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Law360 (March 14, 2022, 6:15 PM EDT) --
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| Rhonda Parish |
Many of us have experienced COVID-19 personally, and we have all seen our lives changed as local, state, and federal governments and private businesses have put measures into place to try and protect the health and safety of their respective citizens, employees and customers. Most, if not all, of us are longing to get back to normal, or at least the new normal.
This article discusses this new normal and the rapid changes, modifications and innovations developed or adopted by third-party entrepreneurs, restaurant owners, suppliers and employees to operate restaurants differently.
Although born of necessity, these changes were embraced by restaurant customers and employees and are here to stay. The article concludes with a discussion of the supply chain issues that can challenge restaurants: both COVID-19 and geopolitical issues amid the Russian attack on Ukraine.
Innovation and the New Normal
One could say that new business practices started with a question — what can we do with what we have? — and resulted in developments such as:
- An all-out effort to increase the space available for outdoor dining; and
- An evolution in the use of drive-through windows at any restaurants offering drive-through services.
These practices have continued to evolve and improve.
First, let's take a look at the role of technology which, prior to the pandemic, the restaurant business was sometimes slow to fully embrace and utilize. During COVID-19, though, businesses sought out and implemented a number of technological tools.
These tools resulted in restaurants being able to keep the doors open and continue to operate despite significant labor shortages. And they also enabled these businesses to meet the enhanced cleanliness, health and safety standards that their guests expected and needed before returning to the restaurants.
For instance, to be in a position to continue to serve their guests — and frankly in an effort just to continue to operate — restaurant owners quickly pivoted to and enhanced their online ordering and delivery options. This shift enabled customers to order and pay for pickup or delivery, in a cashless, and as contact-free as possible, manner, most often utilizing third-party delivery services, such as DoorDash Inc. or Uber Technologies Inc.'s Uber Eats.
Through an app or website, restaurant guests are able to place orders and make payments. They then have those orders delivered safely to their homes.
While pandemic also saw customers spending more money at grocery stores, the ease of use of these app-based methods for ordering, popular payment and delivery have enabled restaurants to get sales from guests who were not comfortable coming inside a restaurant. These app-based method have probably assured that the online ordering and delivery options are here to stay.
For those who are advising restaurant clients, now is the time to look beyond the lifeline these ordering and delivery tools gave to restaurant owners to be able to continue their operation. Make sure your client is fully utilizing the systems they have to capture important customer data, including order frequency and menu choices.
Are the restaurant operators fully utilizing their order and delivery tools? What else might they learn from the data provided, and what can or should be updated and streamlined to provide the best service to the guests while also allowing the restaurant staff to use the data collected to drive sales and loyalty?
I recommend a small working group, including members of restaurant operations management, information technology and culinary, to conduct the evaluation.
Alcohol To Go
Another pandemic-related movement, with a less-direct link to technology is the movement sometimes referred to as alcohol-to-go that occurred as restaurant owners tried to find ways to stay afloat.
The inclusion of alcoholic beverage sales in a restaurant pick-up or delivery order not only increased average ticket price, it also often improved margins because of the high profit margin associated with alcohol-related restaurant menu items. At the start of the pandemic, however, this option was not always available. Since the sale of alcohol at a specific location is governed by state and local laws, you as the restaurant owner needed to make sure such sales were allowed by all applicable state, county and city laws.
In many instances, changes in state or local laws were required to before restaurants were able to sell and deliver alcohol. Restaurant companies and trade organizations retained lobbyists and lawyers to help them make their case to state and local governments.
Where successful, alcohol-to-go sales provided additional revenue opportunities for restaurants and were a big hit with their customers as well. Based on this popularity, restaurant owners have successfully fought to retain the right to sell alcohol to go post pandemic and to increase the number of jurisdictions allowing restaurants to offer off-premises alcohol sales.
This includes several statewide changes to make restaurant alcohol to go sales permanent, including in two of our most densely populated states, Texas and Florida, each of which permanently allowed restaurants to sell and deliver alcohol to go with the passage of a statewide law effective in May 2021 and July 2021, respectively.
Based on these successes, if you have a client interested in pursuing changes in these specialized local or statewide laws to permit alcohol to go sales, this looks to be the opportune time to do so.
