Coronavirus (COVID-19): UK foodservice today and tomorrow

IGD, 26th March 2020

The past week has been a time of unprecedented change for the UK’s foodservice operators as the government announced tighter social distancing guidelines that meant dine-in spaces had to close.  Takeaway and delivery are still allowed but the processes involved in providing these services raise concerns for the wellbeing of staff and customers.

At the same time, however, the government also launched a substantial support package offering a safety net to affected businesses, including those in the hospitality sector.  

In this article, we look at how these two developments have affected how foodservice operators are coping with the today’s unprecedented situation, and what this might mean for tomorrow’s hospitality sector.

Initial response: pivot to takeaway and delivery

Initially, most of major UK food-to-go and casual dining chains announced plans to stay open and offset some of the loss in dine-in revenues by offering takeaway and delivery.  Many pubs and smaller independent businesses followed suit.

This seemed a sensible solution at the time as demand for prepared foods is likely to remain high during the crisis, particularly when shoppers may find it hard to get some ingredients from supermarkets, and amongst time-poor key workers.

Why many changed their plans and closed all operations

Moving to a takeaway and delivery focus was always going to be easier for some operators than others.  But even many of those with well-developed delivery capabilities have now chosen to close completely – why is this?

As the reality of depending on takeaway and delivery orders began to sink in, the vast majority realised that this was going to be a risky strategy from both a financial and safety point of view (maintaining a 2m distance is virtually impossible in many commercial kitchens).  And the government’s support package gave them an alternative option. In an interview with Propel, Tortilla founder Brandon Stephens sums this up:

“I think it took the whole industry a few days to realise if you shut ten or 20 stores you still have the head office to pay for. If you shut all your stores you can furlough the head office as well. That allows you to shutter and hibernate the company, which brings cash flow as low as possible. This also allows us to protect the health and safety of all employees. You can keep a small senior management team in the head office and everyone else goes into a safe furloughed status, with the government guaranteeing their livelihood. For all those reasons we’ve made that decision – and I think that’s consistent across most of the sector.”

What is furlough?

• Furlough is a leave of absence outlined in the UK government’s Coronavirus Job Retention Scheme – one of a package of measures to support businesses during the pandemic
  
• Furloughed workers are staff whose employer can't cover their wages due to the coronavirus
  
• If a business can’t pay its staff, rather than make them redundant the employer can claim a grant of up to 80% of wages, capped at £2,500 per month. The employer can choose to fund the difference between this payment and the usual salary, but does not have to
  
• Staff remain employed while furloughed. The aim is to ensure people do not lose their jobs while the coronavirus impacts businesses and the economy.
  
• In order to qualify to receive the grant, employees must agree to be furloughed and should not work once classified as they are still technically employed – they remain on the payroll and will not lose their job
  
• The scheme will initially last for three months, with wages backdated to March 1

Why and how others are staying open

Not all foodservice companies have put their operations on ice – some have reacted quickly to adapt their businesses so they can continue to serve UK consumers and provide valuable community services.  As you will see from the examples below, those that already have some retail expertise are at a definite advantage:

• Our earlier article outlines how healthy food-to-go specialist Leon is transforming its stores into mini-supermarkets and howit plans to set up an ‘Ocado-style’ delivery service.  This will sell its own ready meal and grocery products (Leon already supplies a range of products to Sainsbury’s supermarkets), as well as those from other suppliers and everyday essentials - check out their Instagram video here.  Its chefs will create restaurant quality food served in pouches for re-heating at home and it is encouraging other suppliers to do the same to sell on the platform.  Founder Jon Vincent has been overwhelmed by the ‘Dunkirk spirit’ of people contacting him to offer warehouse space, delivery vehicles, etc. to support his plans.  

Also, in a statement on their website, Leon said stores would stay open where NHS staff and other key workers need them. It has already provided 13,843 meals to NHS staff, who receive a 50% discount.  It said that its workers can choose to come to work or be furloughed, and that it will not be making a profit on its activities but feels they are the right thing to do:

“This decision isn’t financial.  In fact, it is costing our business more to stay open. Meals for the NHS and homeless are set to be the vast majority of our work.  We have to do the right thing and continue to serve them.  During this crisis, if we do by some strange accident make a profit it will be spent directly on feeding hospital teams.”

“Staying open to provide this service actually costs us more, we’re definitely not in it for the money. The small team working reduced hours in each restaurant to cook and serve your food have chosen to do so and are proud to support their local communities. If they choose not to work, we fully support their decision and will be assisting them to access support available to them and enrolling them on the Government’s ‘furlough’ or Staff Retention scheme.  We’re pleased to offer 50% discount to all NHS staff and Supermarket workers on hot takeaway and call & collect food for as long as we can keep on cooking.”

• Wasabi, the sushi and bento chain, has closed its stores but is using its central production unit and distribution capabilities to produce more of its Home Bento range for distribution across London, saying, “we want to be part of the solution of getting food to people who need it most”.  The range was launched in Sainsburys in 2019.
  
