The future of HoReCA

The primary focus of all governments across the globe has been the safety of its citizens. This is of-course the right course of action and we commend all thinking governments that have put the lives of their citizens above economic growth.

We can always make up losses in value, money and contracting economies, we can however never make up losses in lives.

This season in human story, has had a significant impact on our most core strength - being a social creature. Possessing a great desire to mingle and share with others, similar to ourselves, through the sharing of food and drink.

The impact on the HoReCa market, (Hotels, Restaurants and Cafe's) is so significant, it is sometimes hard to imagine how all these businesses will function post the Covid-19 pandemic. 

Global Context

Tracing back the effects of the outbreak in China, around January 2020, we saw a decline in occupancy at restaurants and hotels of up to 70%, this went on to zero by March of the same year.

This has been repeated in most countries across the world. Significant amounts of jobs were lost and revenue forfeited.

The global distribution of food & beverages came to a screeching halt, tourism and hospitality sector were effectively shut-down, as most airports and harbours were put on lock-down.

During this epidemic, measures to avoid cross contamination through food, containers or human touch, have suspended  the “culture of sharing” a culture fundamental to the act of going out and socializing.

A South African Perspective

Coastal towns and cities rely more on the hospitality sector than other cities - if we take Cape Town and Durban as prime examples, their economy is tied in with tourism, hospitality and conferencing. All now effectively shut down.

The culling of jobs to tens of thousands has been immense, not just at client facing level, but lower down the value chain. From producers of food and beverages, the farmers of the produce, the processing and packing companies as well as the distributors. One should also keep in mind, that salient industries and providers exist such as suppliers of packaging material, fuel retailers as well as other varying support services.

SpurCorp has suspended Franchise Fees to its over 600 franchise stores, all in an attempt to ease the losses experienced by the owners. Taste Holdings had decided to withhold dividends as their brands struggle to keep afloat.

Hotel Groups the likes of Tsogo Sun Hotels, Tsogo Sun Gaming and Sun International remain ravaged and tethering on the brink of destruction.

The long-term play in this environment is to ensure stability before looking for profits as enjoyed in the past. This could mean a decline in new entrances into the market, at least in the traditional format. 

Shifts in Consumer Patters

In his 2012 published book, The Power of Habit, - Charles Duhigg articulates that any task, repeated over time, say 21 days, has a tendency to stick with you. 

After a lock-down of 60 days, South African's have been altered to some extent. An alteration that poses significant threat to the established business model, yet offers great opportunity to those who embrace the changes in the consumer patterns.

• Delivery will increase, sit-in will decrease

The Consumer demand for delivered food and e-commerce ordering is on the increase, with many delivery services coming to the forefront in order to service that demand. This is the case from retail goods, off-consumption alcohol to prepared food purchases.

 

The lock-down and social distancing is fueling this growth in the urban areas.

Traditional sit-in restaurants will lose significantly if they do not pivot to offering a delivery service for clients. At home dining will increase, but with the convenience of someone else making the meal for you. 

 

• Dark Kitchens will be on the rise

The increase in demand for delivered fast-food and fine-dining, will bring about a surge in dark kitchens (catering grade, kitchens without a client front-facing portion) thus effectively being a restaurant without the overheads of seating and service staff.

This may become the greatest threat to the traditional restaurant business model in years to come. Dark kitchens offer improved capital efficiency for an aspiring restaurateur, existing only in brand and following of your food to the specific target market you are catering to.  

 

• Hotel occupancy will remain low

The #Stayhome, #StaySafe campaigns across the world, will result in less tourism travel. And fostering an only essential business travel culture. As we have seen, online, virtual communication platforms, such as Zoom, Google Hangouts and Microsoft Teams, have proven that most face-to-face interactions do not necessitate travel.

Therefore, the amount of rooms becoming occupied in future, will drastically decrease. Hotels will lose significantly on this side of their revenue streams.

 

It is not all doom and gloom to the hotel industry, significant opportunity still exists for them around Bento Box type services. 

 

A Bento Box is a prepackaged, meal box, ready for delivery,  this service can allow for effective utility of existing infrastructure of the hotel. Much like a dark-kitchen, the hotel would essentially provide a service to corporate clients in and around the facility. Allowing for delivery of fine-dining, prepacked meals - ready to eat and delivered fresh.

 

• On-Con sales of alcohol will be challenged 

Onsite consumption of alcohol, also known as On-Con will be deeply challenged.

This, the cornerstone of pubs, eateries and urban restaurants will be forever altered. 

 

Social distancing dictates that we not congregate in large numbers, that we refrain from the established culture of after work for drinks. 

We should no longer schedule those wonderful sun-downer meet ups and for the young at heart, a good round of pub-crawling. 

All this is now effectively outdated, and probably will no longer form part of the urban lexicon.

 

Small, craft producers will the one's most hard hit by this contraction. The direct selling opportunity that comes with on-con. Coupled with the better margins, as compared to traditional retail or off-con sales, will be  sorely missed.

 

Many of these producers will have to take a long hard look at their business models. Making some tough decisions on whether to find relevant partners to form co-operations and alliances with.

Or place themselves for sale to bigger producers looking to consolidate and increase portfolios. Lastly, they can merely accept reality and close down.

The HoReCa industry has a challenging time ahead, but no-one goes into this industry without possessing great grit and determination.

Like all other challenges that have befallen this sector before, this one too will be overcome, and we as a people will be better off because of it.

It is time to dig deep, find and offer innovations, change the current business model and partner with equally innovative supply partners to improve the supply value chain. All this in an attempt to better serve the consumer and improve the business offering.