunities to improve top-line performance across execution levers, including positioning, innovation, go-to-market strategy, pricing and media activation.
Eleanor Jacobs is a Consultant at the Cambridge Group. She advises clients in consumer-facing industries, especially consumer products, retail, and technology services, with a focus on food and grocery. She focuses on identifying growth opportunities from new product innovation, consumer targeting, and marketing initiatives.
 The Cambridge Group consumer survey Summer 2020
 The Cambridge Group consumer survey Summer 2020