Shifts in the F&B industry post-pandemic

There have been massive shifts in the F&B industry, post-pandemic. Businesses have had to react fast in order to adjust to a new normal. Business leaders have had to navigate a broad range of priorities – ranging from keeping employees and customers safe to rethinking operations, from reinventing the dining experience to ensuring a healthy cash flow.

“Indeed, we have seen a lot of dynamic shifts in our industry. As the restaurant industry suffered, we have seen immense empathy and a general urge to support each other. At Papa John’s UAE, our team went through a lot of hardship, and we collectively put in a lot of efforts to emerge stronger from the crisis,” states Tapan Vaidya, CEO, PJP Investments Group that operates the pizza chain Papa John’s Pizza UAE.

A big shift for the F&B operators is the loss of dine-in business amid the ‘great lockdown’. In the UAE, businesses are exposed to malls. “We have around 54 restaurants of which half are located in malls. As the malls closed temporarily, our dine-in business was wiped out during April and May. Prior to the pandemic, we were clocking approximately 38% sales from the dine-in business, which reduced to a complete zero during the lockdown. It was a huge hit,” Vaidya admits.

On the other hand, the delivery business was a saving grace for F&B businesses like Papa John’s Pizza UAE. As people stayed at home, after the initial period, they were open to ordering food for doorstep delivery. Papa John’s Pizza UAE follows a “cohesive hybrid model,” as it leverages its own fleet and works with the third-party aggregators for delivery. Especially as the pandemic began, the F&B industry raised concerns against the high commission charged by the third-party aggregators. There was no relaxation even during the pandemic. In this regard, Vaidya feels “the right opportunities should be leveraged and the negotiations must favour both parties.”

As soon as the malls reopened, people started coming back. The dine-in audience also began stepping back into the restaurants gradually, which has helped businesses to register week-on-week growth. Due to social distancing guidelines, the crowd isn’t as large as it used to be, but malls are seeing a substantial part of the original footfall. “Our dine-in business has also improved, although not comparable to the pre-COVID levels yet. But we are slowly getting there,” Vaidya shares.

Even as dine-in and takeaway business is improving, the need for digitalisation has been a big realisation, Vaidya states, as he candidly shares some data from the Papa John’s Pizza UAE business. Before the pandemic, in January and February, Papa John’s Pizza UAE used to clock 34% of sales through the digital channels and 66% through conventional means. At the height of the lockdown, 85% was digital and 15% conventional. As the movement restrictions were lifted and people started going out, now the breakup has settled at 51% via digital and 49% through conventional channels. “A big realisation, thus, is the need for digitalisation. We were fortunate to have made investments in digital means, so we weren’t caught off-guard.”

Rethinking tenant-landlord relationship

The pandemic has also brought to fore rent structure related challenges faced by F&B operators. As consumption patterns and the rules of retailing have changed drastically, are rents being renegotiated?

The F&B industry has faced severe challenges due to COVID-19. Stronger brands with less reliance on dine-in business have somehow pulled through and are gradually seeing traces of normalcy. However, operators that are heavily dependent on dine-in business have suffered greatly. Thus, landlords are also evaluating different options for the tenant mix. “A section of landlords has announced a complete rent waiver during the lockdown period and some have even agreed on a revenue share model for the rest of the year,” Vaidya observes. “Irrespective of the pandemic, revenue share is the most logical model for rentals, especially for F&B operators. But the minimum guaranteed rent clause needs a relook.”

“Another section of landlords hasn’t offered any rent waiver for the lockdown period, but a rent-free period at the end of the lease term,” he continues. This option, however, implies getting ‘locked-in’ for a certain period, making exit more difficult.

“There is yet another section of landlords that isn’t open to any kind of negotiation. We have tried to reason with them, finally deciding to continue in the location if it holds great potential or move out. After all, we have to weigh our options carefully; we have to evaluate if continuing or closing down will save us cash, and take a decision accordingly,” Vaidya adds.

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Protecting people and cash flow are crucial

Businesses have also realised the importance of maintaining a healthy cashflow. “Towards the end of March, the situation was exceptionally challenging. Overnight, half of our trading locations closed down temporarily, and we lost revenues,” Vaidya states. “At the same time, we were convinced that businesses would reopen eventually. But we had to make some quick decisions to sustain the business.”

Papa John’s Pizza UAE and Vaidya took the decision to not make anyone redundant. “Instead each one of us worked very hard and showed utmost sincerity to realise our ‘no loss of job to COVID’ goal. I am truly inspired by our people’s commitment in the face of adversity. By June, we started seeing the business stabilise,” Vaidya shares.

“Over the past few months, we have also had honest conversations with every supplier, landlord and our principal partner who were all extremely supportive. Due to our combined efforts, today the business is starting to look healthy,” he adds.

Looking ahead

Amid massive shifts in the F&B industry post-pandemic, the journey back to normalcy will be fascinating; there will be a lot of lessons to learn. “The future will be bright if we are able to deliver excellence every single day,” Vaidya feels.

Going forward, Papa John’s Pizza UAE has “solid” expansion plans. But new openings will mostly focus on delivery with the exception of the ones at high-quality, high-traffic malls. “At the peak of the lockdown, we were worried and decided to evaluate the expansion plans as the situation got better, while relying on our delivery business. With the situation improving, we would like to put our expansion plans in motion, carefully planning the opening of seven restaurants this year. We have had multiple openings already, the latest being at the Ibn Battuta Mall. Having said that, some of our projects might get delayed due to certain developers altering the launch timelines of retail properties,” Vaidya elaborates.

Can an expansion pipeline of this nature be explained when compared with the rent per square feet?

“COVID-19 has softened the rental market and deals could be attractive at this point,” Vaidya responds. “It is a good time to expand further and increase market share while improving the product. Having said that, as people are now more conscious about spending, we have to introduce more value-centric offers.”

Overall, Papa John’s Pizza UAE has managed to gradually regain normalcy. “That’s been a big relief. But the F&B industry isn’t at the level where we should be. The restaurant industry, as a whole, is expected to regain normalcy possibly towards the end of 2020,” Vaidya concludes.

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