INDEPENDENT RESTAURANT STRATEGIES USED TO SUSTAIN OPERATIONS DURING THE COVID-19 PANDEMIC

Dr. Christopher Long

Executive Summary

Restaurant operators have struggled with the overuse of a business model that has largely remained unchanged and resulted in shrinking profit margins since 1995. When restaurant operators use this model, their ability to absorb and react to market disruptions significantly diminishes. In this qualitative inquiry, the perspectives of independent restaurant operators concerning the changes and innovations made to their business model to adapt to COVID-19 are explored. This summary outlines the project’s business problem, purpose, method, population, results, and implications/uses.

1.0 Problem. Most independent restaurant operators in the United States continue to rely on a traditional restaurant business model that is ineffective in addressing a wide array of industry-related problems and market disruptions. The use of the traditional restaurant business models tends to over-rely on a singular primary revenue stream, resulting in the inability to sustain business operations during a significant economic disruption. The gap in practice is that independent restaurant operators need more practical training, knowledge, and experience with business model innovation.

2.0 Purpose. The purpose of this project was to explore the perspectives of U.S. independent restaurant operators regarding innovative business models to sustain operations during a significant economic disruption.

3.0 Method. The qualitative inquiry for this project relied on one-on-one interviews to collect information via Zoom. In addition, thematic data analysis helped analyze the data collected regarding the perspectives of independent restaurant operators who made innovative changes to their business model to adapt to disruptions.

4.0 Population. User Interviews screened over 119 candidates, and 16 participants were identified, including two used in the pilot study. Participants were required to have over three years of experience in a role with the ability and authority to make decisions regarding innovations to their business model.

5.0 Results. This study started with 61 initial codes that developed into five relevant themes: community engagement, adaptable offerings, concept switch, disruptions, and social media. Community engagement was the most overwhelming theme discovered. Most restaurant operators accredited community engagement as the primary factor for their survival compared to restaurants in their area forced to close.

6.0 Implications/Uses. The findings from this project contribute to theory, literature, and practitioner knowledge. The primary implication of this knowledge provides insight into how independent restaurants can innovate their business model to adapt to significant economic disruptions. The findings also support that community engagement allowed restaurant operators to sense and fulfill needs in the community, and in return, operators received positive support from locals.

SECTION 1 BUSINESS PROBLEM AND PROJECT SCOPE

Introduction

Restaurant operators have struggled with the traditional business model, and success during normal market conditions has proven to be a challenge (Bandoim, 2019). The traditional restaurant business model has remained unchanged and depends on high volume and consistent 90% to 100% dining capacity throughout the week to remain profitable (Schwark et al., 2020). When restaurants use this model, their ability to absorb and react to market disruptions significantly diminishes (Bandoim, 2019). Some restaurants use adaptive or hybrid business models to offset the instability of traditional business models by incorporating multiple revenue streams (Amel et al., 2020). These concepts, such as ghost kitchens, are relatively new and untested. Still, business disruptions brought on by COVID-19 forced many restaurants to branch and incorporate these concepts to adapt to market disruptions (Dubb, 2021).

In addition, local and state governments' dining capacity limitations and mandatory shutdowns imposed on independent restaurants significantly reduced the profitability of businesses that uses a traditional restaurant business model (National Restaurant Association, 2021). The National Restaurant Association (2021) found that by December 2020, over 110,000 restaurants had closed long-term or indefinitely, and 16% of these businesses had been open for over 30 years. Furthermore, COVID-19 forced many restaurants to react to new and never-seen market conditions (Krader & Vines, 2020).

Independent restaurants attempting to survive the economic downturn accompanying the COVID-19 pandemic had to make radical business model changes to adapt to market disruptions (Dubb, 2021). Changes included incorporating additional revenue streams and developing new strategies and innovations to control better operational costs (Dubb, 2021). A retrospective analysis of perspectives of independent restaurant operators concerning the changes and innovations made to their business model has provided valuable insight into how restaurants adapted to uncertainty and the suitability of the traditional business model.

Capstone Topic

This project was completed as part of the Capella University Doctorate in Business Administration (DBA) program, specializing in strategy and innovation. According to Capella University, the DBA program teaches learners to use relevant scholarly research to solve current business problems with innovative solutions. In addition, the specialization focuses on evidence-based practices for identifying and developing business strategies designed to create environments that support organizational innovation, sustainability, and adaptability.

The project focused on the business model innovations that independent restaurant operators were taking to adapt to the economic disruptions brought by the COVID-19 pandemic and the lessons learned about their prior business models. The restaurant industry suffers from an overreliance on outdated business models and strategies that have failed to address various issues (Amel et al., 2020; Bandoim, 2019). A longitudinal study conducted from 1996 to 1999 found that 26% of independent restaurants failed in their first year, and the cumulative failure rate increased to 60% by the third year of operation (Parsa et al., 2005). Profit margins in 1995 stood at 15-20%, but by 2019 the national average dropped to 2-6% (Walters, 2019). Dining capacity is essential as most independent restaurants must operate at or near 100% capacity 7 days a week to remain profitable due to these slim profit margins (Amel et al., 2020).

Most independent restaurants' traditional restaurant business model fails to address a wide array of problems ranging from above-average employee turnover, shrinking profit margins and rising operational costs (Amel et al., 2020; Parsa et al., 2005). Moreover, until COVID-19 presented disruptions to this industry, most independent restaurants using this model failed to innovate the model to add additional revenue streams and new measures to control costs (Deloitte & James Beard Foundation, 2021; Hand & Reinstein, 2020). The problems become amplified when faced with a significant economic disruption such as COVID-19 (Amel et al., 2020).

This project aligned with the strategy and innovation specialization as it explores innovations and business model changes used by independent restaurants to overcome disruptions brought on by COVID-19 that limited dining capacity below acceptable thresholds needed to remain profitable. In March 2020, restaurants across the United States shut down as a control measure due to the outbreak of COVID-19, resulting in total sales coming in at $240 billion below the National Restaurant Associations' initial pre pandemic forecast (National Restaurant Association, 2021; Ruggless, 2020). Independent restaurants were hit especially hard, as most do not have enough cash to weather limited capacity or a complete shutdown (McLynn, 2020). Schneider (2019) stated that firms exposed to high volatility and exogenous change must show dynamic adaptability and innovate their business models to survive and grow. Krader (2020) stated that due to the current environment and disruption brought on by the COVID-19 pandemic, restaurants had to implement radical business model innovation if they wished to survive. This research project highlighted some of the business model innovations used to adapt to disruptions brought on by COVID-19 but also provided insight into the thoughts and perceptions behind these innovations.

Problem of Practice

The general problem is that most independent restaurant operators in the United States continue to rely on a traditional restaurant business model that is ineffective in addressing a wide array of industry-related problems and market disruptions (Amel et al., 2020; Parsa et al., 2005). Independent restaurants use an outdated business model for profit margins of around 15%-20%. However, as of 2019, the average profit margins dropped to as low as 2%-6% (Walters, 2019). Another critical issue that has gone unaddressed is labor; as of 2016, the industry had a turnover rate above 75%, and then the pandemic increased turnover to 130% (Bureau of Labor Statistics, 2022b). One of the critical problems driving this high turnover is low wages, as one in six restaurant employees live below the poverty line and average wages rand from $12.67 an hour for cooks and $11 to $15 an hour for servers (Shierholz, 2014). Parsa et al. (2005) found that 26% of restaurants fail within the first year, but a new study in 2014 found that the failure rate was closer to 14%, and the average life expectancy was around 4 years (Luo & Stark, 2014). Unfortunately, no government agency nor the National Restaurant Association officially tracks restaurant failures contributing to the lack of information on these trends (Luo & Stark, 2014).

The specific business problem is that the use of the traditional restaurant business models tends to over-rely on a singular primary revenue stream, resulting in the inability to sustain business operations during a significant economic disruption (Krader & Vines, 2020; Parsa et al., 2005). Using this outdated business model puts restaurants in a position where most only have a 16-day cash buffer (Farrell & Wheat, 2016). With a limited cash buffer, most restaurant operators face significant challenges sustaining operations through continuous limited capacity (McLynn, 2020). Therefore, when these independent restaurants faced an economic disruption, such as the COVID-19 pandemic, they were at greater risk of failure. While there were some changes to the business model during COVID-19 to sustain operations, most of the changes to the business model were an effort to support new retail and delivery options (Marchese, 2020). However, third-party delivery services and Payment Protection Program (PPP) loans alone proved insufficient for most restaurants attempting to weather disruptions brought by the pandemic (Jennings, 2020; King, 2020). COVID-19 was a unique event for independent restaurants. The disruptions forced many restaurants to reduce dining capacity below 50%, thus creating a scenario where restaurant operators had to develop new creative business model innovations and strategies to sustain operations for an extended period (Amel et al., 2020).

Purpose of the Project

The purpose of this qualitative inquiry project was to explore the perspectives of U.S. independent restaurant operators regarding innovative business models to sustain operations during a significant economic disruption. The intended outcome of this project was to develop best practices and new business model innovations that have greater stability and capabilities to adapt to market disruptions.

Project Need

A need exists for this proposed project, as the Independent Restaurant Coalition (IRC) noted that upwards of 85% of independent restaurants might close because of the economic disruptions brought on by COVID-19 (Amel et al., 2020). By December 2020, 110,000 restaurants had closed, and over 8 million employees had been laid off (National Restaurant Association, 2021). Most independent restaurants that failed did so because of a lack of clarity or adaptability with their business models (Parsa et al., 2005). One of the top failures of inadequate business models results from a lack of industry knowledge regarding successful business strategies and business model design (Parsa et al., 2005). More information regarding successful business strategies and business model innovations is needed to help independent restaurants move from an outdated business model to a more innovative one that allows for better adaptability.

Further, the need for this project stemmed from an ineffective government response that has proved inadequate to alleviate the issues leading to closure (Solnet, 2020). For example, Payment Protection Program loans did not fully address all operational costs, as 60% had to be spent on employees, and harsh repayment standards if the employer did not rehire their staff (Amel et al., 2020; Noreen, 2021). Local and state regulations that limited dining capacity also proved challenging for restaurant operators, as delivery services proved insufficient to sustain operations (Marchese, 2020). Some challenges include government programs failing to provide adequate assistance, insurance companies denying business disruption claims, and small business loan approval rates reaching lows not seen since the 2008 financial crisis (Biz2Credit, 2020; Solnet, 2020). Therefore, there was a need to explore potential business model innovations to help restaurants better adapt to turbulent economic disruptions.

Project Question

PQ. What are the perspectives of U.S. independent restaurant operators regarding best practices to develop an innovative business model?

Project Justification

The gap in practice is that independent restaurants owners lack practical training, knowledge, and experience with business models and strategy implementation, resulting in most independent restaurants utilizing an outdated business model that lacks the capabilities to adapt to current trends and industry conditions (Parsa et al., 2005; Rankin, 2021). The gap in practice relates to the study because there is an increasing need for modifications to the restaurant business model to address commonly associated problems such as shrinking profit margins and high employee turnover that plague the restaurant industry nationwide (Rankin, 2021). Therefore, providing insight from those owners and operators that made successful modifications will help to inform and guide other restaurant operators.

The interview questions were designed to elicit responses from participants regarding what modifications were made to the business model and best practices employed to return to sustainability. The answers to these questions addressed the gap in practice by providing a "toolbox" of potential solutions and perspectives on addressing some of the primary problems with the restaurant business model and providing guidance on these implemented changes. The intended outcome of this project was to explore the business model innovations and strategies implemented by independent restaurants that sustained operations.

Project Context: Company or Industry

The U.S. restaurant industry comprises several market segments with no official or formalized means to categorize restaurant business models (Parsa et al., 2020). Scholarly literature on restaurant business models lacks a commonly agreed-upon definition within the academic community. Management capabilities are a primary concern in restaurant failure, and one of the more significant factors is limited access to information and a lack of good industry advice (Parsa et al., 2005). The lack of a standardized classification system within the academic and industry community presents an issue where restaurants cannot accurately gauge performance or utilize academic studies due to the inconsistency with classification resulting in a lack of usable knowledge for the industry (Parsa et al., 2020).

The industry is valued based on total food and drink orders (Restaurants in the United States, 2015). The year 2020 proved to be one of the most challenging years on record for the industry, as over 110,000 restaurants closed and over 8 million employees were laid off (National Restaurant Association, 2021). As a result, all industry segments saw a significant drop in revenue for 2020. The full-service segment dropped from $285 billion to $199.5 billion. The limited-service restaurants fell from $308.9 billion to $290.4 billion. Bars fell from $22 billion to $7.7 billion, and the "other" segment dropped from $248.4 billion to $161.5 billion (National Restaurant Association, 2021, p.7).

Tight operating margins and business models that require restaurants to operate at full capacity lack redundancy and put these businesses in a position where adapting to new trends and disruptions was challenging (Amel et al., 2020; Taleb & Blyth, 2011). Most independent restaurants have few financial resources to survive (Amel et al., 2020). Events such as COVID-19 present many obstacles and rapidly changing business conditions. The economic downturn in 2020 forced most business operators to improve their business models to adapt. Slim margins, limited cash, and inadequate government assistance programs forced many restaurants out of business (Amel et al., 2020). In addition to the revenue downturn, restaurants were forced to lay off a sizable percentage of their staff (Patton, 2020). The government response was also ineffective, as PPP loans first stipulated that 75% of the loan would be used to rehire labor, and the funding only lasted 8 weeks (Noreen, 2021). This program was eventually changed to only 60% for labor, and the funding was extended for 24 weeks (Noreen, 2021). However, many employees took advantage of the boosted unemployment benefits that, in most cases, paid significantly more than regular wages, making it difficult for restaurant operators to bring their staff back to full capacity (Patton, 2020).

Restaurant operators modified business models to support delivery options and reduce capacity to sustain operations; however, in most cases, these options did not generate enough revenue (Amel et al., 2020). As a result, restaurant operators were looking for creative ways to generate additional revenue. Crowdsourcing is one-way restaurant operators brought in additional revenue; these campaigns allow donors to sponsor restaurants monetarily and, in return, receive some form of a gift, coupon, or special offering (Kickstarter, 2020).

