Navigating To-Go and Delivery Sales in Tennessee
The COVID-19 pandemic has critically impacted the U.S. economy, leaving millions of workers unemployed and rapidly driving our country into a deep recession. Businesses nationwide are facing unprecedented challenges and overwhelming uncertainty.
While nearly every industry has been severely affected, sectors that rely on person-to-person contact have undoubtedly been among the hardest hit. According to the National Restaurant Association, due to restrictions mandated by local governments and the need for social distancing, the restaurant industry has rapidly suffered the most significant sales and job losses since the COVID-19 outbreak began. In March alone, overall retail sales fell from $529.3 billion in February to $483.1 billion, and restaurants experienced a 70% decline in consumer spending.
The long-term effect of COVID-19’s economic impact remains uncertain. Businesses must rethink the way they operate in both the short and long term. For the food and beverage industry in particular, the ability to adapt and innovate will be essential.
Making Take-Out and Delivery Viable
Plummeting profits due to mandatory closures, capacity limitations, and disruptions in supply chains have forced many restaurants to shut down temporarily or close their doors permanently. It is estimated that of the 650,000-plus U.S. restaurant locations that were in business in 2019, approximately one in five—or more than 130,000—will be permanently shuttered by next year.
With the restaurant industry’s future in peril, identifying new and sustainable revenue opportunities is a priority. Many restaurants are aggressively shifting their entire business model to delivery and take-out as a result. Since early in the COVID-19 crisis, around 60 percent of restaurants in the country have added curbside pickup, and more than a third of consumers who have ordered food for in-store or curbside pickup were first-time users of the service.
Whether expanding on existing to-go options, redesigning restaurant spaces to accommodate off-premise dining, or adopting new technologies for a contactless experience, making the changes necessary to stay afloat require tremendous resources and capital. Pivoting operations to focus on take-out and delivery can further chip away at profitability due to high commission prices from delivery platforms (in some cases up to 30%) and packaging costs.
Large restaurants can make changes to operating procedures and marketing techniques more easily than smaller independently-owned establishments, but for an industry with already tight profit margins, navigating the challenges presented by COVID-19 is especially overwhelming. Restaurants must find a way to respond to the new expectations of consumers while protecting the health and safety of workers and the public and abiding by laws and mandates that vary from state to state.
There is no doubt that the restaurant industry will be radically different for the foreseeable future. Restaurants must adapt to operating in a contact-free economy and remain open to solutions that may require significant change.
Key Considerations from the FDA and CDC Regarding Take-Out and Delivery During COVID-19
Best Practices for Retail Food Stores, Restaurants, and Food Pick-Up / Delivery Services During the COVID-19 Pandemic: https://www.fda.gov/food/food-safety-during-emergencies/best-practices-retail-food-stores-restaurants-and-food-pick-updelivery-services-during-covid-19
What Food and Grocery Pick-Up and Delivery Drivers Need to Know about COVID-19:https://www.cdc.gov/coronavirus/2019-ncov/community/organizations/food-grocery-drivers.html
Managing To-Go and Delivery at the State Level
In an effort to provide relief for the many restaurants who have experienced huge losses in revenue due to COVID-19 concerns and restrictions, states are taking measures to modify existing laws to ease restrictions on when and where alcohol is sold. The sale of to-go alcohol is providing a crucial influx of cash for many restaurants nationwide. States like New York and California, which account for one fifth of the U.S. population, led the way for the incredibly fast change in liquor laws. Even in states that heavily policed the separation of retail and restaurant previously, a new landscape has emerged.
COVID-19-Related Laws at the State Level
COVD-19 Resources and Information by State: https://www.restaurant.org/downloads/pdfs/business/assoc-state-covid19-resources.pdf
State Alcohol-Related Laws During the COVID-19 Emergency for On-Premise and Off-Premise Establishments: https://alcoholpolicy.niaaa.nih.gov/sites/default/files/file-page/apis_-_covid-19_memo_6.15.20_508c.pdf
In Tennessee On March 22nd, in accordance with the national coronavirus guidelines and CDC recommendations to limit the spread of COVID-19, Governor Bill Lee signed an Executive Order recognizing the need to support the restaurant industry uniquely damaged by the COVID-19 outbreak and help provide the necessary means for them to survive in the short-term and “continue serving customers in an innovative, safe way.”
