The Impact of COVID-19 on the Restaurant Industry

By: Darren Gresch, Harry Sharma

This Op-Ed was originally published in iPolitics on March 26th, 2020. It was written by Darren Gresch a Research Associate and Harry Sharma the Director, Innovation and Technology at The Conference Board of Canada.

The current social-distancing paradigm, necessitated by the need to flatten the COVID-19 curve, has disproportionally impacted the Accommodation and Food Services (AFS) sector. The Conference Board of Canada’s Chief Economist, Pedro Antunes, has called this an “unprecedented demand shock.” Many restaurants have witnessed a dramatic slowdown in customers and had to close suddenly due to the ongoing public health emergency.

Since before COVID-19 started, the Conference Board of Canada had been researching the impact of another type of external shock on Canada’s labour market—automation. Occupations in the AFS sector, including food counter attendants, cashiers, and cooks, are among the most vulnerable to automation-enabling technologies. The combination of COVID-19 with rising availability of automation technologies may create a perfect storm for workers in the sector.

In Canada, labour-related expenses for restaurants are, on average, about one-third of their total revenue. Meanwhile, the average net profit margin for restaurants is very low, at 3.6 percent. As a result, business owners in this sector are highly dependent on stable demand. Low margins force business owners to look for cost efficiencies to improve their bottom lines continually, and this search becomes critical to survival in the current environment.

This crisis is happening at a time when the affordability and availability of platform technologies in the sector are growing. Products, such as robots and touch screen kiosks, offer businesses in the AFS sector options to enhance productivity while lowering costs. For example, burger-flipping robots are becoming increasingly attractive for companies in the fast-food sub-sector. An added benefit of such a technology is a substantially reduced probability of human-to-human viral transmission.

The sudden shock of COVID-19 has meant that policymakers are rightly focusing on short-term policy measures. For affected workers, this has meant benefits like expanded employment insurance eligibility and GST credit payments. For businesses, this has meant measures such as increased business credit availability and wage subsidies. However, longer-term solutions may be needed to reduce the susceptibility of the sector to future shocks, and address any permanent reductions in staff due to increased technology adoption.

For workers, we must invest in developing upskilling programs, and make them readily available for those who are in vulnerable occupations. Additionally, a skills mapping exercise is required to identify gaps that can be addressed systemically via well-funded programs. For example, we should ensure that workers in the AFS sector have easy and affordable access to programs that enhance their digital skills. These programs will enable them to use technology solutions effectively. These programs will further help to mitigate the impact of future external shocks on the AFS sector.

For AFS businesses, there is a need to explore and adopt new business models. For example, the online food delivery model has gained popularity in North America. In Canada, the online food delivery market is expected to be worth $2.2B in 2020 and expected to grow to $3.1B in 2024, representing average annual growth of 8.5 percent. Businesses in the AFS sector will need to explore and, if applicable, adopt new service-based models. An agile workforce that is always encouraged to acquire new skills will be a crucial part of the successful adoption of these new models.

In conclusion, the COVID-19 pandemic has disproportionally impacted the AFS sector—media stories of affected workers are heartbreaking. Beyond the short-term policy measures that have already been announced, we must institute a suite of long-term solutions for the AFS sector that will make it less vulnerable to future pandemics and technology change. Long-term solutions must include significant investments in upskilling and the adoption of new business models.