To control and mitigate costs, operators had to rethink pricing strategies. For example, some restaurants require patrons to prepay, and a surcharge is added for hospitality, thus removing the need for tipping and providing more stability for the restaurant staff (Jennings, 2020). Another measure operators take is sous vide, where food is vacuum-sealed and reheated in water (Feifer, 2020). This cooking method extends the shelf life of ingredients by up to 3 months and offers the advantage of less waste and better flexibility to disruptions (Feifer, 2020).

This project provided valuable insight into the creative strategies used by restaurant operators to generate additional revenue and mitigate costs to sustain business operations. In addition, this project helped with analyzing those restaurant operators that created effective strategies and provided an analysis that might prove beneficial in a similar economic crisis and provide insight into the restaurant industry's direction regarding business model innovation.

Terms and Definitions

Black Swan. Black swans are events with world-shaping implications and consequential shocks (Taleb & Blyth, 2011).

Hybrid Restaurant Business Model. A hybrid restaurant business model refers to restaurants with multiple revenue streams designed to offset the instability of traditional restaurant business models (Amel et al., 2020).

Independent Restaurant. An independent restaurant is a local business operation that is not part of a chain or corporation (Local Sauté, n.d.).

Independent Restaurant Operators. A restaurant operator, for the context of this project, is a general manager or the chief authority with similar power and responsibilities that is responsible for the management of an independent restaurant (Local Sauté, n.d.).

Traditional Restaurant Business Model. The term traditional restaurant business model refers to commonly used business models in the restaurant industry that have remained mainly unchanged and are highly dependent on one revenue stream that prioritizes high volume and consistent 90% to 100% dining capacity throughout the week (Parsa et al., 2005; Schwark et al., 2020).

Doctor of Business Project Specifications

This project used the qualitative inquiry technique to collect information and explore the perspectives of independent restaurant operators on the innovations developed and strategies used to optimize their restaurants' business model's cost structures and revenue streams to sustain operations during the COVID-19 pandemic. The qualitative inquiry for the project consisted of independent restaurant owners and operators with extensive experience managing and owning an independent restaurant. The information gained from this project could help restaurant operators, practitioners, and scholars modify their business models to adapt to future events where an external factor disrupts business and limits business operations for an unknown and extended period.

Importance of the Project

This project is significant and essential to independent restaurant operators because, as noted by Amel et al. (2020) and Parsa et al. (2005), operators could gain insight into innovative, adaptative business models to operate during a significant economic crisis by reviewing the findings. Furthermore, this project is vital to stakeholders involved in the restaurant industry because it calls to attention problems with the restaurant business model that have largely been ignored since 2000 (McLynn, 2020; Parsa et al., 2005). In addition to awareness, this project highlights innovations to the business model that may indicate a future trend of restaurant innovations and spur creativity with business strategy and innovations within the restaurant sector that is desperately needed (Parsa et al., 2005; Rankin, 2021).

COVID-19 presented one example of an economic downturn and crisis and presented many challenges and disruptions that resulted in over 110,000 restaurant closures, $240 billion in lost sales, and over 8 million employee layoffs (National Restaurant Association, 2021). Some states, such as California, shut down operations first and gradually allowed restaurants to reopen but with limited dining capacity (Elliott, 2020). One of the restaurant industry's significant problems is that it operates on tight margins with operational costs, and most of these restaurants have to operate at or close to 100% (Amel et al., 2020; McLynn, 2020). The limited capacity restrictions allow most restaurants to operate at a limited capacity well below 100% (Amel et al., 2020; McLynn, 2020). Even those without restrictions are seeing the same effects due to the general public's fear of COVID-19 (HBS Working Knowledge, 2020). Larger corporate chains and franchise restaurants have the capabilities and resources to weather these new restrictions and disruptions more efficiently than independent restaurants (HBS Working Knowledge, 2020). To stay operational, some independent restaurants altered business models to cater more to delivery and carryout operations and have even gone as far as to sell groceries (Amel et al., 2020; HBS Working Knowledge, 2020; King, 2020). While these new business model changes helped to bring in additional revenue, in most cases, these measures are insufficient to allow the business to return to profitability (Amel et al., 2020; HBS Working Knowledge, 2020).

The government response to COVID-19 regarding stimulus packages for small businesses was inadequate in protecting businesses from economic disruptions (Solnet, 2020). While government programs may not be advantageous, many restaurant operators sought alternative cash infusion strategies. The COVID-19 situation highlights the importance of discovering new hybrid business models that allow restaurants to implement new revenue streams and increase stability. In addition to stability, these new business model innovations may help to increase the overall profit margins and reduce the risk of future market disruptions.

The events surrounding COVID-19 presented a unique opportunity to study the strategies used by these restaurants to sustain operations and helped develop a best practice guide for future calamities. Unfortunately, limited literature and knowledge are available to restaurant operators regarding strategies for sustaining operations during economic disruptions caused by external factors such as pandemics or other phenomena. The information collected from this project helped fill this gap in practice. In addition, it provided knowledge on strategies and innovations developed to modify business models to adapt to business disruptions brought on by external factors.

Approach for the Project

Thematic data analysis helped analyze the data collected regarding the perspectives of independent restaurant operators who have experience working with independent restaurants. Thematic data analysis is a qualitative method that helps identify, analyze, and record patterns (Kiger & Varpio, 2020). This method was used to understand experiences and thoughts across a data set and construct themes based on observed patterns (Kiger & Varpio, 2020). User Interviews was the professional platform used to select participants.

The selection of independent restaurant operators was based on their direct influence on business strategies in their respective restaurants and those restaurants that met the criteria of an independent restaurant and were not part of any franchise or corporate operation. These operators were then qualified based on their professional experience and education. The first participant inclusion criteria were that participants were independent restaurant operators with over 3 years of experience in a role with the ability and authority to make decisions regarding innovations to their business model. The second criteria were that participants identified that they made changes to their existing model and that some were still in effect. The third criteria were that participants had a working knowledge of business model design and execution. The final criteria were that participants already had a business model prior to the COVID-19 outbreak in 2020

The interview lasted up to 60 minutes. It consisted of a line of questioning designed to invoke their perspectives on effective strategies and business model innovations used to sustain during the COVID-19 pandemic. Interviews consisted of open-ended semistructured interview questions using Voice over Internet Protocol (VoIP) on the Zoom platform.

There were some challenges associated with this research method. First, the information sought pertained to vital business strategies and innovation that were most likely critical components of a competitive strategy in the post-COVID-19 landscape. However, participants were comfortable discussing information related to their business strategy. With qualitative research, there was potential for bias within the interviews because the researchers could "lead" the subject because specific data is sought (Alsaawi, 2014).

Another challenge of this project was the varying effects of COVID-19 and how these effects were felt differed across geographic regions. For example, California was one of the first states to adopt highly restrictive restaurant operations measures (Elliott, 2020). While some states adopted highly restrictive measures, others were reluctant to do so out of concern for local economies (Elliott, 2020). This issue presented a limitation of the study concerning the restaurant operators. Restaurant operators from one city or geographic location that experienced less, or more restrictive government regulations might have produced an element of bias. Researchers using a thematic data analysis must clearly outline their assumptions and biases to ensure the trustworthiness of their findings. (Kiger & Varpio, 2020). The challenges associated with one region had different implications than other regions. However, this limitation did not affect the

Summary

The COVID-19 pandemic threatened to force over 85% of independent restaurants out of business, and by the end of 2020, 110,000 closed for good (McLynn, 2020; National Restaurant Association, 2021). Since March 2020, several stimulus packages and government programs, such as the Payment Protection Program, aimed to help small businesses keep their employees on payroll and cover some operational costs (Noreen, 2021). However, these programs should have addressed an array of issues pertaining to independent restaurants and rendered most of the programs useless to these operators (Solnet, 2020). In addition to these programs’ inadequacies, the industry typically operates with tight margins, and most restaurants must maintain dining capacity at 100% (Amel et al., 2020). While most restaurants modified their business models to support carryout and delivery operations, these changes were not enough to sustain operations (McLynn, 2020).

To sustain operations and eventually return to profitability, restaurant operators had to develop creative strategies to mitigate operating costs and secure additional revenue streams. This project used a qualitative inquiry technique to explore the thoughts and perspectives of independent restaurant operators on effective strategies used during the COVID-19 pandemic. The findings of the retrospective analysis help benefit future restaurant operators adapting to calamities and provide insight into the future of the traditional restaurant business model. The following sections in this project present a review of scholar and practitioner literature, a summary of the research method, and an analysis of data with future implications.

SECTION 2

LITERATURE REVIEW AND PROJECT PLAN

Introduction

COVID-19 changed the restaurant industry landscape, and the economic disruptions were severe and widespread, resulting in over 110,000 restaurants closing in 2020 (The National Restaurant Association, 2021). The project explored the business model innovation devised by independent restaurants to address over-reliance on an outdated business model, as researchers Jennings (2020) and Krader (2020) emphasized. This project used a qualitative inquiry to explore independent restaurant operators' perspectives regarding best practices to develop an innovative business model for disruptions brought on by the COVID-19 pandemic.

The first subsection introduces the applied framework used for this project and how the general and specific problems were explored. The applied framework section has two additional subsections explaining the traditional restaurant business model using the business model canvas and other relevant frameworks. The following subsection reviews the methodology for discovering literature and explains the inclusion and exclusion criteria and the search strategy. This subsection is followed by the literature review of both scholarly and practitioner literature and includes an examination of historical and current trends, new emerging business models, and hybrid models. Finally, Section 2 will address the recruitment procedures, project study protocol, and project timeline.

Exploring the perspectives of independent restaurant operators that developed and implemented successful business model innovations is a critical first step in understanding the future's new trajectory of restaurant business models. One industry report concluded that it is improbable that the restaurant industry will return to "normal" pre pandemic conditions (National Restaurant Association, 2022). With the disruptions of the pandemic unlikely to fade, the industry is experiencing a state of radical change.

Applied Framework

Grant and Osanloo (2014) stated the value behind choosing a framework and integrating the framework into a study. A framework is a blueprint for constructing a project and the research's foundation. Based on an inductive analysis, the findings from the inquiry revealed five significant themes further explained in the previous section. The framework supports the problem, purpose, and significance and is the anchor for the literature review and analysis method (Grant & Osanloo, 2014). Frameworks also represent their researcher's personal beliefs concerning knowledge and offer insight into their work understanding (Grant & Osanloo, 2014).

I explored the business model innovations made by independent restaurant operators and how these practices helped restaurant owners adapt to economic disruptions. Because the disruptions brought on by COVID-19 directly challenge the application of the traditional restaurant business model, these innovations may also provide insight into how some of the problems associated with the traditional restaurant business model are potentially mitigated. First, the framework for this project looked at the traditional restaurant business model through the lens of the business model canvas (Osterwalder & Pigneur, 2010). Then the framework explored how black swan events such as COVID-19 created an environment where restaurants were forced to acknowledge and adapt to some shortcomings of the traditional restaurant business model. Finally, the framework looked at the innovations again through the business model canvas to understand the best practices involved with these innovation efforts (Osterwalder & Pigneur, 2010). Figure 1 provides a detailed flow of the applied framework and how the key concepts work together to explore the business problem.

Figure 1

Restaurant Business Model Innovation Framework

Note. This figure shows the traditional restaurant business model shown using the Business Model Canvass by Osterwalder & Pigneur (2010). The framework also shows the general and specific business problems and best practices for restaurant business model innovation by restaurant type. Restaurants for this project are classified using the New Restaurant Classification System by Parsa et al. (2020). This system is the only U.S.-based restaurant classification system based on academic theory and input from consumers and restaurant operators. Figure 1 developed by C. Long (2022).

First, the traditional restaurant business model was dissected and analyzed using the business canvas model to explore how the restaurant operated pre pandemic. The business model canvas helped to clarify and organize the restaurant's business model elements and provided an organized approach to understanding how the traditional business model works. The second part of the framework examined disruptions brought on by the pandemic and how restaurants adapted, which resulted in and, ultimately, the lessons learned. To better understand the innovations made, it was essential to look at how a black swan event such as COVID-19 disrupted the entire industry while also understanding how inadequacies with the traditional restaurant business model amplified these disruptions. COVID-19 acted as a catalyst and spurred innovation that may address some of these inadequacies.

The next section of the framework categorized the results of the lessons learned by restaurant type based on the literature review findings, including Parsa et al.'s (2020) proposed restaurant classification system. Categorized results helped organize information because innovations made by a luxury restaurant may not apply to a quick-service restaurant. Finally, the best practices for innovation in the restaurant business model for each concept category are explained via the business model canvas structure and organized using the new restaurant classification (Osterwalder & Pigneur, 2010; Parsa et al., 2020).

Traditional Restaurant Business Model and the Business Model Canvas

To better understand the traditional business model, this project explored these restaurants using the business model canvas as a lens. The model whelped to better understand the individual building blocks in each restaurant’s business model while applying a standardized approach that allows comparison and contrast between restaurants. This section covers both the traditional restaurant business model and the business model canvas and further explains each of the nine segments.

Cost Structure

The cost structure is an essential part of the business model canvas as it acts as the mechanism that balances the cost of running the business with the revenue generated. Defining key resources, activities and partners helps identify the most expensive and essential for business operations, and the cost structure is typically defined as either cost or value driven (Osterwalder & Pigneur, 2010). For example, a cost-driven model in a quick-service restaurant will minimize labor, food, and upkeep costs. In contrast, a value-driven model in a luxury restaurant might focus more on value creation and customer experience. The cost structure consists of labor, food, and advertising costs. Because restaurant profit margins are thin, much attention is placed on cost structure, as it can often be the difference between success and failure with the traditional restaurant business model (Boroh, 2021). The majority of restaurants' largest expenditure is labor and presents a number of difficulties given the industry's above-average turnover rate (Amel et al., 2020).

Value Proposition.