- Establishments are to exclusively offer drive-thru, take-out, or delivery options to support families, businesses, and the food supply chain during this emergency.
- Establishments may sell alcohol by take-out or delivery (with the purchase of food) in closed containers to those who are age 21 and up.
Liquor-by-the-Drink Tax and Alcoholic Beverages for Consumption Off Premises
The temporary suspension of rules and regulations allowing take-out and delivery of wine, beer, and to-go cocktails is helping to drive profit margins for many businesses, however, some states levy substantial taxes on alcohol making it difficult for restaurants in some parts of the country to make a profit.
As per the T.N. Department of Revenue: No liquor-by-the-drink tax should be charged on take-out or delivery sales while the Executive Order is in effect. Businesses should not collect the liquor-by-the-drink tax on these sales, either by adding tax to the menu price or including the tax in the menu price. Any liquor-by-the-drink taxes that are collected must be remitted to the department. Sales and use tax will continue to apply to these sales
Take-out, curbside, and delivery options have been a lifeline for many restaurants faced with the pandemic’s hardships. Unlike many states, Tennessee extended the Executive Order for the temporary sale of alcoholic beverages for consumption off the premises through September 30th. Full-service, limited-service, and wine-only restaurants can continue to-go and delivery alcohol sales, with no additional license needed to deliver, as long as the following conditions are met:
- Only restaurants and limited-service restaurants may sell alcoholic beverages to go.
- Spirits may not be sold by the bottle.
- Servings of spirits are limited to four (4) servings of alcohol per sixteen (16) ounce container.
- Wine may be sold by the glass or bottle.
- Beer may be sold by bottle, can or growler.
- Licensees are only responsible for sales and use tax. Liquor-by-the-drink tax has been waived.
- Server permits are not required for employees making delivery.
- Employees making deliveries must be at least twenty-one (21) years of age.
- Third party delivery services may be used, even if they do not have a delivery service license from the TABC.
- Licensee is responsible for verifying age of purchaser.
Fast Tracking the Adoption of Digital Solutions
With many Americans sheltering in place during the coronavirus pandemic, it is not surprising that meal delivery sales have skyrocketed. Data through the end of June reveals that sales for meal delivery services more than doubled year-over-year, collectively. To-go and delivery options will be a fundamental aspect of service and restaurants need to adopt digital solutions quickly.
With restaurants operating at limited capacity, online orders and menus as well as contactless payment are essential. While there’s no denying the expansion of third-party providers amid the pandemic, restaurants will need to explore quickly developing proprietary digital platforms to accommodate to-go menus and delivery.
Restaurants looking to ramp up their to go offerings would do well to watch national chain restaurants. Many major chains are relying heavily on technology to enhance the takeout and to go customer experience. Getting customers to order ahead is a strong trend in this area.
While the customer is still in control, offering rewards for specific ordering options allow a business to help manage and influence customer interactions. For example, Taco Bell recently unveiled a new “Go Mobile” design that includes contactless curbside pickup and indoor shelves that make it easy for customers to claim mobile orders. Through the Taco Bell app, the company offers a suggested method for pickup where customers can rack up loyalty points if chosen. The innovative method brings benefits to Taco Bell through organizing a variety of customer experiences while also benefiting the customer.
More examples from larger chains show that companies have faired the best when they’ve taken a proactive stance. Large brands like McDonalds and Chick-fil-A were quick to implement new health measures and improve their drive-through services quickly. These examples show the benefits of acting quickly to optimize restaurant activities instead of waiting for the next step in the pandemic.
Maintaining Proactive Operations Through COVID-19
The ability to pivot quickly is essential for businesses with a presence throughout Tennessee. One of the biggest challenges will be navigating state mandates that continuously change as the pandemic evolves throughout the country. Especially for restaurants that operate in multiple states, it’s important to find proactive solutions that work throughout every market.
At Schaffer Law Firm, we provide one-on-one support for corporate counsel. Our lawyers help navigate franchise licensing and operational procedures that align with the latest state mandates. Through our strong presence in Nashville, we’re able to understand current challenges and help business protect against future changes.
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