• Café chain Paul UK’s central bakery in west London will continue to operate as The Bread Market to supply fresh loaves. Unsold items will be donated to London-based charity The Felix Project for distribution to the needy.
  
• Pizza Express is reported to have ramped up its production of supermarket pizzas as its restaurants are now closed (according to Langton Capital)
  
• Fast casual chain Farmer J will launch a grocery and prepared meal delivery service called ‘The Farmer’s Market’ to deliver menu items, recipes, groceries and sauces to those unable to leave their house. The business tweeted: “When we said we’ve got you, we meant it.  Launching soon, The Farmer’s Market will see groceries, farm boxes, recipes and our Forkin’ sauces and marinades delivered straight to your door. So no excuses – stay home.”
  
• Qoot Restaurant Group, which operates a number of fast-growing brands in London such as By Chloe, Gentleman Baristas and Dominique Ansel Bakery, is using its sites to offer complimentary meals to all schoolchildren eligible for free meals but unable to attend school
  
• Greek street food restaurant group The Athenian is looking to open several delivery-only kitchens with Deliveroo Editions, inside and outside London
  
• Pizza Hut has closed all its sites that offered dine-in, including collection and takeaway services. Its delivery-only stores remain open. The company have paused their Speed Guarantee to ensure teams aren’t placed under additional pressure during this disrupted time.  The company stated, “We have decided to remain open because we strongly believe our delivery network has a critical role to play during this crisis.”
  
• Latin American restaurant chain Las Iguanas is committed to providing delivery option for NHS and key workers from its sites for “as long as it can”. In a statement on their website they said:

“Staying open to provide this service actually costs us more, we’re definitely not in it for the money. The small team working reduced hours in each restaurant to cook and serve your food have chosen to do so and are proud to support their local communities. If they choose not to work, we fully support their decision and will be assisting them to access support available to them and enrolling them on the Government’s ‘furlough’ or Staff Retention scheme.  We’re pleased to offer 50% discount to all NHS staff and Supermarket workers on hot takeaway and call & collect food for as long as we can keep on cooking.”

Independents could seize the day

According to industry consultant Peter Backman, around 30% of all spend on food and drink is made out of the home – a substantial part of the market and a daily habit for many.  During the crisis, takeaway and delivery services could help relieve the pressure on supermarkets, give house-bound consumers a break from home-cooking and provide an important service for key workers and the vulnerable.

With major national chains such as Greggs, McDonalds, Subway, Pret, KFC and Burger King, closing stores completely, the opportunity for independent operators to fill the gap is huge.  Smaller players with fewer staff, potentially from the same family, who can react quickly are better placed to continue (or begin) to serve local customers who in turn will spread the word via social media channels.  The customer loyalty and goodwill earned is likely to stay with them long after the pandemic has passed.

Supporting the switch

For independents who don’t know where to start in setting up takeaway and delivery, service providers to the hospitality industry are offering deals and speeding up response times to support businesses making the switch:

• Delivery aggregators Deliveroo and Just Eat have launched support packages for operators. For the next three months, Deliveroo will pay restaurants for deliveries daily to improve cashflow.  For 30 days, Just Eat will offer 33% rebate on all commissions paid to restaurants, as well as will removing commission on collection to reduce pressure on delivery services and waiving sign-up fees.  It will continue to pay restaurants weekly and will relax contract terms allowing them to use other delivery partners.
  
• ‘Plug-in’ pizza solution Barrel and Stone says it has seen a sharp increase in enquiries from hospitality businesses pivoting towards delivery. Barrel and Stone is offering a one-week turnaround time with a simplified model and has scrapped its set up fee in order to help new customers. The company will advise customers on how to work with Deliveroo, Just Eat and UberEats and it also has a click-and-collect app
  
• McCain’s SureCrispTM brand has launched a campaign with a mission to “support your business as you switch to delivery”.  It offers tools to help build awareness of delivery services
  
• Software company Access Hospitality, in partnership with Preoday and QikServe, is offering software that allows operators to set up delivery and click-and-collect services within 48 hours to turn their sites into dark kitchens
  
• Loyalty and payment app Loke is investing up to £300,000 removing contract periods and licensing fees to help the hospitality industry pivot towards a takeaway model

Long term implications

The impact of coronavirus on the foodservice industry runs so deep that it will undoubtably cause long- as well as short-term changes.  Fans of the UK’s best-known food-to-go and casual dining chains will be overjoyed when they are able to buy their favourite meals again, however safety measures for workers and customers will need to be robust and well-communicated to build trust and confidence in order to get diners back through the doors.  Some, of course, will not make it through and for others the financial impact will mean growth plans delayed (Greggs has already announced it will be deferring new shop openings and planned refurbishments).

Meanwhile, independents and the more agile operators who have managed to adapt and stay open, will have built new services, revenue streams and a loyal following along the way.  Customers may value their local businesses more than before and prioritise them when eating out.  Many will also have started buying from new takeaway and delivery places, using new apps and trying new dishes which could all become part of their normal dining repertoire.  These factors could place independents and ‘agiles’ in a strong position when the dust settles.