Value proposition seeks to establish why customers choose one business over another (Osterwalder & Pigneur, 2010). The value proposition can take the form of services or products that meet customers' needs and is routed in loyalty or innovation and disruptive offerings (Osterwalder & Pigneur, 2010). Restaurants typically use both products and services while offering new and innovative offers designed to enhance the customer experience. Restaurant trade publications identify value propositions as one of the most integral and critical pieces of business models (Philips, 2013). The value proposition clarifies what the business offers to customers. The restaurant value proposition primarily relates to the menu, pricing, service, and atmosphere (Elliott, 2022). The traditional restaurant business model prioritizes using a concept that distinguishes itself from the competition, and the concepts can take various forms (Bogers & Jensen, 2017). The value proposition breaks down into service style and food offerings because it is impossible to capture 100% of the market; these concepts help restaurants focus on the 5% to 10% they can capture (Elliott, 2022; The Staff of Entrepreneur Media, Inc., 2022). Services are categorized as table, family-style, upscale, and quick service (Elliott, 2022).

Revenue Streams

Revenue streams define how the customer segment and value proposition work together to generate through either transactional streams that generate on-time payments or recurring revenue streams that generate ongoing payments (Osterwalder & Pigneur., 2010). A transactional stream would be seen in a traditional restaurant, typically consisting of customers going to a restaurant for dinner service and then paying for that service. A recurring stream would look more like a subscription, for example, a monthly fee to access Netflix. These revenue streams generate revenues in various ways, such as asset sales derived from ownership rights or subscription fees that offer access to a service (Boroh, 2021). The traditional restaurant model primarily depends on one transactional revenue stream and dining capacity at or near 100% to remain profitable (Schwark et al., 2020). Hybrid restaurant business models have looked at other possibilities for revenue streams, including subscriptions or recurring revenues (Hand & Reinstein, 2020).

Key Partners, Key Activities, and Key Resources

Key partners refer to buyer-supplier relationships, strategic partnerships with noncompetitors, and joint ventures to develop new business opportunities (Osterwalder & Pigneur, 2010). Building strong partnerships and business relationships with vendors and suppliers can help restaurants reduce risk and provide stability (Boroh, 2021). To some degree, partnerships can also be a competitive advantage. For example, supplier relationships within the restaurant industry are a crucial part of the business. Low cost and quality of goods are significant, given the tight profit margins within the restaurant industry (Amel et al., 2020).

Key activities refer to the product or services a business offers and are highly essential actions a business takes to operate (Osterwalder & Pigneur, 2010). These activities can take various forms, but this refers to the restaurant industry's food offerings and customer service preparation. Ghost kitchens show how innovations with key activities can create partnerships with other restaurants to reduce overhead and form a competitive advantage by allowing restaurants to partner and share resources to fulfill the demand for delivery and take-out options (Hand & Reinstein, 2020). This concept allows restaurants to control costs and labor better and generate a greater return on their offerings (Bandoim, 2019).

Key resources are needed to cultivate relationships with customer segments, generate revenue, and successfully operate the business (Osterwalder & Pigneur, 2010). These resources take the form of physical, financial, or human forms. For example, one of the essential resources in restaurants is labor due to the skill set required to prepare food and provide a positive customer experience (Patton, 2020). The traditional restaurant business model depends on skilled labor, but despite this need, industry turnover is above average, and wages are below average (Shierholz, 2014).

Customer Relationships Channels Customer Segments

Customer relationships identify how a business engages with its customer segments, what those relationships look like, and how they are driven (Osterwalder & Pigneur, 2010). The relationships can range from an automated approach using marketing drip plans to something more personal in nature, and restaurants should take full advantage of available resources to connect with their consumers (Boroh, 2021). Several factors need to be considered regarding integration, costs, and effectiveness. For example, a restaurant may consider implementing an automated service on its website that allows for creating a customer profile. The restaurant would consider the cost of this upgrade and how it integrates with its business model. The new feature may help stimulate customer relationships, or their service could prove too costly. Once a company has set a strategy, the business looks at how the relationships are established and maintained. For example, a company could use a mix of automation and personal engagement, such as using an email database for promotions and collecting feedback or simply calling loyal customers on special occasions like birthdays (Harris, 2022).

Channels are the mechanisms through which businesses reach customer segments and take the form of communication, distribution, and sales (Osterwalder & Pigneur, 2010). When integrating and evaluating potential channels, a business must understand what means are effective in reaching their targeted customer segment. Operators must also know how that channel can facilitate the desired customer relationship. Channels include five-channel phases: awareness, customers’ evaluation of the business, purchase, delivery, and post purchase support (Osterwalder & Pigneur, 2010). For example, the introduction of online delivery services has offered a new channel for businesses to reach customers and proved helpful to restaurants impacted by the government shutdown during the pandemic (Marchese, 2020).

The customer segment or target market identifies the type and demographic of customers the business wants to attract (Osterwalder & Pigneur, 2010). Business models can identify large or small customer segments, and then decisions can be made regarding addressing customer needs (Boroh, 2021). Restaurants must clearly understand what demographics they are trying to attract and how they relate to the community. Psychographics and behavior trends also help to provide insight into how customer lifestyles and personal habits help restaurants better adapt their concept to the community they operate (Elliott, 2022).

Relevant Frameworks

Parsa et al. (2020) found that the United States lacks a formalized classification system for the restaurant industry that is both viable and theory-based. Hedonic and utilitarian consumption models were used to develop a new theory-based restaurant classification system. The hedonic and utilitarian consumption models argue that consumers with hedonic behaviors seek to fulfill a need for emotional gratification. Consumers experiencing utilitarian behaviors seek to fulfill a need out of convenience or functionality. These models were assigned a point system to grade hedonic and utilitarian values associated with similar restaurant concepts. This new classification system identifies four restaurant categories, high hedonic or luxury, low hedonic or fine dining, low utilitarian or causal, and high utilitarian or quick service (Parsa et al., 2020).

The new restaurant classification system uses a utilitarian and hedonic framework to help guide input from multiple sources to develop this new system. The system was developed in four steps; first, a focus group of industry experts and consumers developed the proposed categories based on 25 criteria: service, food, ambiance, and business practices. The second step surveyed restaurant operators with a minimum of 20 years of specialized experience. Next, respondents were asked to identify described restaurants based on the proposed category. The third step was to repeat the same survey with food journalists. The final step repeated the same process but with customers. The results from the surveyed restaurant operators, focus groups, and customers confirm the accuracy and reliability of the new categories (Parsa et al., 2020).

Black Swan Theory

Black swans are events with world-shaping implications and consequential shocks (Taleb & Blyth, 2011). Black swan's theory draws inspiration from the falsification theory, which states that a conclusion based on many observations can be undone entirely once an established core tenant or foundation is disproven (Alam, 2018). These events are outliers and go well beyond regular expectations, as there is typically no precedence or indication that the event could have been predicted or seen as a possibility (Lindaas & Pettersen, 2016). Black swans are improbable and rare events that disrupt the global economy, such as 9/11, the 2008 financial crisis, and COVID-19 (Gray & Alles, 2021; Lindaas & Pettersen, 2016). Three principles help define a black swan, its unpredictability, the significant impact in size and scope, and post-event explanations and reflections to make the event seem less random (Gray & Alles, 2021).

COVID-19 was a black swan event, especially in the restaurant industry, as it was highly improbable that any restaurant had contingencies planned for such an event. Predicting such events is extremely difficult, and while some organizations have such capabilities, more effort should be spent trying to find better ways to cope with these events' impact rather than look at predictability (Lindaas & Pettersen, 2016). The balance between redundancy and efficiency is a crucial argument with the black swan theory, and complex systems are more susceptible to randomness (Taleb & Blyth, 2011). The more prominent theme at play is that human beings fear randomness by nature, and most efforts seek to eliminate this fear through control (Taleb & Blyth, 2011).

Organizations can better react to black swans by planning for known low-probability, high-risk events (Taleb & Blyth, 2011). For example, while most companies most likely did not have contingencies for an event like 9/11, the airline industry should have because events such as hijackings and terrorism were always known possible risks (Phan & Wood, 2020). Often these events have significant impacts and appear to be completely unpredictable. Studies on black swan events call for planning to mitigate an extreme scenario's impact and minimize excessive optimization and efficiency that can ultimately negatively impact an organization's chance of survival (Taleb & Blyth, 2011). Unfortunately, the restaurant industry was unprepared for an event that presented the magnitude of disruptions the COVID-19 pandemic presented (Amel et al., 2020). As a result, the restaurant industry restaurant operators learned that a business model with tight profit margins built around high-efficiency management of cost structures with little or no dynamic capabilities faced enormous challenges and hardships when a black swan event disrupts the industry (Amel et al., 2020; Lindaas & Pettersen, 2016).

Linkage

This study aims to understand what strategic changes and best practices were made to adapt to market disruptions and sustain business operations that could be incorporated into an innovative business model. The framework links to the study in a variety of ways. First, the applied framework shows how the business problems are explored and how a black swan event spurred business model innovation to adapt to disruptions. The framework is supported by the literature review and two other relevant concepts, the black swan theory and the new restaurant classification system.

Black swan events lead to disruptions of business operations and act as a catalyst for adaptation and innovations. A critical issue for restaurant business failure is the lack of capabilities to adapt to disruptions. The issue was compounded during the pandemic when over 110,000 restaurants were permanently closed after the first year (National Restaurant Association, 2021; Parsa et al., 2005). The relevant articles used in the black swan event theory help provide a theoretical basis for enhancing redundant capabilities that will better prepare restaurants to adapt to future disruptions. These disruptions can take various forms and can affect several areas of the business models. For example, the United States imports about 90% of king crab from Russia, and the import sanctions placed on Russia because of its 2022 war on Ukraine have made king crab significantly more expensive (Brooks & Samuels, 2022). A restaurant operator would have to consider alternatives for this product. If this product were a vital part of the value proposition, that restaurant would have to adapt.

Another example is the 2022 labor shortage in the restaurant industry. In February of 2022, one nationwide job posting platform noticed its highest increase in job postings for servers and cooks (Kreiter, 2022). Labor is another key resource for restaurants; as such, restaurants will have to find a way to bring back workers, which may involve more stability and higher wages (Patton, 2020). Disruptions such as these show the importance of being able to adapt.

The final component of the framework organizes the research of this project. As previously mentioned, there is no official restaurant business model classification. The new restaurant classification system has a sound foundation and basis in theory while also inputting consumers and industry experts (Parsa et al., 2020). The restaurant operators interviewed for this study identified their restaurant business into one of these categories, which helped to organize the results better and help restaurant owners modify their business model. For example, input from an operator managing a luxury restaurant differs from one managing a quick-service restaurant. What works in one type of restaurant may not be as effective in another. Organizing results by restaurant classification helped to better understand the different innovations created and how they affect businesses.

Figure 2

Type and Date of Articles

Note. Figure 2 shows the breakdown of articles used in the project while also showing the disparity of information related to the project pre-2020. Developed by C. Long, 2022

Information from academic sources post-2020 was scarce, and as a result, only scholastic information relevant to key concepts in this project was used. The concepts include problems with the traditional restaurant business model, timeline establishing industry trends, or concepts directly relevant to the applied framework. Academic articles related to restaurant business model innovation or black swan theory concerning the framework had to be directly related. The new restaurant classification system was explicitly sought for relevance in organizing the findings using a theory-based classification system. Articles that were not peer-reviewed or relevant to the U.S. restaurant industry were excluded from the search. Post-2020 press articles provided specific and narrow data related to an event, such as an interview with a restaurant operator or industry expert. Credible sources from publications included Fortune, Bloomberg Business, Wall Street Journal, and the N.Y. Times. Figure 2 provides an overview of the sources used for this project and categorizes them based on type and year of publication.

Search Strategy

The search results provided a wide range of publication sources, both scholarly and practitioner studies and professional perspectives. The primary search for scholarly articles relied on databases including Business Source Complete, EBSCO, IBIS World, and Google. Trade publications such as the National Restaurant Association and the James Beard Foundation also directly contributed to sources or were indirectly used to locate other sources. Keyword searches focused on using restaurant combinations, strategy, business models, innovation, revenue stream, and cost structure. Most of the information came from practitioner sources and trade publications. Notably, the Independent Restaurant Coalition website provided a wealth of information about the pandemic's influence on the restaurant industry.

Method for Discovering Literature

This project explored the traditional restaurant business model and the problematic nature of using an outdated model. Most of the data in the literature review come from practitioner sources, as there is little academic research into restaurant business models. Again, regarding the effects of COVID-19 on the restaurant industry, most of the sources came from practitioners. The disparity between the practitioner and academic sources highlights one of the gaps in practices related to a lack of scholarly literature. The following sections outline how data was procured and analyzed. The first section covers the inclusion and exclusion criteria for this project. The second section presents the search strategy used and what specific databases and mediums were utilized.

Inclusion and Exclusion Criteria

This project's literature review validated the problem that independent restaurants over-rely on an outdated traditional restaurant model and provided evidence to support the research question. This project used three sources: practitioner, scholastic, and press. Practitioner sources refer to trade publications, industry expert reviews, and industry associations. Scholastic refers to peer-reviewed academic journals. Finally, press articles refer to material written by a journalist for a major news publication with either expertise in the restaurant industry or an interview with an industry expert.

Most of the articles included were post-2020, with a targeted emphasis on trade publications, industry experts, and industry associations. The articles needed to target restaurant innovations and industry disruptions. A separate search was conducted for COVID-19 disruptions and the industry reaction and response. Pre-2020 articles also came from trade publications, industry expert reviews, and industry associations. However, the articles focused on problems with the traditional business model and lacked innovative content within the industry. Articles from unverified blogs and trade publications were excluded.

Review of Scholarly and Practitioner Literature

This review covered the scholarly and practitioner sources used for this project. The sources show the significant problems before COVID-19 and how they were forced to address the existing issues with the traditional restaurant business model. The first section covers historical and current trends, while the second focuses on the efforts to correct the issues.

