Local restaurants struggle to keep doors open amid rising costs: Andrew Coppolino

Local restaurants are noticing a phenomenon that's impacting their bottom line: The "hermit consumer."

It's a term Waterloo, Ont., restaurateur Gabriel Malbogat used in a recent interview.

Similar to the mid-1980s trend known as "cocooning" — where people stayed home in a sort of isolated "bubble" — hermit consumers and its hermit economy is a global phenomenon where people stay at home and order in food and supplies.

That has had a significant impact on the food service industry, research company GlobalData says.They cite statistics that show revenue generated by dine-in sales is down 12 per cent compared to 2019 while revenue from takeaway meals is up a staggering 46 per cent.

So why is this a problem, if restaurants are still getting orders for food?

Fred Diamond, senior food consultant consumer custom solutions at GlobalData, said in a release people are still spending and consuming "but in a radically different way."

"The major beneficiaries of [pandemic] lockdowns, such as delivery platforms, have of course aimed to maintain their new-found dominance. The rise in 'ghost kitchens,' which are delivery-only foodservice outlets, has also served to cement this new landscape," Diamond said.

"But this is not simply an equal shift from dine-in to takeaway. In many regions, such as Asia and Europe, foodservice markets are down on 2019 levels."

Impact of delivery apps locally

Malbogat owns and operates the popular quick-service restaurant Chef on Call near the University of Waterloo (with locations in London and Montreal) which long before the pandemic created their own proprietary delivery system for their casual but high-quality burgers, chicken tenders, poutines and pasta.

He has seen firsthand how consumer behaviour changed because of the pandemic and third-party delivery apps saw "a huge" uptake of user activity.

"It drove nearly a decades' worth of growth within the delivery sector of the industry in a year. New ball game," Malbogat said. 

"We were no longer the only delivery restaurant competing with McDonald's. You had 20 different restaurants trying to deliver their burgers."

Chef on Call was nimble, robust and reacted to the altered landscape and continues to thrive today, he said. In fact, in the courtyard off Columbia Street W. where the restaurant is situated, it is one of the only original food operations that survived.

'Coupon effect' of delivery apps

When it comes to habits, third-party food-delivery apps feed what I call a "coupon effect": training consumers, who order from their couches or call while walking back from the bar so their late-night snack arrives at home at the same they do, to look for discounted food.

If the app says there's no discount at a particular restaurant, there could be no order made — and it's on to the next restaurant's freebie. The apps give the hermit consumer promotional offers like buy-one, get-one deals, 50 per cent of which the app covers. 

It's the type of promotion, in many cases, where restaurants feel they must participate.

"If the restaurant took the promotion, you got to the top of the algorithm," Malbogat said. "If you didn't play the game, you got buried in the algorithm. Restaurants became dependent on that for revenue and were forced to work with the apps or they didn't get the revenue."

The restaurant, of course, could offer its own discounts and bargains, but that comes at a cost in an industry with notoriously small margins. The dynamic has created an imbalance in the triad of hermit consumer, restaurant and third-party delivery app, which can take as much as 35 per cent on the order from the restaurant.

For sale: local restaurants

Where has a good portion of the hermit economy seen the industry end up? In the MLS real estate listings: by my rough count, there are three dozen quick-service restaurants for sale in the region — pizza joints, express Indian takeaway, and shawarma restaurants — but there are also some finer upscale casual venues and Italian pasta houses.

Shattered supply lines, rising food costs, higher labour costs, and general instability in the economy greatly hampered the food and beverage industry over the last few years and it's difficult to see it ever get back to pre-pandemic levels.

Malbogat doesn't speak for the industry but has been observing carefully the number of restaurants for sale and has taken measures to protect his staff and his businesses, accordingly.

The number is in part an indication of a generally stagnant economy, inflation and even changes in tipping culture of new hermit consumer habits, much of it driven by third-party delivery apps.

"We're going to see a lot of closures," Malbogat says. "If you're opening a restaurant, don't buy new equipment. There's so much used available."