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Economic Environment of Restaurants and Retailers Going Into Q3 and Q4

Restaurants and retailers suffered the most in 2020 as the pandemic and lockdowns caused many to shutter their doors. Heading into 2021, businesses were met with initial turbulence as cases of the coronavirus were rising.

But here in April 2021, vaccines are rolling out quickly, and many local and state governments are easing or removing lockdown restrictions.

The decline in cases and new deaths has opened the door for many retailers and restaurants that are closing to hopefully find a way to reopen and regain business. Understanding the current economic environment for restaurants and retailers will better help you understand if there will be a market rebound.

State of Restaurants in 2021

Restaurants are one of, if not the, hardest hit industries due to the pandemic. Sales fell by $240 billion in 2020, and there were more than 110,000 eateries closing at least temporarily. Many restaurants that are closing don’t know if they’ll be able to reopen.

In terms of employment, the number of individuals that remain employed in the industry is 2.5 million lower than before the coronavirus.

The National Restaurant Association reported in January 2021 that virtually every restaurant was impacted by the events of the last year. Legacy business dropped drastically, but there have been some benefits: accelerated development and adoption of technology.

A lot of the technologies that have come out of the pandemic are going to help restaurants withstand any future disruptions to business.

Trends that are in favor of restaurants are:

Sadly, the majority of restaurants that do have to close permanently were fixtures in their community, with most being in business for 16 years. A little over 15% of restaurant closures were eateries that were open for 30+ years.

The loss of these restaurants is likely to reshape the industry, as 72% of owners state that they’re very unlikely to reopen another restaurant in the years ahead.

Bright Spots for the Industry

There is certainly a lot of concern in the industry that restaurants are not going to be able remain open or consumers may not come back. The data suggests that there is pent-up demand from consumers that want to be able to return to restaurants and eat.

Across all generations, people are stating that they’re not able to eat at the restaurants that they would like. And 88% of adults state that they rather go to a restaurant with a friend or family than cook at home.

Sales at the start of April show a lot of promise. In the week ended April 4, sales were 20% higher than the same period in 2019. Full-service restaurants also experienced a rise in sales that were 16% higher than 2019 levels when the pandemic didn’t exist.

Despite the rise in sales, many restaurants are still keeping their takeout sales operational because of the potential to capture more business.

February sales were less promising, but there are a lot of promising signs for the restaurant industry ahead:

It's important to note that industry experts suggest that the restaurant industry will need to offer loyalty rewards, mobile ordering and other options to lure back some of their market share that is relying more on home cooked meals than restaurants.

State of Retailers in 2021

Retail faced many of the same challenges as restaurants initially, but retailers that were able to offer online ordering were able to withstand the storm. Consumers flocked to online sales, pushing retailers, such as Amazon, to record sales.

The retail landscape is shifting, with technological advances that would normally take years to develop hitting the market in months.

We saw a few major markets benefit from shifting consumer behavior, including:

Apparel retailers struggled more than their counterparts. There has been a collaborative effort across the retail industry to make key changes to strengthen their business, with a major focus on:

UBS is predicting a downturn in the US retail market, with up to 80,000 retail stores expected to close by 2026. The main driver in these brick-and-mortar store closures doesn’t have to do with the pandemic but with the rise of e-commerce sales.

UBS figures suggest that if e-commerce sales rise from 18% today to 27% in 2026, these closures will occur. There is no mention of the acceleration of online sales due to the pandemic. Many consumers turned to online sales for their shopping needs, and retailers adopted technologies faster to adapt to these consumer changes.

The loss of retail stores may have been accelerated by the rise in consumers making purchases online.

Bright Spot in the Retail Market

While retail stores are closing, there have been 3,169 closures and 3,535 opens this year, leading to a net gain in stores even though closures are occurring. The rise in new stores is due to many commercial centers renting out space for cheaper.

It's expected that following the pandemic, many stores will thrive and rebound stronger than others, including:

Accessory and clothing stores are expected to experience the most closures in the next five years, with a loss of 21,000 stores expected. Sporting goods and office supply stores are also expected to experience massive closures.

The industries that will fare the best are grocer, home improvement and auto part retailers.

Spring is expected to bring in a lot of retail sales and lead to a surge in the short-term. Last month, economists predicted that retail sales would grow by 5.4%, signaling a potential rebound in sales that a lot of smaller retailers need to be able to stay afloat as coronavirus restrictions start to be loosened across the country.

The final two quarters of the year should see retail sales rebounding.

Technology Adoption and a Change in Consumer Behavior

While the economic environment of these two industries is starting to ramp back up, consumer behaviors have likely changed as a result of the pandemic. Consumers are still, to some extent, going to order curbside pickup or order delivery from restaurants more often.

The use of a mobile card reader is going to stick as fewer consumers make their purchases in stores.

A few of the main changes that are likely to stay are:

From mobile payments on the go to curbside pickup at major stores like Home Depot or Lowes, consumer behavior has changed. Consumers are craving convenience. There are a lot of opportunities for business to go back to their legacy sales while still adopting some of the technologies that have helped business recuperate sales during the pandemic.

Posted in Featured on Apr 15, 2021