The South African restaurant and hospitality industry is facing its darkest hour in 2023, with weekly closures becoming the new norm. Long-term debt, changing customer habits, dwindling spending power, rising input costs, and increasing reliance on third-party delivery services have created the perfect storm for an already struggling sector. In this blog post, we’ll explore the key challenges affecting the South African restaurant and hospitality sector and suggest ways for these businesses to adapt and survive.
Here are the significant challenges being faced and some suggestions around facing them head-on; after all, naming them is easy; solving them is where we all need a little help. Over the next few weeks, I will dive deep into each of them as we explore challenges and, more importantly, solutions in our industry.
Long-term debt: Many establishments are still burdened with debts owed to suppliers and landlords from the difficult years of 2020 and 2021. With mounting challenges, it’s becoming increasingly difficult for these businesses to cover their debts and stay afloat.
Changing customer habits: As customers have gotten used to going out less, establishments face a significant decline in foot traffic. This decrease in demand has substantially impacted revenues, making it harder for them to maintain profitability.
Decreased spending power: Those who still go out to eat have less money to spend, further straining the industry’s revenue stream. The economic downturn has left many consumers with tighter budgets, leaving them unable to afford to dine out as frequently or as lavishly as before.
Rising input costs: Input costs, such as food and utility prices, have increased at rates way above the official inflation rate. This has put additional pressure on already thin margins.
Pricing dilemma: Establishments are caught between a rock and a hard place when pricing. Raising prices risks alienating customers while maintaining current prices is unsustainable due to rising input costs.
Reliance on third-party delivery services: Customers have become increasingly familiar with and reliant on third-party delivery services to order takeout. The high cost of these services to the restaurant results in either the restaurant absorbing the cost and putting further strain on its bottom line or increasing its prices, which leads to customers lowering the frequency of purchases. What seemed like a saving grace during the pandemic has now become a significant drain on restaurants’ ability to make money and offer any personal service that would build loyalty.
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Diversify revenue streams: Establishments can consider expanding their services to include takeaways, delivery, catering, or even venturing into selling pre-packaged meals or meal kits. By diversifying their income sources, businesses can tap into different customer segments and better insulate themselves from market fluctuations.
Adapt to changing customer preferences: As customers become more selective about dining out, Establishments must offer unique experiences or dishes that cater to evolving tastes. Experimenting with new recipes or offering exclusive events, such as themed nights or cooking classes, can help to attract customers and keep them coming back.
Focus on cost control: In an environment where input costs are rising and revenues are under pressure, efficient cost management is crucial. Establishments should consider renegotiating contracts with suppliers, seeking cost-effective alternatives, or reducing portion sizes while maintaining quality.
Embrace digital marketing: With more people spending time online, Establishments should invest in their online presence and digital marketing strategies. Social media, email marketing, and online advertising can help attract new customers and maintain relationships with existing ones.
Foster loyalty: Building a loyal customer base is more important than ever. Establishments should focus on creating a memorable dining experience, exceptional customer service, and implementing loyalty programs to encourage repeat business.
Reevaluate delivery partnerships: Establishments should consider renegotiating contracts with third-party delivery services or exploring alternatives such as partnering with local delivery companies or developing their own.
The South African restaurant and hospitality industry will face unprecedented challenges in 2023. However, by adapting to the changing landscape and implementing strategies to address these issues, restaurants can navigate this perfect storm and emerge stronger on the other side.
Watch out for my in-depth assessment of these challenges, but more importantly, how to combat them and emerge more vital than ever. Undoubtedly, many establishments will emerge more vital than ever; make sure yours is one of them!
Mike Said
081 398 2190
@mike_said_what