State and local legal requirements vary in this specialized area of law. Aside from an alcohol-licensing practitioner and possibly a lobbying firm, you can and should seek assistance from restaurant and alcohol sales trade organizations.
Ghost Kitchens
Another outgrowth of the restaurant third-party app-based delivery system that is less known to the average guest, but which here to stay, is the innovation referred to in the industry as a ghost kitchen or a virtual kitchen.
The ghost kitchen idea originated pre-pandemic when restaurant companies were exploring ways to fully utilize unused capacity in already existing restaurant locations by offering to prepare delivery orders for other restaurant concepts.
These orders were picked up and delivered by third-party delivery services, and the customer had no idea the order was not actually prepared at the brand location to which they associated the product. In other instances, restaurant concepts sought out ghost kitchen locations, particularly in larger cities, that could be used as a kitchen for online orders, but which might not offer any on-premises service.
During the pandemic, the ghost kitchen model, based on online orders, seemed a perfect fit, and, in fact, some restaurant brands actually developed additional online only brands to help expand their offerings. In such instances, the product production occurs at one of the restaurant brand's brick and mortar locations and is delivered through a third-party service.
Two well-known restaurant companies that have followed this course are Bloomin' Brands Inc.'s Outback Steakhouse with the launch of its delivery only brand, Tender Shack, and Denny Corp.'s introduction of its online order only concept, Burger Den.
It is not clear to me to what extent customers know or care that the restaurant orders are coming from a ghost kitchen. However, based upon its success thus far, it is likely that the ghost kitchen is not only here to stay, but also likely to continue to grow.
For in-house or outside lawyers advising a restaurant company regarding its ability to operate as a ghost kitchen, understanding as much as possible about exactly what the operator wants to do is crucial.
In addition to preparing meals for the restaurant with its name on the building, does the owner plan to use the kitchen for online only brands owned by your client, or for a third-party restaurant company's products, or both?
Are there any lease restrictions — if the property is leased — or local ordinances — whether the property is leased or owned — that would prohibit operation as a ghost kitchen?
Does the location have adequate parking space for delivery vehicles as well as dine-in customers and those guests who are picking up an order themselves?
Online Reservations and Menus
As restaurants were able to return to in-person dining, an additional tool, online reservation systems, saw increased use. These systems were already in existence before COVID-19, but gained in popularity with guests as well as restaurant operators during the pandemic.
Using online reservations provides the restaurant operators with more certainty of the number of guests to expect during a given meal period and the customer with greater assurance that the restaurant would be able to seat and serve them at the time of the reservation.
The online reservation system has also helped restaurant management to better manage the restaurant's very precious human resources, especially at a time when so many restaurant employees have chosen to leave the industry.
If you have a restaurant company client seeking your help with the development or implementation of an online reservation system, look at the third-party reservation software already available, such as Resy or OpenTable or tablein, each of which is a good and readily available tool, each with its own advantages. Assist the client in examining several and determining whether one is better suited for your client depending particularly on the size of its operation.
During the pandemic, restaurants moved from paper menus to QR codes in an effort to increase the safety of their guests. As understanding and acceptance of the QR code by guests increased, operators found that using the code allowed them to more easily change menu offerings without the necessity and cost of continuing to print large numbers of new paper menus.
In addition, the use of the QR code and the reduction in the need to print paper menus enhances the view of the restaurant by those guests who are focused on sustainability and the reduction of carbon footprint.
Certainly, for some guests, the paper menu is not likely to go away entirely. From my analysis, however, this is one area in which the benefits far outweigh any negatives, and with the advantages offered to both the restaurant operator and the guests, however, I believe it is safe to say the use of QR codes is here to stay.
If you are assisting a restaurant company in identifying whether and how to move to QR code menus, multiple online resources are available and enable you to walk through a step-by-step solution.
Robots
In another example of increased reliance on technology during the pandemic, robotics has begun playing a larger role in restaurant service.
Robots for restaurant use were already being developed and in use pre-pandemic, and they are available for use in both the customer facing, front of the house" as well as in the kitchen area, or back of the house.
One instance of a back-of-the-house solution used by quick-serve drive-through restaurants is an automated drink machine and conveyor belt to seamlessly fill and deliver a customer's drink order with little to no human touch from the machine to the drive-through window. This approach offers multiple benefits: increased order accuracy, improved safety based on the absence of human touch, and the ability to operate the restaurant with fewer employees.