Historic and Current Business Problem Trends

Pre-COVID, first-year failure rates for single-establishment restaurants have remained around 17% going as far back as 1994, which is lower than the 19% average for all other service-providing businesses (Luo & Stark, 2014). One of the primary reasons for failure is a lack of conceptual clarity, while successful restaurants have a well-defined concept (Parsa et al., 2005). Regarding business strategy, businesses with strategies that allowed for adaption seemed to fare better than those with elaborate planning and no means to adapt to disruptions (Taleb & Blyth, 2011). However, the restaurant industry has operated tight operating margins since 1995, and its business strategy has primarily centered around food offerings (Jennings, 2020). This failure to adapt and modify the business strategy to counter shrinking profit margins put restaurants in a position where they are over-reliant on the traditional restaurant business model, potentially making them more susceptible to significant economic disruptions.

Profit margins in 1995 stood at 15-20% but dropped to 2-6% for the national average in 2019 (Rankin, 2021). Maximizing dining capacity is essential, as restaurants must operate at or near 100% capacity 7 days a week (Amel et al., 2020). Controlling operating costs is another primary concern since labor accounts for the most significant expenditure at 30% of operating costs (HBS Working Knowledge, 2020). Labor is a chief concern for most restaurants as the industry suffered from a turnover percentage of 75% in 2019 and wages that hover around $12.67 for cooks and $11 (including tips) for wait staff (Bureau of Labor Statistics, 2022a, 2022b). Because operating margins are thin, controlling costs is paramount and has led many operators to cut costs with labor to maintain profit margins (Amel et al., 2020).

Issues regarding the restaurant business model have primarily gone ignored. As a result, profit margins continue to shrink, employee turnover increases and new restaurants fail at an alarming rate. The restaurant industry in the United States lacks a standardized classification system for restaurant business models that is both viable and based on theory, and scholarly models are equally lacking, leading to reliability issues in the studies (Parsa et al., 2020). The lack of a standardized classification system presents many challenges, especially when comparing multiple restaurants, as thousands of operational concepts exist in the United States (Parsa et al., 2020).

COVID-19

The COVID-19 pandemic was as much an economic disaster as it was a public health disaster. The restaurant industry was hit particularly hard because the pandemic brought many issues with the traditional business model that had gone neglected since 1995 (Jennings, 2020). By April 2020, a survey conducted by the James Beard Foundation (2020) found that 38% of 1400 restaurants surveyed closed temporarily due to the pandemic. The Independent Restaurant Coalition projected that up to 85% of independent restaurants across the United States would close their doors permanently by the end of the crisis, and a bailout relief fund of up to $120 billion was needed to protect restaurants (Amel et al., 2020). Of 500,000 independent restaurants, over 90% of hourly workers and 70% of salaried workers were laid off (James Beard Foundation, 2020).

Shutdowns and limited capacity forced many restaurants to operate at limited capacity, presenting a significant problem as most restaurants consistently require almost 100% capacity to stay profitable (Amel et al., 2020). However, public fear kept consumers from eating out, even in states where shutdowns and dining restrictions were minimal. For example, one consumer tolerance survey showed that 50% of consumers were comfortable with a six-foot distance between tables, 25% wanted the distance extended to 9-15 feet, and 29% of consumers said they actively try to avoid places where there are large gatherings (HBS Working Knowledge, 2020).

The federal government’s response to COVID-19 hurt restaurants for various reasons. Government shutdowns and restrictions kept most restaurants from meeting the capacity requirements (Schwark et al., 2020). Another problematic issue was the federal government’s Payment Protection Program (PPP). PPP was designed to help businesses survive the shutdown restrictions through government-backed loans that could be forgiven if restaurants meet specific requirements (JBF Editors, 2020). However, from day one of the rollout, many small businesses could not apply for loans because money for the program ran out quickly (Hayashi & Andrews, 2020). In June 2020, the federal government added more money to PPP, but the program still negatively impacted restaurants (Noreen, 2021). PPP stipulates that small business owners rehire or bring their staff within an 8-week window to meet loan forgiveness requirements; this was eventually increased to 24 weeks. (Noreen, 2021). In addition, during the COVID-19 outbreak, small businesses were required to spend 75% of loans on employees’ wages, leaving only 25% for operational costs, but was eventually changed to 60% for employee wages and 40% for operational costs (Noreen, 2021). Enhanced unemployment wages also challenged restaurant operators as the weekly $600 stipend far exceeded wages that could be earned given the dining restrictions (Patton, 2020). As a result, some restaurants had to forgo using PPP loans altogether because they could not meet loan forgiveness requirements (Noreen, 2021; Solnet, 2020).

Best Practices for Future Business Models

The traditional restaurant business model has remained unchanged since 1995, and the restaurant industry cannot adapt to disruptions (Walters, 2019). Profit margins continued to decrease, and employee turnover continued to increase, yet no significant trends in innovations addressed these problems (Amel et al., 2020; Walters, 2019). This lack of innovation shows how a major black swan event can catalyze the restaurant industry and spur more innovation and changes to the traditional business model. This section examines some attempts to adapt to disruptions and best practices for future business models.

Most attempts to correct some of the primary issues with the business model focused on better execution rather than new innovative business strategies. Suggestions from consultants and industry experts range from combining dining concepts to controlling operational costs better. Efficiency is the key strategy with the concept, and all inputs are designed to minimize costs, but the business model mostly remains the same. While these improvements may reduce operational costs, stability and means to adapt to disruptions are still missing.

Ghost kitchens are a new concept that seeks to maximize delivery services (Hand & Reinstein, 2020). This new concept requires lower investment, cheaper real estate, and allows multiple restaurants to operate under one roof, and eliminates dine-in services (Hand & Reinstein, 2020). In addition, ghost restaurants provide only curbside service and delivery options and primarily operate through mobile computer apps, eliminating the need for a wait staff (Hand & Reinstein, 2020).

In 2020, the first year of the COVID-19 pandemic spurred some innovation activities and increased dependence on third-party technology services. Some restaurants used crowdfunding to insert cash their businesses (Kickstarter, 2020). The idea was that restaurants would offer items such as cookbooks and other items for sponsorship (Kickstarter, 2020). Crowdsourcing offers a creative way to obtain a cash infusion to weather disruptions, but this is only a temporary measure. A survey showed that only one in five restaurant owners felt they had enough funds to remain operational, and six out of ten estimated that they had enough to last no longer than 1 week to 1 month (James Beard Foundation, 2020). Long-term solutions to address stability or increase these buffers are still needed.

During the pandemic, delivery and take-out services saw a spike in demand, with revenue from these services increasing from 59% to 72% week over week (HBS Working Knowledge, 2020). Practitioners and industry consultants do not expect business to return to normal after the pandemic and recommend that restaurant operators invest in off-premises business models as demand for these services will likely increase (Deutsch, 2020). However, delivery services have not been able to compensate for losses incurred due to limited dining capacity, namely, delivery services taking upwards of 30% of each transaction's revenue (HBS Working Knowledge, 2020).

Hybrid Business Model

While most restaurants attempted to adapt to the pandemic by relying on delivery and take-out options with little success, some opted to implement a hybrid business model. The retail-restaurant business model is a new model that has started to emerge that offers the benefits of stability and additional revenue streams (Vyvjala, 2020). A retail-restaurant concept is an attractive option, but it comes with its own set of unique challenges. One challenge noted by operators who implemented this model is training customers on using the concept (Horovitz, 2017). Customers can be blindsided by the new options and offerings and may need explanations on how the new concept can benefit them. Another issue is that this concept requires the restaurant to be operated and managed as two separate entities (Horovitz, 2017). In addition to retail options, some restaurants started providing meal kits that allow customers restaurant-quality food while avoiding the time-consuming aspects (Vyvjala, 2020).

Beyond retail options, some restaurants have merged restaurant types such as quick service and casual into one concept to allow for more adaptability, speed, convenience, and a higher degree of service (SLD, 2017). An example is the rise of high-quality food trucks that allow for controlled costs and the ability to change venue easily while offering quality casual dining food (SLD, 2017). In addition, some restaurants have taken cues from other industries and have incorporated a nonprofit revenue stream. For example, restaurants teaming with charity programs such as World Central Kitchen can be reimbursed for up $10 a meal instead of government programs that only pay $3 (Dubb, 2021). This approach allowed some restaurants to rehire staff and raise wages to $16 an hour (Dubb, 2021). These programs may help to alleviate some of the significant issues regarding pay instability in the restaurant industry and help control one of the highest operational costs within the restaurant industry (Rankin, 2021). These hybrid restaurant business models may provide valuable insight into some of the solutions needed to correct the primary issues of the traditional business model.

Summary of Literature

The primary business problem independent restaurants face is an outdated business model. Profit margins have shrunk since 1995, while operational costs have increased (Rankin, 2021). Labor continues to be the most significant expenditure at 30% of operational costs while also seeing an above-average turnover rate and below-average wages (Bureau of Labor Statistics, 2022b; Rankin, 2021). Industry experts and consultants offer suggestions to improve performance, but most innovation takes the form of different food offerings or a new way to decrease operational costs (Parsa et al., 2005). The industry suffers from a high failure rate with start-ups primarily due to poor business strategies and a lack of industry knowledge (Parsa et al., 2005). Those who succeed still suffer from small cash buffers, as most businesses have enough funds to last 16 days when faced with a substantial business disruption (Farrell, & Wheat, 2016). However, some restaurants have innovated their business models to include multiple revenue streams, such as retail concepts or even adding nonprofit partnerships. As demand for delivery options increases, new concepts such as ghost kitchens attempt to capitalize on these trends (Hand & Reinstein, 2020).

COVID-19 put most small businesses, especially independent restaurants, in peril due to various unforeseen ramifications of an event of this magnitude. The problems with the traditional business model have existed for the past few decades, but only with the pandemic's introduction have these problems received attention. COVID-19 acted like a catalyst and put restaurants affected by these disruptions in a position where they must adapt and create new business model innovations. The project aimed to look at these new business strategies and modifications to the restaurant business model and innovations to help independent restaurant operators overcome disruptions. While this project is focused on exploring business model innovations, it could give some insight into future trends concerning restaurant business models.

Recruitment

This project used a qualitative inquiry to collect the perspectives on independent restaurant operators' innovations to the restaurant business model. It used purposive sampling with participants intentionally selected. The criteria for recruitment include four inclusion criteria for this study:

· The first criterion is that participants are independent restaurant operators with over 3 years of experience in a role with the ability and authority to make decisions regarding innovations to their business model.

· The second criterion is that participants will have also identified that they made changes to their existing model and that some are still in effect.

· The third criterion is that participants should have a working knowledge of business model design and execution.

· The final criterion is that participants already had a business model prior to the COVID-19 outbreak in 2020.

Fourteen participants were selected for this study. User Interviews was used to recruit participants from across the United States. I then screened the potential candidates provided by User Interviews to ensure they accurately met all the inclusion criteria. All participants that completed the interview process received a $25 visa gift card. The interview consisted of 10 questions and was scheduled for 60 minutes. Participation in this study was voluntary; a participant could drop out anytime. The interviews were conducted and recorded via Zoom VoIP.

Project Study Protocol

This qualitative inquiry explored the perspectives of independent restaurant operators that modified their business model during COVID-19. Based on the literature review findings, I explored the perceptions of restaurant operators who have modified their business model for future disruptions. The qualitative inquiry sought to make sense of the meaning people place on their experiences (Mayan, 2016). This study aimed to discover what restaurant operators have done to innovate their business models and restaurant operators’ perspectives on innovating for future disruption. The interview process for this project used semistructured questions. Semistructured questions are used in scenarios where a researcher would have enough data to have a relatively good idea of what is going on with the phenomenon being studied to develop questions but not be able to predict the answers (Mayan, 2016). The interview questions were chosen based on the information discovered within the literature review. An expert panel reviewed all interview questions used for this project.

The literature review highlights the general and specific business problems and how a black swan event exacerbated these problems. It also uncovered that, in some cases, modified business models allowed restaurants to adapt to these problems and correct some of the underlying issues with the business model. The data sought from the interview is the perspectives behind innovations to these business models and whether these lessons learned will continue to be used to adapt to future disruptions.

I sent User Interviews my recruitment announcement. User Interviews first identified candidates, and I screened each candidate for suitability based on the inclusion criteria. Next, all selected candidates were contacted through my User Interviewers account to join the study; candidates confirmed whether they would like to participate. Finally, interviews were conducted using VoIP Zoom, and a transcript was sent to each participant to verify the accuracy of their recorded statements. This process is known as transcript verification.

Participants were asked to provide insights into the best practices they used for modifying business models and which innovations may be the most effective for adapting to unknown future disruptions. Understanding the perspectives on changes made to the business model during COVID-19 helps offer insight into what direction restaurant operators will take in the future to provide financial stability. These changes may be temporary or become a permanent part of the new trend of business model innovation within the restaurant industry. This research helped fill the gap in practice related to the lack of knowledge and academic literature surrounding restaurant business model innovations by providing insight into how restaurants adapted and innovated their business model in response to COVID-19 disruptions.

Data Sources

This qualitative inquiry project explored the perspectives of U.S. independent restaurant operators regarding innovative business models to sustain operations during a significant economic disruption. The intended outcome of this project was to develop a toolbox of best practices and new business model innovations that have a greater stability and capabilities to adapt to market disruptions. Data for this project was collected from participants through semistructured interviews.

Preliminary Sources of Data Expected

Overusing outdated business models proved to be a severe problem for most independent restaurants caught off guard by COVID-19. To better understand the best practices and new business model innovations used during COVID-19. The literature review for this project helps guide the creation and structuring of these questions to ensure they are appropriate and effective for gathering detailed information. Because qualitative inquiry seeks a rich and deep understanding of a topic, semistructured open questions were used to extract data. The interview guide for the project consisted of the guide itself, interview questions, reasoning behind questions, and additional follow-up questions.

The interview guide and literature review helped focus and narrow the questioning to conform with the themes of this project (Davenport University, 2021). Interview questions for this project were intended to focus on the theme of business model innovation yet still allow participants to speak openly about their perspectives on said innovations and best practices identified in the literature review. Follow-up questions helped probe participants for more specific and focused information and encouraged further engagement on a specific theme or topic. After the interviews were completed, the data gathered was transcribed, analyzed, and sent back to participants to ensure accuracy.

