What will Hong Kong's F&B scene look like once the Coronavirus pandemic subsides?
In the midst of the third wave, we're all dreaming of what we're going to do when the coronavirus is truly & finally over. Many of us are ready to move on with our lives and for things to go back to normal; visiting our favourite restaurants, bars and holiday destinations.
With Government officials having scrapped the coronavirus-related ban on eating in restaurants after just a mer 24-hours on 30 July, everyone is wondering what the Hong Kong F&B scene will look like when it comes to dining out, drinking, and ordering in.
Do I think people want to go out again Yes! That being said, the COVID-19 crisis, has of course changed everyone's life at once - and anyone who has read the newspaper, paid attention to social media and has been to a restaurant can bear witness to the industry's whiplash. Back in May, the Hong Kong Catering Association [HKCM]. estimated that around 6-7% of Hong Kong's eat-in restaurants - 1,000 of the City's 15,000 - will remain closed for good once the Coronavirus ends.
And yes compared to other cities, Hong Kong has a high number of restaurants per capita, with the majority of them located in central business districts [with a high rent price tag attached] relying on tourists and office workers. However, with inbound tourism having come to a screeching halt combined with an uncertain & long road to recovery ahead, one can assume that the number of bar and restaurant closures will only increase.
In May, the KHCM estimated around 6-7% of Hong Kong's east-in restaurants - around a 1,000 of the city's 15,000 will remain closed for good.
The crippling effects are highlighted by “SaveHKfnb” - an alliance of over 700 restaurants and bars – most recent open letter to Chief Executive Carry Lam appealing for the Government to save the industry and; 1] introduce a new round of subsidiaries for the F&B industry, 2] extend the employment wage subsidy for another 6 months. 3] appeal to the landlords to extend rent reductions or rent free agreements. 6] additional bank loans without requiring guarantees.
Taking the above into account, combined with the fact that there’s going to be a new normal when it comes to dining out and our overall lifestyle, it is unlikely that restaurants will be able to return to the so-called normal pre-COVID operations way in the foreseeable post-pandemic future.
THE NEW NORMAL
Factors, having nothing directly to do with food, will reshape our post-COVID world and influence the future of eating out.
Work from Home:
Cooking is correlated with time spend at home, and working at home is likely to permanently increase post-COVID. Global companies around the world have said employees can work from home until early 2021 or even work from home permanently. This trend will also trickle down to Hong Kong companies. Working from home will surely increase as a result of the many weeks in which most Hong Kong professionals found ways to be productive outside the office during the Coronavirus [as well as last year's protests]. How much will it increase? That is subject to what Hong Kong employers can gain in terms of cost savings from more work from home and what employees want.
Don’t Be Dense:
The second factor is the realisation by investors and executives that density is no longer desirable by consumers, and F&B operators must rapidly revamp both their value proposition, business models, and valuation theses to recognise this. Larger footprints and outlets in central business districts, which was previously a massive competitive asset, is increasingly a large liability.
A recent US study done by Hunter, a f&b marketing communications firm, noted that 54% of Americans are cooking more than they were before the pandemic, and 35% say they ‘enjoy cooking more now than ever.”
I know that comparing Hong Kong to the US is comparing apples and pears. And although the US's extreme scenario is unlikely for Hong Kong, it’s highly probable that the city’s ‘new normal’ will include a shift towards more eating at home and restaurants [and bars] have to pivot or ultimately close their business.
In the near future, some of the bigger players, such as Black Sheep Restaurants, Maximal Concepts, Jia Group, Pirata Group & Castelo Concepts, will close or some of their restaurants or bars as part of an outlet-number rationalisation or format change.
NEW FUTURE, NEW FORMATS
The many current [and possible future] coronavirus-related social distancing measures to flatten the curve, combined with the growth of delivery, which has been gaining share even pre-covid, will accelerate format change.
While some brick and mortar brands might shutter their doors, they will live on as delivery-only concepts housed in “Deliveroo Editions” delivery only kitchen, other operators will invest in their own ghost kitchen to revitalise ‘fallen restaurant concepts’ and launch future delivery-only concepts.
Furthermore, some smaller / independent operators, will adapt their current concept to include a smaller footprint and vacate their prime real estate & footfall central business location and relocate to more affordable locations in upcoming or industrial areas.
A designated pick up counter in future restaurant interior design will likely become ubiquitous, not only for fast casual but also sit-down restaurants. Transforming the delivery & dine experience includes possibly adapting restaurants to accommodate larger, low touch areas, and even revisiting their kitchens and prep station areas to create more safer procedures for those cooking delivery orders on the line.