As mentioned earlier, robots have already been invented to perform many of the functions required inside restaurants, including flipping burgers, making pizza, making cocktails, and making salads.
With restaurant labor shortages continuing, restaurant companies, will, in my opinion, out of necessity, adopt and implement additional robotic solutions.
Even as we hope to be moving from pandemic to endemic, the lack of readily available restaurant workers remains. Initially, many workers, from all occupations, were required to stay at home because their office was closed and everyone was asked to work remotely, and their children's schools were closed and at least one parent was needed to be with school-age children and help with remote learning.
As children have returned to in-person learning, many restaurant workers have failed to come back to their former roles. They have found other occupations, which better suit their schedule or their desired type of work, perhaps with less public interaction, or both. In my opinion, this will likely result in an increased willingness and desire to utilize robots for tasks previously performed by humans.
Further automated solutions include the introduction of the digital kitchen. Chipotle Mexican Grill Inc. recently opened a prototype restaurant in Cuyahoga Falls, Ohio, called Chipotle Digital Kitchen. The Chipotle digital kitchen concept serves digital orders only, which are paid for at the time of order. The preordered food is then delivered either through its drive-through or a walk-up pick-up window.
In addition, Barbeque Integrated Inc., known as Smokey Bones, has announced its intention beginning in April "to be the first casual-dining brand in the U.S. to add a fully equipped all-digital drive-thru lane to its restaurants." This, according to James O'Reilly, CEO of the casual dining bar and fire-grill restaurant chain, will allow Smokey Bones to continue to offer its guests the traditional full-service dining experience when and as they want, but to also give those guests a convenient, off-premises and safety conscious option.
Supply Chains
Without question, supply chain issues that arose during the pandemic also added to the challenges facing restaurants. This was often not based on a lack of the supplies themselves.
Rather, suppliers were experiencing their own labor shortages, whether in their manufacturing facility or with the drivers needed to deliver restaurant supplies. International shipping issues, partially caused by the absence of enough workers at the docks in the U.S .to unload cargo, added to industry woes.
Restaurant management acted and reacted quickly to implement changes to address supply chain issues. These include better and stricter inventory management; review of all current vendors and contracts; and adding or changing vendors when possible to better manage and control inventory. In some instances when no other solution proved viable, restaurant companies changed menu items altogether, replacing them with menu alternatives that could be made from available supplies.
Another serious supply chain problem that is lurking — one which is caused by geopolitical conditions, rather than COVID-19. With the Russian attack on Ukraine, a major disruption in the world wheat supply is anticipated, and the price of wheat futures at the Chicago Board of Trade has jumped.
Anyone needing wheat, including restaurant companies, should be examining its individual wheat supply and taking all steps available to determine whether its supply chain is secure or to find alternative suppliers. Unfortunately, restaurant companies will also need to address the increased costs for their wheat supplies and determine whether menu prices need to be raised.
This is at a time when the rise in inflation has already reduced the spending power of consumers as businesses, including restaurants, have raised prices to cover their own increased costs. For restaurants, particularly those with price sensitive customers, this will present an added challenge. They must balance the need to try to recoup cost by passing along to their customers with the recognition that another rise in prices could result in fewer guests visits.
Conclusion
With all that said and based on my years of experience in the restaurant industry, I continue to have faith in the future of the restaurant industry. I genuinely appreciate the commitment of restaurant management teams to serving their guests.
In fact, watching them maneuver through the curves presented by the pandemic has only strengthened my view. Whatever comes their way, I believe restaurant operators will continue to find workarounds to provide the tools, goods and services their customers want. Seeing the changes developed, adopted, and implemented by restaurant owners during the pandemic, my bottom line is this — any trends that improve the customer experience are here to stay, and restaurant operators are finding ways to build and keep customer loyalty.
Rhonda J. Parish is a partner at Taylor English Duma LLP.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] As noted by Keith Loria in a 2018 article titled "Robots Find a Home in the Restaurant Industry-Here's What is Next" published in Upsurge by Lightspeed,
[2] As reported in a Dec. 16, 2021 Bisnow article by Dees Stribling.
[3] As noted in the February edition of FSR magazine.
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