Instrumentation and Data Collection Tools

The primary data source for this project came from the semistructured interview data of each participant using VOIP Zoom. Therefore, I was the primary data collection instrument for this project. It is essential that when collecting data, attention to potential biases and influences is known and mitigated to ensure reliability and trustworthiness (Korstjens & Moser, 2017). Personal background, experiences, and demographics can all be factors of potential biases (Lloyd-Jones, 2003). Therefore, I refrained from sharing personal experiences or engaging with participants personally or socially and demonstrated impartiality in responses to questions to mitigate personal biases. Before conducting interviews, I consulted with an expert review panel and a mentor at Capella University to ensure transparency and mitigate potential biases.

Each participant in this study provided unique insight into best practices and new business model innovations to improve stability and capabilities. This structure aligns with the project question because it explores innovations made to independent restaurant operators' traditional restaurant business model. The literature review and applied framework help structure and support the interview questions while also ensuring alignment of the overall project. It is also essential that the literature review and interview questions align to ensure the reliability of the data collection.

The interview included using semistructured and follow-up questions designed to create an in-depth dialogue with participants to generate valuable insight into their perspectives on best practices for the business model. The interview was conducted over Zoom, recorded, and transcribed for review. Participant information in this project remains confidential and participants are referred to by coding with unique alphanumeric identifiers (P1 to P12). The Capella University Institutional Review Board (IRB) ensured that all research methods followed ethical guidelines. The interview guide was developed from the data used in the literature review. An expert panel and the IRB evaluated the trustworthiness of the data collection tools.

The expert panel reviewed all interview questions and related material and evaluated credibility, relevance, and reliability. The panel's input helped improve the quality of questions asked and provide feedback on the best way to extract engagement and quality responses from participants. After the interview guide and questions were designed, a test run of the interview protocol guide was conducted by two independent restaurant operators who were not participants. These test runs were conducted before any interviews. Test runs helped establish another layer of credibility and trustworthiness and provided an opportunity to adjust data collection instruments.

Data Collection

The data collection process for this project obtained approval from the Capella University IRB before the research commenced. The qualitative inquiry for this project relied on one-on-one interviews to collect information, and the data collection process took 4 to 6 weeks to complete. User Interviews first identified potential participants using a screening format constructed from the recruitment inclusion criteria. Fourteen participants were selected for this study. I contacted potential participants willing to participate via the User Interviewers platform to schedule a phone call for further screening and explain the interview process.

Once participants agreed to be part of the study, interviews were scheduled based on their availability and project timeline. Participants were informed that they may voluntarily drop out of the study at any time. A $25 digital gift card was sent to the participants by User Interviews after the interview. The selected participants were coded randomly as P1-P14 to protect their identity, and their identity will only remain known to me and will not be disclosed. Additional measures and care were taken to omit any information used to identify participants.

This qualitative inquiry relied on semistructured interviews and follow-up questions to elicit a deep and rich response. Semistructured interview questions were developed using the literature review and refined through trial runs and mentor feedback (Mayan, 2016). Interviews were conducted via Zoom and lasted a minimum of 30 minutes and no longer than 60 minutes. Zoom was chosen as the platform to conduct interviews based on its accessibility, low costs, and recording features. A copy was provided to each participant for review. Sonix transcription software was used to transcribe all Zoom Meetings.

Following the interview's conclusion, the participants received a transcript of their responses and were expected to review the transcript and provide additional feedback or necessary comments. Participants were informed they had 3 days to conclude comments and fact-checking upon receiving the transcript. The transcript was accepted as transcribed after 3 days if no comments or responses were submitted. Once the transcript was verified, the participant was sent a gift card via email. All sensitive and confidential information related to the project will be locked in a safe for 7 years. Only I will have access.

Data Analysis Plan and Presentation

Thematic analysis is an essential part of this project, as this process is designed and analyzes patterns with research. This analysis categorizes information into themes; inductive, deductive, semantic, and latent. Inductive refers to themes strongly linked to data being analyzed, while deductive refers to themes related to the researchers’ theoretical interests in the analysis. Semantic analysis refers to looking at data and not going beyond what the participant has said, while latent analysis looks at the underlying ideas and assumptions (Braun & Clarke, 2006).

The thematic analysis helped with assess and categorize information obtained through the participant interviews. The analysis helped established a timeline of innovations used to modify business models throughout the pandemic. Analyzing the pre-COVID pandemic business model and associated issues created a baseline essential to determining themes associated with implementing new business model innovations. The six phases of thematic analysis help establish familiarity with the data and guide the analysis of themes found within the collected data (Braun & Clarke, 2006) in Table 1.

The first step of thematic analysis required me to become familiar with the data. A transcript provided data from the interviews to ensure the accuracy and alignment of the project before coding could begin. The next step was to generate codes for the data set. First, all transcripts were transferred to Excel, and interview questions and responses were organized. Data management and keyword searches helped to organize information and establish coding. Excel also allowed for diagrams and charts to help visualize the data. As transcripts were reviewed, codes were modified or removed as needed.

Once data was coded, the next step of the thematic analysis called for themes to be identified. This project's applied framework helped organize innovation based on the business model canvas. Business model innovation or input on these innovations was organized based on the block of the business model canvas. According to the new restaurant classification system, the innovations were categorized based on the type of restaurant.

After themes were established and assigned, they were reviewed for accuracy and alignment with the overall project. This review required that coding and themes align with relevant information. Themes were then placed into a narrative form so that a discussion and conclusion of the data could emerge. The final part of the data analysis established a toolbox of best practices and potential effects.

Validity and Reliability/Trustworthiness

Qualitative research must be deemed trustworthy, valid, and reliable, and one way this is accomplished is by evaluating credibility, transferability, dependability, and confirmability (Cypress, 2017; Korstjens & Moser, 2017). Trustworthiness refers to the quality and authenticity of results or the degree of confidence a reader would have in the results (Cypress, 2017). Reliability refers to the objective means a study could be repeated or the degree of replicability (Cypress, 2017). Validity refers to the degree a study could be justified or deemed relevant (Cypress, 2017). Trustworthiness is the overall goal of the study, which is accomplished by ensuring both the reliability and validity of the study (Cypress, 2017).

Credibility was checked through prolonged engagement and transcript verification (Korstjens & Moser, 20172018). Prolonged engagement involves the researcher asking several specific follow-up questions to help clarify the participant's experiences (Korstjens & Moser, 2017). The transcript verification confirms the accuracy of the transcripts with participants (Korstjens & Moser, 2017). Credibility is a validity test because credibility determines and ensures the quality of results through various strategies (Cypress, 2017).

Dependability evaluates the consistency of the analysis process, while confirmability ensures all aspects of neutrality (Korstjens & Moser, 2017). Researchers can accomplish both by taking notes on each decision made during the research process (Korstjens & Moser, 2017). The notes are part of an audit trail strategy that helps show the research's transparency (Korstjens & Moser, 2017). These notes can take the form of research decisions, reflective thoughts, and data management (Korstjens & Moser, 2017). Dependability and confirmability are reliability tests because they help ensure the research's replicability (Cypress, 2017).

The credibility of this study was ensured through the transcript verification strategy. All participants received a copy of the transcript and provided feedback to ensure the accuracy and clarity of their statements. Interviews used a structured format to mitigate potential biases from the participants and the researcher. The questions for the interview were open to guide participants toward an honest answer while also being phrased to encourage engagement and acceptance. Potential biases were considered when constructing the interview and order of questions, using test runs and reviews by an expert panel.

Ethical Considerations

Ethical consideration is essential for this project and any qualitative research at Capella University. Qualitative research should adhere to five principles: autonomy, beneficence, nonmaleficence, confidentially, and integrity (Iphofen & Tolich, 2018). Autonomy refers to a participant having full knowledge and transparency of the research they are participating in and the participant having the ability to withdraw anytime (Iphofen & Tolich, 2018). To adhere to this principle, all participants retained the right to exit the study. In addition, participants were given a briefing intent and context of the research and were to sign a letter of consent before the scheduled interview. Beneficence is the following principle and refers to the beneficial effects of the research that outweigh all associated risks (Iphofen & Tolich, 2018). The justification for this project, combined with mitigating measures taken to conduct this research, creates a framework that satisfies this principle by showing the value of the research with the project justification and the approval from the IRB to mitigate potential risks.

Nonmaleficence is the third principle, which refers to avoiding and mitigating possible harm (Iphofen & Tolich, 2018). Guidance from Capella University staff ensured that all possible scenarios in which harm could occur were either avoided or mitigated. Confidentiality is the fourth principle and refers to the protection of the personal data of all participants remaining unknown unless the participant agrees or there is an overriding circumstance (Iphofen & Tolich, 2018). Participant names and identifying information are kept confidential and unassociated with their responses to interview questions. The final principle is integrity, which refers to removing researcher biases and conflicts of interest that may impact the study's trustworthiness (Iphofen & Tolich, 2018). Research and participant biases are mitigated using the semistructured format in the interview. In addition, all conflicts of interest on both participant and researcher were disclosed. Finally, participants received a copy of the interview transcript and were encouraged to provide feedback on the accuracy or clarify their statements.

Overview of the Project Study Plan

The study plan included several phases with dedicated timelines for each milestone. First, the research proposals and study had to receive approval from the IRB before research could commence. Then, once research commenced, the project took 15-20 weeks to complete and review research by the DBA committee at Capelle University. Finally, the resources needed for the project are accessibility to a computer, internet connection, Zoom, and third-party services for both transcribing interviews and surveying potential participants during the recruiting stage. Table 2 provides a visual overview of the capstone project timeline, details, and work required to be completed for each milestone.

Summary and Conclusion

Independent restaurants have commonly used the traditional restaurant model since 1995 (Amel et al., 2020). As a result of the failure to update or innovate the traditional restaurant business model, profit margins continued to drop (Amel et al., 2020; Walters, 2019). When a significant market disruption is introduced, the restaurant industry needs more capabilities or knowledge to make effective changes necessary to remain profitable. COVID-19 was a catalyst for the restaurant industry and forced restaurant operators to make significant changes to remain profitable. One of the significant disruptions of COVID-19 was government restrictions aimed at reducing dining capacity, which presented significant problems. Restaurants over-relied on one primary revenue stream that requires dining capacity to remain at 90 to 100%, 7 days a week (Amel et al., 2020). Government programs and alternative dining options were mostly deemed ineffective as 110,000 restaurants closed during 2020, the first year of the pandemic (National Restaurant Association, 2021). As the pandemic continued into 2021 and 2022, new virus variants further increased public fear and deterred customers from dining out (National Restaurant Association, 2022).

This qualitative study was essential for understanding the perspectives of restaurant operators who made radical innovations to their business model and were able to remain or return to profitability during the pandemic. Some innovations may continue as temporary measures, while others may become permanent. The study helps to understand how restaurants can modify their business models to adapt to market disruptions and provide insight into the future direction the restaurant industry will take regarding their business models.

SECTION 3

RESULTS, DISCUSSION, AND IMPLICATIONS

Introduction

The purpose of this qualitative inquiry project was to explore the perspectives of U.S. independent restaurant operators regarding innovative business models to sustain operations during a significant economic disruption. The overreliance on the traditional restaurant business model led to profit margins below 6%, labor turner above 75%, and dining capacity having to remain 100% 7 days a week (Amel et al., 2020; Bureau of Labor Statistics, 2022b; Parsa et al., 2005; Walters, 2019). These conditions exposed these flaws and created a nightmare scenario for independent restaurant operators during the onset of COVID-19, which led to the closures of more than 110,000 by the end of 2020 (National Restaurant Association, 2021). The gap in practice is that independent restaurant owners need more practical training, knowledge, and experience with business models and strategy implementation (Parsa et al., 2005; Rankin, 2021). This study sought to explore the perspectives of those restaurant operators that were able to modify their business model and survive the COVID-19 economic disruptions. Fourteen participants were interviewed, and data were analyzed using thematic analysis to identify codes and then define relevant themes. The results of this study help fill a gap in practice and practical knowledge to both the academic and practitioner base.

Data Collection Results

Over 119 candidates were screened by User Interviews based on the inclusion criteria. A total of 16 participants were identified, including two used in the pilot study. User Interviews first select candidates, and then the participants take a brief survey to determine their eligibility.

The survey asked the following questions.

1. Are you an independent restaurant (not a chain or franchise) operator in a role with the ability and authority to make decisions regarding business strategy?

2. How many years of experience in a management role with an independent restaurant?

3. Did you change your business model and strategy to adapt to disruptions brought on by COVID-19?

4. Follow up to Question 3: Are those changes still in effect?

5. Do you have a working knowledge of business model design and execution?

6. Which answer best describes your restaurant?

• An exclusive restaurant offering extraordinary experiences, personalized high touch services in memorable ambiance with breathtaking views and upscale chef-driven signature food and alcohol choices with limited luxury seating (accept)

• A lavish restaurant offering highly customized menus, formal wait services with emotionally appealing enhanced ambiance and upscale culinary and alcohol choices in a possibly larger seating set up. (accept)

• A moderately priced restaurant offering diversified semi-standardized menus, offering casual and friendly wait services with informal ambiance and limited alcohol choices matching the concept with moderate seating capacities. (accept)

• A restaurant offering highly standardized limited menus, providing convenient services (counter/take out/home delivery/ drive thru) using technology and ambiance with minimal comforts, limited number of seats, and low cost in nature. (accept)

7. How long was your business affected by COVID disruptions such as shutdowns or limited dining capacity?

Interviews were conducted via Zoom, lasting no longer than 60 minutes, and were transcribed by Sonix. Participants were informed that they could opt-out of the study at any time during the interview. Each participant was asked 10 semistructured questions along with two initial demographic questions. Demographic data showed no variances. At the interview's conclusion, the participants were sent a copy of the transcript and given 3 days to review their statements and make any additional concluding comments.