However, restaurant relocations, ghost kitchen and growing delivery demand require capital expenditures, forcing operators to find profitable ways to facilitate this.
While in the beverage business Hong Kong bars, such as the gin-focused Origin are now offering cocktail takeaway and delivery, Uwe Opocensky’s-fronted & Island Shangri-La-based 'Restaurant Petrus' launched their “Krug My Chef & I” home cooking initiative in association with Krug Champagne. More restaurants might explore adjacencies like meal kits or flock to Zoom and feature their chefs for paid cooking lessons, the way the city’s gyms and fitness instructors pivot their business.
Innovative restaurants may even become mini-grocers, selling food related items [herb mixtures, jarred stir fry sauces, fresh-made pizza crust etc.] onsite and or online to entice purchases when customers come pick up their take away or order delivery online. The need for capital expenditures, could also result in an increase of temporary restaurant pop ups, which - without long-term sky high rental agreements – is a low risk/high ROI additional revenue stream, great public relations tool or way to test-run a new dine-in or delivery concept. A good example of this is Sunday Grocery’s Pop Up at Interval Coffee last May.
With a changed consumer who will be hyper focused on the health and safety practices of restaurants and who may be hesitant to be in close proximity to other guests, offers opportunities. With the post-COVID consumer wanting less density and possibly not willing to dive back into the on-premise dining experience, operators should rethink ‘the dining experience’ and take a page out of Black Sheep Restaurant’s playbook and develop a line of offsite culinary experiences such as Taqueria Super Macho’s Junk Trip.
It also wouldn’t surprise me if operators will, instead of participating in expensive annual event staples such as Wine & Dine, Clockenflap, Taste of Hong Kong, The Great European Carnival etc., capitalise on their current marketing team to organise their own smaller events. Or for operators to collaborate and for instance organise a Block Party. It will also be a matter of time for one or more Hong Kong operators to take the leap and set up an experiential events department similar to the Jakarta-based Ismaya Group to organise immersive events & incorporating one or ore of their brands/concepts/cuisines. Using the group's combined social media reach and database to organise an offsite immersive event or event series targeting 500 to 2000 attendees, seems likely as it shifts a decent part of their cost structure from fixed costs [e.g. real estate leases] to more variable cost [e.g. location rental & employee compensation].
Finally, fuelled by ‘stranger danger’ virtual waitlists could be a thing in the near future. An increase of online reservations is expected to become more prevalent than ever before, with restaurants leveraging these tools to not only meet potential future COVID-wave capacity restrictions but also ease the worries of guests that no longer want to be seated in an overcrowded restaurant.
GOING CONTACTLESS
Imagine this scenario: you walk into a restaurant. You’ll know you’ll be seated immediately, because you were able to place yourself on a virtual waitlist from the comfort of your apartment, without crowding around the entrance jockeying for a table. Once you are seated by a server, you take out your mobile and scan a NFC tag or QR code on the table. This pulls up a digital menu for you to peruse, and within seconds, you can place your order for drinks, appetiser and mains. Once you’ve enjoyed your meal, with the click of a button, use your stored apple pay or other credit card, and out the door to enjoy the rest of your day. No paper menus, no sharing pens or passing off a credit card or cash, minimal interaction, and a safe, seamless dining experience from beginning to end.
With health and safety at top of mind, the restaurant industry will undoubtedly rise to meet these expectations, shifting into the digital sphere with contactless payments, ordering, delivery and more. The benefits don’t stop with operators providing guests and staff with safe, simple and contactless options. These technologies also enable operators to potentially minimise front of house labour costs, while maximising the frequency of orders, driving dollars to their bottom lines.
In a time when operators have tens of thousands of HK$ in dept as a result of COVID-19, and the Hong Kong Federation of Restaurants and Related Trade forecasts that the catering section would lose HK$3 billion in revenue in July, reduced overhead costs, paired with increased convenience and adoption on the customer side, are a match made in heaven.
The possibilities are endless when it comes to contactless offerings across the guest journey. This won't only be the new reality, it will be the new normal & expectation for guest.
But going contactless doesn’t mean that personalisation goes out the window with reduced interaction from servers or other team members. Once the guest shares information about themselves with the restaurant [e.g. steak temperatures, vegan or vegetarian preferences or nut allergies], imagine a world where they are shown only menu items that have any meat items or nut products. This is the power of contactless offerings. And these experiences don’t stop at the restaurant. Using data collected on the guest during an in-service interaction, restaurants will also be able to reach them at home – surfacing the right information, at the right time to encourage the customer to order delivery or takeout directly. The possibilities are endless when it comes to contactless offerings across the guest journey. This will not only be the new reality, it will be the new normal and expectation for guests.
