The restaurant industry is one of the largest employers in the United States. According to the National Restaurant Association, there were 1 million+ restaurant locations in 2019, employing over 15.6 million employees. The industry was to grow to $899 billion in revenue by 2020 and create 1.6 million new jobs by 2030. The reality today is markedly different. By April 2nd, 87% of Americans were living under “stay at home” orders, and on-premise dining activity had slowed down to almost zero across the country. The economic and social impact of COVID-19 is apparent from the 30000-foot view, must also be examined from the perspective of a growing business to fully grasp the threat of this pandemic.
Mei Mei’s is an award-winning, family-owned Chinese American restaurant in Boston. Its proprietor, Irene Li, serves as both chef and owner. She’s a six-time semifinalist of the James Beard Rising Star Chef title and has been a Zagat 30 under 30 winner. In March 2020, she was featured in an Eater.com article talking about the slim margins of the restaurant business. Recently, she began intentionally empowering her staff to understand their roles in shaping the financials of the company, and now wants to get the public involved through the Open Book Open House campaign. In Li’s case, 2019 net income margins were at 1.8% from total revenue of 1.2 million dollars. Restaurant sales accounted for 53.9% of income, while catering sales was at 46.1%.
While necessary as a public health measure, the adoption of social distancing measures has put downward pressure on both types of revenue at Mei Mei’s. Patrons no longer eat inside restaurants without risking their health and that of staff, and customers do not host large gatherings anymore- so no one seeks catering services. Most businesses of this size have minimal cash reserves and limited access to loans. There is little cash runway stored up for retaining employees and maintaining the real estate in case of sudden downturns. Despite the revenue pressure, alternatives such as reductions of employees may not be palatable given the close-knit nature of the small business establishment. In this tension between lives and livelihoods, Mei Mei has to reimagine its revenue sources and lower its costs if the business and employees are to survive COVID-19 intact.
Leveraging Existing Capabilities and Processes
In the days following the COVID-19 outbreak in the US, Mei Mei instituted a raft of changes to ensure the safety of staff while attempting to preserve its topline. In addition to creating a COVID-19 protocol that includes an online mindfulness toolkit for staff, the restaurant leveraged digitization to pivot its business model through a sequence of rapid pilots.
One of the first revenue-focused pivots was a move to convert its model from selling cooked food to grocery sales. Mei Mei tried to sell groceries out of its store in a bid to “to relieve the pressure off grocery stores” and offer people places where they can shop without standing in long lines. This move repositioned its service within the pre-existing supply chain and also allowed restaurant industry workers affected by the pandemic to access high-quality products from local farms at cost. However, this innovation ran into headwinds from local regulators who said that restaurants did not have the right licenses to sell groceries. Often, the law lags behind innovation. When the authorities stopped restaurants from selling groceries, Mei Mei pivoted to sell toilet paper- something they could do with their existing licenses.
New pivots have included the following operational strategies:
- Reimagining traditional revenue sources: Mei Mei switched from a sales-only revenue model to one of both sales and donations. By partnering with campaigns such as Off Their Plate, and engaging in advocacy, they’re able to secure revenue from donations of meals to healthcare workers in addition to the regular takeout sales. Mei Mei pivoted again by leveraging their prime location. This time they offered hot meals for employees of nearby the Brigham & Women hospital through the campaign off their plate. Again, they focused on a social angle to the problem they were facing, help solve a problem for hospitals while ensuring that there was revenue flowing in.
- Creating new (digital) revenue streams: Before Covid, MeiMei offered Dumpling Making Classes. Customers can now buy virtual cooking classes. Mei Mei’s virtual dumpling-making classes allow patrons to purchase courses in advance, giving new revenue streams with a higher operating margin than even there in-person sessions. Meimei previously held in person dumpling classes.
- Strengthening brand presence: By engaging customers through traditional media(newspapers), digital media, and social media (Instagram), Mei Mei has cultivated new dimensions of brand loyalty. Li’s efforts to lead with transparency around margins, and authenticity, cause the business to stand out. The company has garnered recent press coverage from leading local newspapers such as the Boston Globe- increasing the number of times patrons see the brand without raising customer acquisition costs. The reward is visible in the “flurry of online gift card purchases” that the business has seen. Customers are buying options in the restaurant’s future, while also extending a cash lifeline to Mei Mei.
- Selling via existing social media channels: Mei Mei customers can buy premade dumplings and other forms of takeout in bulk via the Instagram channel. Social media allows the brand to advertise its new strategies and directly sell products with favorable economics of scale. It also has the benefits of existing customers engaging and educating new customers through their comments and reviews. They partner with companies such as Grubhub to outsource the non-core competencies- thus can offer contactless food delivery without incurring the costs of setting up a contactless system.
COVID-19 has changed the food industry landscape in ways that might be permanent by increasing preference for raw food delivery and takeout.
While some might argue that the individual strategies above are easy to copy, the combination that leads to success is hard to replicate unless one understands the business context. The restaurant audience that Mei Mei appeals to is hyperlocal and loyal, and carefully cultivated- and that takes time to build. It is unlikely that they will willingly participate in a competitive or substitutive process that undermines Mei Mei in the long run. For small businesses, it’s not just digital innovation but also the doggedness of the entrepreneurial leader that matters. Small business leaders will have to exercise creativity while preserving cash and trying multiple solutions to ensure they retain customer loyalty and cashflow.
National Restaurant Association: https://restaurant.org/research/restaurant-statistics/restaurant-industry-facts-at-a-glance
A way forward for small business: https://hbr.org/2020/04/a-way-forward-for-small-businesses
How much to run a restaurant:
Mei Mei blog https://www.meimeiboston.com/blog
How we are handling COVID-19 https://www.meimeiboston.com/blog/2020/3/12/brl0wgd44ghxih1djxcpxp8uyn9p1h
Dumpling Making Classes at MeiMei’s https://www.eventbrite.com/e/dumpling-making-class-at-mei-mei-tickets-90689387399?aff=erelexpmlt#
Boston Restaurants Can’t Sell Groceries, According to City Inspectors
Dumpling Sign Up: https://www.meimeiboston.com/virtual-dumpling-classes/#prepinstructions
Keep Calm—and Carry Out? Boston Restaurants Struggle for Support amid Coronavirus Crisis
Boston’s Best Takeout and Delivery During the Coronavirus Shutdown: https://www.thefoodlens.com/boston/sides/covid-19/bostons-best-takeout-and-delivery-for-social-distancing-during-the-coronavirus/
Restaurant Business Model Changes in a Post COVID-19 World