Participant Demographics

The first demographic question asked each participant to describe their restaurants, their type of offerings, services, and the environment they create for their patrons. This demographic question helped determine what restaurant category their restaurant was assigned. The second demographic question asked their role and job responsibilities. This question confirmed that the participant was in a leadership position with authority to make strategic changes. Table 3 presents the participant demographics.

All participants experienced significant disruptions to their business operations due to the COVID-19 pandemic. The participants came from various regions across the United States, with populations ranging from a few thousand to over 8 million. Twelve participants were owners/operators, and the remaining two were in management positions with the authority to make strategic changes. All 14 operators made strategic changes to their business model and experienced COVID-related disruptions for more than 6 months.

Data Analysis

This qualitative inquiry aimed to understand better restaurant operators' perspectives that made innovative business model changes to better adapt to disruptions brought on by COVID-19. The thematic analysis used in this study works to identify codes and themes within the data (Braun & Clarke, 2006). The 14 participants recruited for this project answered a total of 10 questions. The participants fall into one of four restaurant categories based on the New Restaurant Classification System by Parsa et al. (2020), see Table 4. The analysis organizes results through these four restaurant categories, and the questions were organized based on the Business Model Canvas components by Osterwalder and Pigneur (2010).

Initial Analysis of Data

The first step of thematic analysis is becoming familiarization of data (Braun & Clarke, 2006). After all, interviews were completed and transcribed, the transcription was transferred to an Excel worksheet tabulated by restaurant category and broken down into 10 sections based on each question. These 10 initial sections were divided into subsections, one for the initial response and additional sections for follow-up. The spreadsheet was set up so that each participant's responses were organized by question and restaurant category. This setup allowed for each participant's response to be analyzed and coded. Every question was summarized, coded, and further summarized based on restaurant category responses and themes. Finally, all restaurant category summaries were analyzed.

Coding

The second step of thematic analysis calls for assigning initial codes to help identify unique features within the data (Braun & Clarke, 2006). A total of 61 codes were identified throughout all 10 questions. Coding was completed by analyzing each participant’s statement and assigning a code based on their response. For example, if a participant stated that they regularly engaged with locals and offered donations to charity, this would be coded as “community and charity.” Table 5 identifies the 61 codes, occurrences, and definitions. After initial codes were identified, these codes were organized by restaurant category.

Tables 6 through 9 show the code and frequency for each code during the interview. Each restaurant category has a corresponding table.

Theme Conceptualization and Review

The third step of thematic analysis focuses on converting codes into themes (Braun & Clarke, 2006). This study started with 61 initial codes that developed into five relevant themes. The first theme is community engagement, and this combined 10 codes related to local and community engagement. As a result, there were 110 occurrences of themes dominantly found in the value proposition. Community engagement for this study is any activity related to local stakeholders' engagement that is leveraged as an advantage or factor of survival. This theme comprised the following codes: community, local support, networking, joint ventures, charity, local vendors, strong local, cross promotion, donations, and personal touch (1v1).

The second theme that emerged was adaptable offerings. This term refers to the restaurants' capability to adapt offerings and services based on market disruptions and perceived opportunities. This theme had over 92 occurrences and was associated with key activities, key resources, and revenue streams. This theme comprised the following codes: menu flex, third party del., catering, e-com platform, take out, curb side, and pop-up.

The third theme identified is concept flexibility, which refers to the capability of a restaurant to adapt and innovate its operational processes to better adapt to market disruptions and perceived opportunities. This theme had over 90 occurrences and was primarily associated with the key resources and key activities interview questions. Concept flexibility comprised the following codes: concept switch, adapt, target switch, flexibility, lean thinking, cost cutting, new tech, and research.

Disruptions were the fourth relevant theme and are described simply as economic disruptions stemming from COVID-19. This theme had 58 occurrences and was discussed predominantly with introductory and key resources questions. The theme comprised four codes: labor issues, supply chain issues, inflation, and shutdown.

Social media presence is the last relevant theme and refers to the restaurant's capabilities for engaging customers and other stakeholders through social media platforms. The theme had 37 occurrences and is primarily associated with the distribution channels' interview questions. The theme comprised five codes: Social media, target ads, brand awareness, digital, and ded. media manager. Table 10 shows each theme, a brief description, and the frequency each theme occurred with participants during each interview question.

Theme Review and Analysis

Steps four and five of thematic analysis focused on reviewing the alignment between themes and codes’ step five shows a complete analysis and the refining of relevant themes (Braun & Clarke, 2006). The following sections summarize each interview question and their corresponding business model section. Each section analyzes each participant's perceptions and is organized by restaurant category, followed by a summary analysis.

COVID Experience

Most standard-category restaurants reported labor issues and uncertainty with the onset of COVID. Most of these restaurants struggled to stay open throughout COVID but were able to devise creative innovations to circumvent issues. Community involvement was a significant factor of survival for most of these restaurants.

Moderate category restaurant operators (ROs) stated they saw a dramatic drop in sales with the onset of COVID, and one RO saw up to a 70% drop in business. All the ROs significantly reduced their labor force, and some reported having difficulty recruiting new labor once COVID disruptions eased up. All ROs transitioned to third-party delivery services, and one RO sought outside financing from private investors to avoid closure.

The two lavish category ROs reduced their staff and ran off a skeleton crew. Both ROs modified their business model to better support a delivery and takeout model, and one RO reported great success. Both ROs relied on community engagement and the positive support of locals to generate and even increase traffic to their businesses.

Both exclusive category ROs experienced significant labor issues; P10 ran the entire restaurant alone. Both ROs had to switch to a primarily takeout or delivery menu, and both experimented with multiple ideas, such as meal plans for dinner kits. P10 modified their entire concept twice to better react to disruptions. P10 was concerned with product quality and shifted the restaurant from a lavish concept to a standard concept to better adapt to those disruptions. Once COVID eased up, P10 again switched the restaurant to an exclusive concept due to the increased demand for private dinners and rising costs stemming from supply chain disruptions and inflations.

Supply chain and labor issues were a significant challenge for all ROs in all categories and arguably more of a disruption than mandated shutdowns. All restaurants reduced their labor and reorganized themselves to work with a smaller staff. To circumvent supply chain issues, ROs pared down their menu to focus on select items that were available and allowed for a higher profit margin. Another issue was supply chain uncertainty, and menus would frequently change. A few ROs used digital ordering systems to update customers in real-time on what items were available. All categories saw a significant rise in third-party delivery services and had to adjust their business model to support this. Most ROs credited community engagement as a critical factor for survival and success. Most ROs took this approach and attempted to serve their community and capitalize on opportunities as they arose.

Key Partners

Third-party delivery services used by every standard RO were crucial to survival. P1 relied on cross-marketing with other restaurants within the plaza. P5 created joint ventures with other local restaurants to conserve resources and reduce the cost of supplies by working with vendors. Relying on local vendors and other noncompetitors within the community was utilized heavily by two of the six ROs. Concerning labor issues and disruptions, P5 collaborated with their employees on innovations with key activities, which proved to be highly effective for the RO. Two of the six ROs partnered with local community organizations such as hospitals, first responders, and church gatherings to offer meals at a reduced price.

Three moderate ROs experienced supply chain issues due to scarcity and inflation. P3 chose to work with new vendors and their current partners to find cheaper and in-stock products. P4 was able to secure funding from a high-level investment firm and avoid closure. At the same time, P13 was able to work out a deal regarding rent that allowed them to pay a reduced rate until conditions normalized. Local restaurant associations helped one RO with networking, financial resources, and other forms of support.

Lavish ROs leveraged local relationships to survive COVID. P9 was a former president of the chamber of commerce in his city and could leverage those prior relationships and form joint ventures with local vendors and competitors. P9 used these resources to modify the business model to support more Standard Concept food more suitable for takeout and delivery. The P12 sought out more partnerships with vendors and leveraged these new relationships to get lower prices on resources. P-12 leveraged its community standing and developed a relationship with the nursing home to provide packaged meals.

P10 (Exclusive) would travel to pick up supplies to cut back on shipping costs. P14 partnered with third-party delivery services but quickly cut them out due to interruptions with dinner service and high costs. Both ROs instead opted to only allow for takeout and curbside services.

All ROs had to deal with supply chain issues, and standard restaurants had the most innovative solutions. Over half of the standard ROs sought joint ventures with local vendors and even worked with competitors to share resources and cross-market. Two ROs (P10 and P9) took part in local community organizations such as the chamber of commerce or a restaurant association. They used these organizations to help with a lack of resources. Two ROs (P5 and P4) sought outside investment from a local investor or bank to support operations. Most ROs used third-party delivery services, but two out of the 14 elected not to use third-party delivery services.

Key Resources

Labor shortages were significant for all ROs due primarily to scarcity and job opportunity abundance. At the onset of COVID, all six standard ROs reduced their staff. Once COVID eased up, finding people to fill vacant positions was very difficult and presented new problems regarding the demand for pay increases. For example, P5 stated that if they increased starting pay for a new employee, they would also have to do the same for their current employees. All six ROs experienced problems with inventory management and supply chain problems, and all ROs adapted by changing their menus to support the lack of resources. All six ROs focused on cutting unnecessary costs wherever they could, which could be as simple as cutting cable service for a cheaper internet-based service. ROs had to get clever with managing resources, so most reports increased profit margins over the long run.

Three of four moderate ROs reported increased operating costs with the rise of inflation, and all four ROs reported issues regarding labor. P4 and P6 overcame inflation issues by working with local distillers to create a cost-effective cleaning solution. Two ROs focused on cost-cutting and working with a reduced staff. P6 modified its menu based on cost and availability and prioritized profit margin. P6 also purchased new point of sale (POS) technology to help streamline ordering and provide real-time information on inventory and menu item availability.

P12 (lavish) leveraged new technology and implemented an online e-commerce platform for the restaurant, enabling more sales from a broader consumer base. P9 implemented new POS technology to assist with takeout and delivery orders and used mail chimp (email marketing program) to stay in touch via mass email with old and new customers. Both ROs experienced supply chain issues but overcame these with menu flexibility. In addition, once COVID eased up, P9 rehired their staff with pay increases due to increased business and more significant profit margins from their new e-commerce revenue stream.

P10 eventually rehired his staff by switching the restaurant concept from standard to exclusive. This change allowed the restaurant to charge a minimum surcharge of $50. In addition to the increased prices, he was able to cut its hours of operation further and needed capacity in half, which also satisfied social distancing regulations. Furthermore, the move allowed the P10 to pay higher wages and recruit more staff. P14 brought some staff back to support outdoor dining and implemented a new POS tech, which was removed once COVID eased up.

All ROs had significant issues regarding employee turnover, and most continue to have problems filling vacant positions. With the onset of COVID shutdowns and the move to support more delivery and takeout options, all ROs significantly reduced their labor force. When COVID eased up, ROs faced many challenges in rehiring their staff. Due to the variety and increased employment options, most ROs had to pay more to fill employee vacancies. Concerning supply chain disruptions, all ROs modified their menu to maximize profit margins, reduce costs, and adapt to a lack of resources. Successful ROs were able to leverage new revenue streams with increased profit margins to hire new employees and, in some cases, increase wages for the entire staff.

Key Activities

Five out of six standard ROs reduced staff and took on more responsibilities regarding day-to-day operations. Only P5 leveraged labor and empowered employees to make decisions regarding key activities. This move allowed for collaboration and invocation of crucial processes that, in turn, reduced employee fatigue and burnout while increasing efficiency and reducing some operational costs. P2 modified their key activities to better suit a catering/cafeteria concept that serves workers at a local factory in under 15 seconds. Four out of the six ROs went from a “dine-in” restaurant to a concept that primarily relied on curbside and delivery service, but also stated that markups from third-party delivery services were a problem. Finally, P1 closed two of three locations due to a lack of labor, and P2 went from three locations to one stand-alone restaurant and two temporary catering operations at a factory and a hospital.

All four moderate ROs modified their key activities to support delivery operations. All four ROs mentioned that face-to-face interaction was nonexistent until COVID eased up. P3 employed a robust social media strategy in addition to altering day-to-day activities. Modifications were made daily to adapt to disruptions and lack of labor.

Both lavish ROs reduced their labor force to operate as a skeleton crew, but one RO eventually brought back the entire staff. Both ROs modified their menu based on supply viability. P9 reorganized the floor layout to better suit a takeout and delivery model. At the same time, the P12 focused on reopening the dining floor as soon as possible by modifying their floor plan to support and make guests as comfortable as possible. Both ROs reduced their business hour and modified operation processes to cut back on cost and lack of labor.

Labor was a significant issue for exclusive ROs, and P10 had to lay off their entire staff at one point. He adapted by adopting a standard concept business mode and stated that this move was like starting a business from scratch. Eventually, P10 was able to rehire staff and change the concept gain to support a higher cost of services and food offerings. P14 managed to survive by cutting costs and labor and paring down the menu to suit supply and cost concerns.

Thirteen of the 14 ROs opted to reduce their labor and take on more responsibilities to account for this reduction. Only P5 leveraged their labor force to collaborate on operational improvements and more efficient scheduling. All ROs had to modify their key activities to support a greater demand for delivery and take-out offerings.

Customer Segments

Four of six standard ROs targeted new customer segments, and P2 was researching new methods to attract other customer segments. For three of the six ROs, changing venues and catering allowed them to either target new customer segments or reach more of their targeted customer base. This venue/catering shift was often due to opportunities discovered through community engagement. For example, P5 leveraged an e-commerce platform to open a new revenue stream that targeted grocery stores and supplied them with prepackaged meals. In addition, P7 had a food truck that could target multiple customer segments and various occasions. This pop-up concept allowed the RO to create an outdoor dining capacity, and this gave the RO a significant competitive advantage over other ROs that relied on indoor dining capacity.

Two of four moderate ROs switched their target customer base. For example, P3 primarily targeted corporate workers in the vicinity of their restaurant and switched to targeting hospital staff and providing meals for first responders. P6 focused more on hotel guests than their typical customer base. Finally, three of the four ROs highlighted the importance of positive community influence as a critical factor for survival.