EMBRACING A NEW DATE-DRIVEN & CONNECTED TECH STACK
With Hong Kong’s restaurant industry to expected to lose millions in sales, operators will reflect on each platform within their tech stack, and whether they provide a strong return of investment. In a post-COVID world, third-party delivery and reservation platforms like Deliveroo, Foodpanda, Uber Eats, Quandoo, OpenTable & OpenRice, that offer little access or ownership will no longer have models that are sustainable for restaurants. This will especially be true when those same systems choose not to integrate with other platforms in an operator’s tech stack, perpetuating siloed systems and missed data connections.
It will become of the utmost importance, to connect their current tech stack end-to-end to enable them to collect and leverage data across dine-in, delivery and pick-up. With a 360 degree view across every guest, operators can connect data across the entire guest journey, from when a guest books a reservation or orders delivery or take away, to how they order and pay, to the types of marketing they receive as a result.
Hence, operators should focus on finding a partner that offers; [1] capabilities that help restaurants to build direct relationships with guests, [2] a business model with a focus on long-term success of their restaurant, and [3] a robust CRM that enables them to own and access guest data to provide exceptional experiences inside and outside the restaurant. Each of these technologies, whether a POS, guest experience platform or inventory management software, should help operators to capture and leverage guest data, generate revenue and manage costs. This is just one of the many ways operators can meet the challenges of a changed hospitality sector.
THE COVID COMEBACK TRAIL
Although some experts may say that, with total restaurant sales having already plunged 31.2 per cent year on year in the first quarter of 2020 - amounting to a loss of HK$21.67 billion - Hong Kong’s food and beverage industry has relatively little agency in what the future looks like. I’d like to think that despite the upset brought on by COVID-19, the future of hospitality is bright.
Not being able to go back to the old strategies that drive profits and growth will make operators realise that band aid solutions will only prolong the pain. Instead of trying to preserve legacy strategies and business models predicated on notions that are being upended, operators will face the challenges head on, and create new formats and categories built on higher levels of working from home, continued growth of delivery, and protection from ‘stranger danger’.
It’s these challenges bring new innovations that will fundamentally change the way operators adapt to doing business in a post-pandemic world.
Key Take-Aways
Providing economic assistance for the restaurant industry is one of the most critical investments to safe Hong Kong’s F&B industry.
COVID-19 has acted as a catalyst in the growth of digital ordering and payment platforms, and consumers will expect technology moving forward as a way to ensure dining safety and convenience.
The digital world has revolutionised how consumers discover and choose dining option, and content is more important that ever. Keep your brand top of mind with immersive experiences designed for people at home and on the go.
Operators should focus on finding a third party delivery, reservation partner that offers capabilities that help restaurants to build direct relationships with guests & that enables them to own and access guest data to provide exceptional experiences inside and outside the restaurant.
Looking into the future there, many of us anticipate that there is going to be recessionary environment. So the emotional state of customers is going to be quite different. Keeping menu items at an accessible price point will be important.
The pandemic has served as a reminder of the psychological benefits of gathering with friends and family, and the importance of restaurants as a gathering place for these moments and memories.
There is a growing momentum to support local restaurants. As we navigate new waters after months of social political unrest and COVID-related social distancing, restaurants and bars will play a central role in reconnecting communities as people return to celebrate everyday life over meals & drinks.
All restaurants should rethink the dining out experience and are going to have to think more creatively how they serve their customers while developing adjacencies plus additional revenue stream.
FOOD FOR THOUGHT
Personally, I don’t even want to think about what a city like Hong Kong would look like without some of my favourite group-owned and independent restaurants. So much of the experience living in Hong Kong revolves around being spoilt for choice and having different cuisines at your fingertips. That doesn’t just mean famous fine-dining establishments. There are so many world-class restaurants we take for granted. One can only hope that, due to the pandemic, there will be a reset in terms of the cost of commercial real estate. The cost for operating is becoming untenable….even at 100% capacity.
In the meantime, please support the restaurant industry during these trying times; [1] order in when you don’t want to dine out, [2] buy branded currency aka restaurant gift vouchers, [3] post delivery or dine-in food pics your Insta or Facebook, write a review or recommend a restaurant delivery menu to your friends, and [4] be an ally and sign the change.org petition calling for more support from the government, follow Save Hong Kong F&B or United We Dine or surf to Time Out’s ‘Open for Business’ campaign page
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Source Materials: South China Morning Post, Harvard Business Review, Save Hong Kong F&B, Time Out Magazine, South China Morning Post, FSR Magazine