What effect will COVID-19 have on the Quick Service Restaurant (QSR) industry? To find out, GLG recently met with Jane Gannaway, Principal of JPG Consulting LLC. Prior to that, she served as Vice President of Product Innovation in Starbucks’ China and Asia Pacific region. She also spent 12 years at Pizza Hut and Yum! Brands.
GLG: What parallels do you see between COVID-19 and the SARS outbreak in China in 2003?
Jane: There are probably fewer similarities than differences. Both viruses seem to have emanated from an animal, but SARS was a super spreader. COVID-19 has not yet been defined that way. The fatality rate of SARS was 14% to 15%, while the fatality rate of coronavirus thus far is about 3.5%.
Because China waited months to disclose the SARS epidemic in 2003 and now wants to be seen as more transparent, it disclosed COVID-19 quickly and made an unprecedented decision to shut down transportation and communications. Also, much has changed about China since SARS. At that time, Shanghai had 13 million people; now it’s more than 26 million. There are millions and millions of more cars on new roads. There also are fast trains where there were none. With all that, and the internet, things happen a lot more quickly.
GLG: In response to the outbreak, several fast food and quick service restaurants – KFC, Pizza Hut, Starbucks, McDonald’s, and Dairy Queen, to mention a few – suspended operations in the affected region. Most have not set a timeline for reopening. When do you think that will happen?
Jane: I think the restaurants will wait for the government to start loosening things up before they reopen their stores. The biggest issue is going to be available labor, especially in areas where there is illness. Since the Chinese government can shut things down and bring things back up on amazingly short timelines, businesses should be ready for anything, anytime.
GLG: What is the most likely impact of COVID-19 on sales?
Jane: It will differ from brand to brand, company to company. If KFC and Pizza Hut can keep the bigger urban stores open, we’ll be in good shape. At Starbucks, it’s largely the same, but sometimes Starbucks has just one big store in a town and it has a bigger impact even though the region is smaller. Again, it all depends on when the government lets business get back to normal.
GLG: Do you think traffic at the restaurants still open in China will be affected by consumers who fear contracting the COVID-19 in public locations?
Jane: This time, I think the situation is less fear-based. Of course, in Wuhan, the fear level is probably higher. But when I talk to colleagues and friends in Shanghai, they’re still going to work even if they are wearing masks. They’re wearing those masks when they go to restaurants. One of the things that’s allaying fear is that Dairy Queen, KFC, Starbucks, and others are telling customers that they’re also worried about the disease and that they are trying to be careful.
GLG: How do you expect home delivery and third-party delivery to affect sales in areas where store locations remain open?
Jane: Obviously, you’re going to be better off if you have delivery capability. But delivery capability varies from brand to brand, as does the quality of delivery. For instance, KFC and Pizza Hut have their own fleet of bicycles and motorbikes. They have heated and chilled pouches, so they can still deliver brand integrity to the consumer. Starbucks shifted from independent delivery mechanisms to forming a relationship with a very large organization so they now can deliver with integrity to their brand. You have to have trained labor in place to derive value from delivery and you have to approach it with a long-term strategy because you don’t want to compromise your brand’s integrity.
GLG: To go a little deeper, if the cost of delivery is higher than consumers expect, will they look for online grocery options?
Jane: My specific experience is not in the grocery industry, but I believe that if delivery is available, it will be the first choice for Chinese consumers. They have small kitchens and China has a culture of delivery – but also a culture of on-time delivery. You have to tell the customer when you are going to deliver and then do it. With COVID-19 customers are likely to be more forgiving. In Shanghai, consumers probably will pay more. In other cities, they won’t, because they probably can’t. It depends on the location.
GLG: What strategies should companies consider to mitigate the sales headwind?
Jane: The most important thing is for the team to be ready to go. That requires day-to-day discussion. You must be ready to open a store, close a store, and make sure that you have the food – and especially perishable food – in the right places at the right time. You must make sure you’re maximizing your delivery machine, and that you’re retaining your people and talking with them. If you can talk with your customer, like Starbucks does, do it. Tell them what they can anticipate. It’s also a good time to do little things. If you have some merchandise you’ve been trying to get rid of, for instance, maybe offer it at a lower price or even as a gift as an incentive to come back to the store. If you stay on top of things, as soon as you can reopen you can hit the ground running.
Jane Gannaway is an Operations Strategy, Implementation Planning, and Innovation Executive and Principal of JPG Consulting LLC. She has extensive experience in the food, beverage, QSR, and CPG industries. Prior to JPG, Jane served as Vice President of Product Innovation, China at Starbucks, where she led the R&D function and introduced dozens of new food and beverages. She also spent 12 years with Pizza Hut and Yum! Brands.
This article is adapted from the GLG teleconference COVID-19 Impact on Quick Service Restaurants. If you would like access to this teleconference or would like to speak with Jane Gannaway, or any of our more than 700,000 experts, contact us.
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