With lavish concept restaurants, P9 relied heavily on social media and emails to stay in touch with their customer base and generate new traffic from these sites. P12 focused more on locals despite being in a town primarily catering to tourists. No significant change to the customer target for either RO.

P10 (exclusive) changed the concept multiple times and switched customer targets each time to adapt to these changes. For example, when he moved from standard to exclusive, he targeted more affluent and wealthy customers. The P14 did not switch targets and focused on locals by creating community events to draw them in.

Four of six standard ROs changed their customer segment, with the other two acknowledging they needed to research new targets. Two out of four moderate ROs changed targets, zero lavish ROs changed targets, and only on exclusive RO changed targets. Various tactics and strategies were used to attract customer segments across all categories. Community influence was a critical factor with all ROs, and strategies to attract customers often included some measures to generate goodwill with the community. This strategy included donations, catering special events, providing meals for hospital workers or first responders, and even giving free food. Most ROs agreed that this was a significant survival factor for all ROs.

Distribution Channels

All standard ROs used social media, and five of the six stated that social media engagement was a survival factor. Two ROs all reported joint ventures with other local businesses and some cases, competitors to promote and advertise via word of mouth. During COVID, traditional marketing was largely ineffective, according to P2, but all heavily depended on social media for engagement and advertising. Four of six ROs reported that social media engagement dropped after covid but was still an essential distribution channel. P8 stated that they had someone manage social media platforms almost full-time. Two ROs engaged with the community via charity events, and this tactic helped to create brand awareness. P11 stated that when they switched their concept to a ghost kitchen, they lost brand identity due to accepting contracts from other restaurants. P8 relied on younger employees to manage social media platforms due to their lack of understanding of how these social platforms work.

All the moderate ROs used social media to generate traffic and placed someone in charge of these programs. The ROs stated that social media is still a critical part of their distribution channels, but its effectiveness has dropped by 20 to 30% since conditions eased up. P6 worked at a university part-time and offered paid internships to students to handle all the social media marketing campaigns.

P9 (lavish) also owned a digital media company and leveraged this resource to expand their reach digitally. This move and various social media platforms helped them generate more attention with new and existing customer segments. In addition, young staff members were used in collaborations and created digital content for these platforms. P9 also implemented a loyalty program and planned on expanding digital presence. P12 used limited social media but relied on a direct mail campaign to attract more locals.

P10 (exclusive) relied heavily on social media to advertise and engage with customers. He also used these platforms to advertise his pop-up events that served as exclusive dinners for invites. P14 used social media and traditional advertising to engage with consumers.

Social media was used heavily by 12 out of 14 ROs, and all reported significant success with customer engagement during the COVID shutdowns. However, the effectiveness of these campaigns did drop after restrictions eased up. All ROs using social media acknowledged the reduction of effectiveness after restrictions eased but also stated it remained a vital distribution channel and its management was still considered a top priority. Most of the ROs using social media assigned someone to monitor this on at least a part-time basis. Some ROs took this responsibility on themselves, and others hired college interns or young employees to manage these platforms. In addition to social media, grass root or word-of-mouth advertising was also a critical component, with 13 out of 14 ROs used various unconventional tactics to reach consumers. Again, community engagement and positive local influence generated brand awareness and goodwill within the community.

Social media presence was the primary theme with distribution channels. Most of the ROs reported that before COVID, their social media presence was not appropriately managed. However, ROs quickly learned and saw how effective social media campaigns could be if appropriately managed. Also noteworthy is that social media campaigns were used more to maintain consumer engagement during the shutdowns than other advertising mediums.

Customer Relationships

With standard concept ROs, COVID presented many challenges, but social media allowed ROs to maintain some level of engagement. Social media was also used to react and help community members in need, which generated goodwill within the community. ROs used several strategies to create and maintain customer relationships. P1 regularly engaged with customers, created a loyalty program, allowed for the customization of food products, and maintained a constantly changing menu, which helped generate increased foot traffic. P5 spread brand awareness and boosted the business image by partnering with health spas and gyms to promote their meal plans.

P3 (moderate) kept in touch by making in-person deliveries or dropping off gift baskets for those customers going through tragedy. This genuine one-on-one gesture generated goodwill within the community. All ROs used social media to some degree to maintain customer relationships through the COVID shutdowns.

Both lavish ROs still employed table touches and one-on-one interactions. P9 created a loyalty program that offered special services to loyal customers. P12 would only hire younger employees to make the restaurant atmosphere more energetic and further help with customer engagement. P12 also would improve their community standing by offering meals and other resources during hurricanes. These donations created goodwill with the community and often generated repeat business due to the favorable community opinion.

P10 (exclusive) relied on exceptional customer service and quality and always addressed customer complaints in a way that elicited usable feedback. P10 also regularly sets up invite-only events for loyal customers. P14 supported community festivals and used these events to improve community standing and brand awareness.

Social media was a critical factor for customer relationships during covid shutdowns, and all ROs that used it were able to maintain some level of engagement. All ROs used a variety of methods, but no category-specific themes emerged. For example, some ROs would offer loyalty programs or special invite-only events, while others would rely on personal engagement with locals. However, all these engagements did focus on improving brand awareness and community image.

Revenue Streams

Standard ROs quickly adapted to a wide range of disruptions ranging from reduced dining capacity supply shortages and inflation. These ROs maintained a flexible menu that adapted based on what supplies were available. P1, who ran a doughnut shop, altered the menu daily based on what they could get from the vendors. They turned this into a competitive advantage by allowing more order customization and experimenting with available supplies to create something new. P2 and P5 employed a digital platform that allowed the ROs to update their menu in real-time based on current availability. P2 switched to a catering concept and helped fill gaps in the community by offering meals at hospitals and factories. Community engagement was also a factor. For example, P2 worked with vendors to supply essential items that the town grocer could not procure. They leveraged their excellent relationships with their vendors to procure these supplies to help provide a vital service for the community.

Two of the moderate ROs modified their concept to allow and support more delivery and take-out options. P3 also incorporated other revenue streams using a new e-commerce platform. The platform allowed the RO to offer packaged meals and gift baskets instead in addition to their delivery and take-out options. P13 focused on working with local organizations to provide meal services for first responders.

Lavish ROs increased their exposure to their community through various means. For example, P9 provided meals at a reduced cost for local truck drivers. P12 also focused heavily on community engagement by sponsoring local charity events and providing reduced-rate meals to first responders and hospital workers.

Both exclusive ROs would pare down the menu to better adapt to supply chain shortages or customer demands. P10 would modify offerings and promotions based on feedback and engagement from locals. P10 also modified the concept to meet evolving customer needs.

Standard ROs utilized multiple revenue streams to compensate for a loss of dining capacity. While third-party delivery services and take-out were helpful, the markups often made total reliance on this revenue stream unstainable. As a result, ROs rapidly changed their concept to pick up new opportunities and meet customer demand. Most notable is that these ROs expanded their business to help fill a community's needs.

Value Proposition

The value proposition for standard ROs during COVID strongly relied on community engagement and highly adaptive offerings. Due to supply shortages, food offerings were often removed, but successful ROs turned this into an advantage by consistently giving their customers a variety of new offerings. Five of the six ROs were active in their community through various methods. For example, this could be offering essential items unavailable at grocery stores or donations to charity organizations. In addition, some ROs fulfilled the needs at factories and hospitals and provided meal services when other companies were unavailable. The third critical factor was a strong local presence. These active ROs in the community developed a strong relationship with all stakeholders, which in turn generated goodwill for the restaurant, and ROs were able to capitalize on this goodwill.

While all moderate ROs stated that food quality and atmosphere set them apart, a few other themes emerged through questioning. P4 stated they developed a keen sensing ability to adapt and reverse engineer offerings in the area that, proving to be a success for other restaurants. The other factor with moderate ROs was their ablet to communicate and build relationships with customers despite the limitations of the shutdown. Social media platforms allowed ROs to pick up new ideas and opportunities that the customers communicated. Two moderate ROs acted as pillars in their community, and their acts of charity and concern for the wellbeing of others generated goodwill with locals.

Both lavish ROs were actively involved in the communities they served through different strategies. For example, P12 organized with local restaurants and breweries to provide events and entertainment for the town. P9 partnered with charities and first responders and provided service through those mediums. Both ROs stress the importance of community engagement and a positive impact on locals. Both stated that their value propositions were their community standing, customer service, and food quality.

Both exclusive ROs stayed active within the community and created special events, whether festivals or pop-up dinner parties, to engage with customers. Local support for both ROs was a critical component of their value proposition and is supported through community involvement and customer engagements. P10 also changed offerings frequently to offer something new to customers consistently.

Twelve of 14 ROs knew their value propositions and how to use them effectively. All 12 ROs prioritized positive engagement with all stakeholders and stressed the importance of stakeholder engagement. All 12 ROs incorporated approach to adapt to disruptions caused by COVID-19 that shares many similarities with the triple bottom line theory. All 12 ROs remained highly flexible and adapted to supply chain disruptions while maintaining positive customer relationships. Some of the ROs were able to use this as an opportunity or competitive advantage.

Closing Remarks

P1 (standard) recommended that restaurants build up their capabilities to be flexible and better react to a rapidly changing market. P5 strongly emphasized business intelligence and improved their general understanding of their business model. P5 also stated that restaurants need to improve their capacity to research, learn, and become more innovative businesses. Most ROs also recommended a strong community presence and robust engagement.

Three of the four ROs recommend that restaurants focus on adaptability and organize themselves so that it will be easier to respond to disruptions. This recommendation also meant that restaurants must focus on improving their sensing capabilities to identify new disruptions and opportunities. P13 ended the interview by stating that the key to survival for any RO is personal ownership and more responsibility with day-to-day operations. They stated that reduced labor becomes an even more critical factor. P6 recommended that the restaurants organize and create local organizations that help to educate and share resources.

Both lavish ROs stress the importance of customer service and staying engaged with customers and the community regardless of what disruptions might prevent that. Both ROs credited this as a critical factor of survival. In addition, both ROs pointed out the benefits of social media platforms and how it helps with customer engagement and relationship building when in-person interaction is unavailable.

P10 (exclusive) stated that restaurants must be more adaptive and flexible with day-to-day activities while maintaining consistent high-level service. The same RO said the ROs need not be afraid to lose customers in the short term by offering something new. P14 stated that other ROs must remain flexible and make changes daily while maintaining positive employee morale and an inviting atmosphere for customers.

Most ROs stated that restaurants need to remain flexible and adaptive and that this experience with COVID had taught them how to be more innovative operators. That includes better operational organization, better use of labor, and more sustainable use of resources. Community engagement, care of stakeholders, and sustainability practices align with a triple bottom line approach.

Summary Theme Analysis

Within the first interview questions, there are three themes at play. Community engagement was most prevalent as involvement with these local stakeholders allowed the ROs to adapt to new disruptions quickly. The disruption theme was also prevalent here as all 14 ROs expressed their concerns and uncertainty with rapidly changing market conditions, restrictions stemming from COVID, supply chain disruptions, and inflation. Concept flexibility was also a relevant theme with the COVID experience, and ROs had to modify their business model to better support takeout and delivery operations. With key activities, we see community engagement is a prevalent theme ROs leveraged their relationship with local stakeholders to negotiate price reductions with vendors, opportunities with nursing homes in need of packed meals, and cross-marketing efforts.

The common theme with all ROs and their key resources was that they were forced to develop cost-cutting strategies and maximize efficiency with labor. The disruption theme is dominant in key resources as supply chain shortages, inflation, and labor issues pose significant challenges for all ROs. Adaptable offerings were another theme during these interviews, and most ROs modified their menus daily to increase profit margins and adapt to supply shortages. Concept flexibility was the last theme discussed, as some ROs did modify their restaurant concept based on labor shortages. The disruption, adaptable offerings, and concept switch themes are also at play for key activities. Again, labor and supply issues were prevalent, and ROs reacted by developing innovative solutions to maximize efficiency and adaptability. In addition to disruptions, ROs had to respond to a greater demand intake, and delivery and key activities were modified to support this concept change. ROs also relied on adaptable offerings to meet the demand for new opportunities and better react to supply chain disruptions.

Community engagement and concept flexibility were two significant themes seen with customer segments. Most ROs accredited community engagement with discovering ROs and appealing to new customers. Most ROs had to switch their concept and business model to support more delivery and take options; for some of the ROs, this meant a complete overhaul of their concept, and with each change, a new customer segment was targeted. Social media presence was the primary theme with distribution channels. The majority of ROs claimed that, if they had any social media presence at all before to COVID, it was poorly managed. ROs quickly learned and saw how effective social media campaigns could be if appropriately managed. What is also noteworthy is that social media campaigns were used more to maintain engagement with consumers during the shutdowns than other advertising mediums. Customer relationships were essential to every ROs' business strategy, and the community engagement theme was prevalent. Some ROs regularly offered their services for charity events, donations during a natural disaster, or community festivals. These events allowed the ROs to improve their community standing, generating more business. Social media presence was also a significant theme in maintaining customer relationships because customer engagement was limited during the shutdowns, and this medium allowed ROs to bridge that gap temporarily.

Community engagement and adaptable offerings were the primary themes found within revenue streams. ROs rapidly modified their business model to sense new opportunities and fill needs within the community. This level of innovation not only helped open new revenue streams and significantly impacted the community and brand awareness. The community engagement theme primarily dominated the value proposition for these ROs. ROs relied heavily on interaction with the community to sense new opportunities and ideas. Some of the ROs accredit their positive community standing as a significant survival factor over those restaurants that chose not to engage to the same degree. Adaptable offerings were another emerging theme as all restaurants frequently adapted to disruptions. However, some ROs were able to use it to their advantage and create a constantly changing menu that regularly offered new items. Finally, with the concluding remarks, the disruption, adaptable offerings, and concept switch are somewhat relevant and apparent. ROs pointed out how their experience with COVID taught them to adapt quickly and the importance of a solid understanding of their business model.

Answers to the Project Question

The project question asked: What are the perspectives of U.S. independent restaurant operators regarding best practices for developing an innovative business model? The study identified 61 codes that were refined into five themes. Five themes are community engagement, adaptable offerings, concept switch, social media presence, and disruption. What is important to first note is that since the onset of COVID-19 in 2020, the disruptions associated with the pandemic never fully eased up. Supply chain disruptions, record low unemployment, and record high inflation have all had drastic disruptive effects felt by these restaurant operators (Dubb, 2021). These disruptions have forced restaurant operators to adapt and radically modify their business model and concept since 2020 to survive (Amel et al., 2020).

Adaptable offerings and concept switch themes encompassed the capabilities ROs developed to adapt to disruptions. Due to the uncertainty of supply chain disruptions, most ROs modified their menus in real-time. ROs pared down their offerings to readily available items and supported a higher profit margin. When restrictions were put in place that limited dining capacity, ROs responded by changing the entire concept of their restaurant to support a new menu and services that would allow them to operate with reduced or no dining capacity. This development alone hints at a more significant shift within the industry. Before the disruptions of COVID-19 took hold, most restaurants depended on at least 90% capacity throughout the week (Schwark et al., 2020). These disruptions forced ROs to learn their business model inside and mitigate a lot of the issues seen with the restaurant industry prior to COVID-19. The lesson learned here is that to survive a rapidly changing and highly disruptive market, ROs need to build capabilities that will allow them to sense these disruptions and quickly modify their offering to adapt.

Social media presence was a new factor for most ROs and became a critical asset during the shutdowns. ROs learned how to leverage social media properly and could use this medium to engage with their customer base and stay active within the community. Most of the ROs interviewed said that social media was one of the most important tools they relied on concerning engagement when implementing social distancing measures. Once restrictions eased up, there was a decline in its effectiveness. However, most ROs stated that social media would continue to be a vital asset. It is also important to note that most ROs using these platforms assigned a staff member to run them full-time or outsourced it to a digital media company. ROs that needed to gain experience or know how to properly leverage social media tasked younger employees or, in one case, recruited college interns to take ownership of these platforms.

Community engagement was the most overwhelming theme discovered in the data analysis. ROs maintained an active presence in their community. They leveraged social media to stay in touch with their customer bases and actively engaged with them. This level of engagement empowered the ROs to be pillars within their community. Some ROs would send gift baskets if a neighbor had passed away, or they would attend charity events that supported the community. RO’s also used this engagement to sense opportunities and fulfill community needs.

Several ROs provided package meals or catering services to first responders, hospitals, and nursing homes. Some of these opportunities gleaned from this engagement turned into multiple revenue streams and allowed a few operators to produce profit margins far exceeding pre pandemic levels. Most ROs accredited community engagement as the primary factor for their survival compared to restaurants in their area forced to close. The positive effects of this level of engagement were far-reaching as the level of commitment shown to stakeholders in the community by these restaurants generated positive brand awareness and the locals' goodwill. Restaurants gained a lot of positive community support during 2020 at the onset of COVID-19, and ROs were able to capitalize on this goodwill and keep their restaurants open. When these restaurants could help the community, these ROs did just that in any feasible way.

Labor shortages were another issue that forced ROs to adapt. High labor demand and low unemployment meant that most restaurant workers had options and could leverage this situation to their advantage. As a result, ROs were forced to think lean and reduce their labor while also paying higher wages. Successful ROs contented with this issue by collaborating with their staff to minimize burnout and increase efficiency. This innovation is also a notable change, as above-average industry turnover has plagued restaurants for a year, even before the pandemic (Bureau of Labor Statistics, 2022b). Now restaurants are forced to address this problem head-on and find a mutually beneficial solution with their employees.

Community engagement, collaboration with labor, and maximizing the use of their resources show an interesting alignment with the triple bottom line theory. Triple bottom line theory states that company should value their company based on more than just profit (Loviscek, 2021). While profit is still a concern, impact on all stakeholders and sustainability are also metrics of equal importance (Loviscek, 2021). The restaurant industry was forced to adapt and change from an outdated traditional restaurant business model to a highly reflexive one that prioritized positive community involvement while implementing new technologies and leveraging social media platforms.

Contribution to Theory, the Literature, and the Practitioner Knowledge Base

This qualitative inquiry aimed to answer the project question concerning the perspectives of U.S. independent restaurant operators regarding best practices for developing an innovative business model. Based on a thematic analysis, the findings from the inquiry revealed five major themes discussed in the previous section. The following section will show the contributions to theory, literature, and practitioner knowledge, as well as how the gap in practice was addressed.

Contribution to Theory

The perspectives of independent restaurant operators regarding business model innovation were researched using an applied framework. The applied framework acted as a blueprint and foundation and supported this project's problem, purpose, and significance (Grant & Osanloo, 2014). First, the traditional restaurant business model was analyzed using the business model canvass (Osterwalder & Pigneur, 2010). This analysis helped outline the issues associated with the traditional business model while providing a blueprint to explore the business model innovations. Next, the new restaurant classification theory was used to establish restaurant categories that were practical, logical, and supported by academic theory.

Black swan theory is the primary driver and theoretical basis behind this research. Black swans are events with world-shaping implications (Taleb & Blyth, 2011). The black swan theory stresses the importance of organizational capabilities that allow flexibility to react and adapt to these disruptions (Taleb & Blyth, 2011). While most of these events are highly improbable to predict, organizations should build reflexive capabilities to better adapt to these disruptions (Taleb & Blyth, 2011). This project contributes to this theory by giving insight into the perspectives of small business owners that endured and survived rapidly changing, unpredictable disruptions brought by a black swan event such as COVID-19. This project also shows that over-optimization and reliance on an outdated business model can negatively impact an organization's chance of survival.

Contribution to Literature

This research helps fill a gap in practice regarding academic knowledge surrounding independent restaurant business model innovation. The restaurant industry primarily relied on an unchanged business model for over 25 years. As a result, there is little in the way of academic research regarding innovations made to that business model. This research shows independent restaurant operators' perspectives on the innovations made to react to disruptions. These changes included modification of the entire concept, multiple revenue streams, and new strategies for developing customer relationships.

In addition to knowledge regarding business model innovations, this research also chronicles how the restaurant industry changed when faced with an unprecedented black swan event. This data analysis provides unique and critical insight into small business innovation as an act of survival. Restaurants faced multiple industry-wide disruptions and forced operators to make radical innovations. This study also provides perspective on the use and value of social media platforms with customer engagement and relationship building. Social media proved to be a valuable asset and an essential tool for restaurants to engage the community.

This research also provides exploratory insight into black swan events, their effects on small businesses, and how stakeholder engagement can be used to adapt and overcome black swan disruptions. Community engagement was a vital aspect of every interviewed operator's business strategy. Operators highly accredited this engagement as the difference between survival and closing their restaurants for go.

Contribution to Practitioner Knowledge

The gap in practice with practitioners is related to a lack of knowledge regarding business model innovations and capabilities needed to adapt to industry-wide disruptions. COVID-19 was a unique event for independent restaurants, and the effects of these disruptions are still being felt as of 2022 (National Restaurant Association, 2022). The research first fills the gap regarding business model innovation by showing the perspectives of successful operators that innovated their business models out of necessity. This research also shows how profit margins for some operators increased after implementing innovations. Operators from this study were selected from all categories as defined by Parsa et al. (2020), providing insight into how these innovations were developed and executed by operators in all four categories.

What is most important about this project is the perspective it provides for overcoming disruptions. As pointed out in prior sections, restaurants have been affected by more than just COVID-19 since 2020. Supply shortages, labor market demand, and inflation presented unique challenges, and these restaurant operators could successfully navigate and overcome these disruptions. In addition, this research acts as a toolbox for restaurant business model innovation.

Finally, the data from this project serves as a warning to those who get complacent with their business model and fail to develop the necessary capabilities to adapt to disruptions. All the operators interviewed in this project were able to overcome and survive COVID-19 disruptions successfully. However, all participants reported that this was a one-day-at-a-time struggle with much uncertainty. Nevertheless, the capabilities they developed allowed them to be flexible and quickly adapt to each new challenges while also sensing new opportunities. The results of this project support the applied framework and the conclusions of practitioner and academic studies found in the literature review.

Project Application and Recommendations

The qualitative inquiry findings produced valuable insight into the perspectives of independent restaurant operators who could successfully innovate their business model and avoid closure during COVID-19. The findings from the data analysis indicate that community engagement is a vital component of business model innovation made of necessity. The research shows that this engagement allowed restaurant operators to sense and fulfill needs in the community, and in return, operators received positive support from locals.

This study includes several recommendations. First, restaurant operators must prioritize evaluating their impact on all stakeholders. Innovations considered should first look at the impact on stakeholders and then evaluate how this could improve or deteriorate brand support from within their community. Several operators accredited their survival to positive support from locals. I also recommend that operators develop and maintain a robust social media presence, as most restaurant operators find this a vital tool for engagement, business intelligence, and marketing. Finally, restaurant operators should ensure they fully understand their business model while looking for ways to improve and innovate. Critical to innovation is collaboration, and those operators who took time to innovate with their staff and stakeholders could exceed the goal of survival and increase profits and profit margins beyond pre pandemic levels.

As previously mentioned, there is evidence of a connection or similarity to the triple bottom theory. This theory states that companies should place value on more than profit and consider valuing sustainability and impact on stakeholders (Loviscek, 2021). This research offers exploratory perspectives on how small businesses applying some of the same principles were able to use their relationship with stakeholders to survive and adapt to disruptions. Further exploratory research is recommended to understand better perspectives regarding engagement and collaboration with stakeholders to overcome severe disruptions.

While this research provided valuable and critical insight into independent restaurant operators' perspectives and their innovation methods, more research is needed to understand how the restaurant industry adapted to COVID-19. Further research via quantitative analysis on a large scale is recommended. Further research should be conducted to understand the perspectives of operators that were unable to adapt to see if there are any correlations between steps taken to adapt that were successful versus unsuccessful attempts. Findings may be disseminated through submissions to the Journal of Foodservice Business Research and Restaurant Business Magazine. This research may also be submitted to the National Restaurant Association and regional and local restaurant associations.

Conclusion

The purpose of this qualitative inquiry project was to explore the perspectives of U.S. independent restaurant operators regarding innovative business models to sustain operations during a significant economic disruption. Restaurant operators struggle during normal market conditions, and overreliance on the traditional restaurant business model created a situation where most restaurants require almost 100% dining capacity to remain profitable (Bandoim, 2019; Schwark et al., 2020). The same overreliance led to a profit shrunk from almost 20% in 1995 to an average of 2-6% in 2019 (Walters, 2019). The impact of COVID caught most restaurant operators off guard, and by the end of 2020, over 110,000 closed (National Restaurant Association, 2021). COVID-19 exposed the flaws and complacency with the traditional business models and created a scenario where restaurants were forced to innovate and develop new business models that allowed for better flexibility and adaption while, in some cases, even increasing profit margins.

The findings from the qualitative inquiry support Taleb and Blyth's (2011) argument that businesses need to reevaluate the balance of redundancy and efficiency while developing capabilities to better adapt to disruptions. The valuable insights gained from restaurant operators' perspectives show that independent restaurants can develop strategies and business model innovations that larger companies rely on to adapt to major economic disruptions. This research also showed a connection between innovation and community engagement and shows how this engagement can lead to new abilities to sense opportunities and build robust customer relationships that are essential for surviving significant economic disruptions.

While most basic and predictable disruptions can be planned for, some are so wild and seemingly improbable that everyone is genuinely caught off guard when they occur. Larger corporations have the assets and support needed to survive, whether through their own means or government assistance. Independent restaurant operators faced a nightmarish scenario as government mandate shutdowns designed to protect the public threatened to destroy what these people have created. When these black swan events occur, the average person is often left to fend for themselves. Thus, independent restaurant operators must develop the capabilities to adapt better when these disruptions occur.

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A Capstone Project Presented in Partial Fulfillment

of the Requirements for the Degree

Doctor of Business Administration

Capella University

December 2022

REBECCA SICELOFF, DBA, Committee Chair

JAN TUCKER, PhD, Committee Member

FREDA TURNER, PhD, Committee Member

Jennifer A. Straub, PhD, Dean

School of Business, Technology, and Health Care Administration

INDEPENDENT RESTAURANT STRATEGIES USED TO SUSTAIN OPERATIONS DURING THE COVID-19 PANDEMIC

Executive Summary

SECTION 1 BUSINESS PROBLEM AND PROJECT SCOPE

Introduction

Capstone Topic

Problem of Practice

Purpose of the Project

Project Need

Project Question

Project Justification

Project Context: Company or Industry

Terms and Definitions

Doctor of Business Project Specifications

Importance of the Project

Approach for the Project

Summary

SECTION 2

LITERATURE REVIEW AND PROJECT PLAN

Introduction

Applied Framework

Traditional Restaurant Business Model and the Business Model Canvas

Relevant Frameworks

Black Swan Theory

Linkage

Search Strategy

Method for Discovering Literature

Inclusion and Exclusion Criteria

Review of Scholarly and Practitioner Literature

Historic and Current Business Problem Trends

COVID-19

Best Practices for Future Business Models

Hybrid Business Model

Summary of Literature

Recruitment

Project Study Protocol

Data Sources

Preliminary Sources of Data Expected

Instrumentation and Data Collection Tools

Data Collection

Data Analysis Plan and Presentation

Validity and Reliability/Trustworthiness

Ethical Considerations

Overview of the Project Study Plan

Summary and Conclusion

SECTION 3

RESULTS, DISCUSSION, AND IMPLICATIONS

Introduction

Data Collection Results

Participant Demographics

Data Analysis

Initial Analysis of Data

Coding

Theme Conceptualization and Review

Theme Review and Analysis

COVID Experience

Key Partners

Key Resources

Key Activities

Customer Segments

Distribution Channels

Customer Relationships

Revenue Streams

Value Proposition

Closing Remarks

Summary Theme Analysis

Answers to the Project Question

Contribution to Theory, the Literature, and the Practitioner Knowledge Base

Contribution to Theory

Contribution to Literature

Contribution to Practitioner Knowledge

Project Application and Recommendations

Conclusion

REFERENCES

BLACK SWAN THEORY