Restaurants On The Move

Half of all small, independent restaurants will never reopen.
This adds up to more than 250,000 small businesses that will shutter for good.
I’ve owned restaurants and bars, including a private club, and I’m not exaggerating when I say most independent restaurants operate at the margins; many need scuba gear since they’re perennially under water.
Succeeding in the restaurant business is tougher than tough.
Chain restaurants are a slightly different story, but many chains will also close for good.  A chain restaurant is one with a minimum of ten outlets; some, as you know, have thousands of locations like McDonalds and Taco Bell, but the vast majority have fewer than twenty-five. I predict one in five will permanently shut, or about 20,000 chain operations within the year.  This applies primarily to the smaller chains.
Failures will occur over a one-year period starting with the original shut down date of March, 2020.
The majority will fail before October, 2020, then the balance will continue to close until March, 2021.
Why so dire?
First, all restaurants are financially tenuous from their outset.
This is compounded by the difficulty in hiring a reliable, competent staff.  Lack of loyalty, i.e., continuous turnover, is a certainty; a painful and costly fact of life.
Add government intervention to the mix, pumping up unemployment benefits along with COVID emergency pay subsidies, and you’ve created a constituency of entitlement recipients earning more sheltering at home than they did while working.  This is not altogether bad; especially during the time of COVID when distancing and isolation are essential to secure a safe path forward for all of us.
This payments model applies across the board to small businesses of every stripe, not just restaurants.
Now, let’s examine the attitudes of the consuming market; people who eat out more than five times a week.
Many are seniors whose attitude toward congregating in crowded spaces has changed forever; moreover, you don’t have to be a senior to favor this attitude, it’s part of our new normal.
If a restaurant created social distancing by reducing their number of covers, or seats, by 25-50%, this will only accelerate their ultimate demise; moreover, it’s reasonable to predict that patron volumes overall will be down for quite some time.
Rising costs in labor, food, liability insurance and the added cost of continuous facilities’ sanitizing will lead to higher prices and a concomitant decrease in business. With one of five Americans on the unemployment rolls, eating out will become cost prohibitive; at minimum, more of a luxury than during pre-COVID times.

Let’s summarize:

Restaurants, as a business vertical, are financially frail.

The government has helped to alienate their wait and cooking staffs with extravagant entitlements.

Patron attitudes have shifted away from dining out as a safe and acceptable option.

Higher costs of operation translate into less business.

 

Any positive forecasts?

Absolutely!

All of the above observations apply to sit-down restaurants only and we’ve learned quite a bit over the past two months about adaptive consumer behavior relative to living during a pandemic.

The new paradigm in the restaurant business will involve a preponderance of pick-up, home delivery and catering of both prepared and partially prepared food.

This has accompanying financial benefits which include lower facilities cost since sit down areas are not needed.  Add to this lower utilities, insurance and labor costs and these will combine to make the threshold of financial survival more achieveable.  The added cost of sanitizing will be confined for the most part to kitchen and delivery channels.
The above will be more easily accomplished via the chain restaurant model since they can add additional delivery and prep options to their declining sit-down market as a compensating ancillary income stream.  More specialized, independent restaurants will struggle to transition, but it’s not impossible. Pre-defined, fresh, “cook at home” meals, will become more popular and more local.

Food Trucks will become the fastest growing segment of both the food preparation and the large motorized vehicle markets.  They will proliferate dramatically in residential coverage and the extensive varieties of food served.  Major chains will add branded Food Trucks to their new “delivery” channels and popular local restaurants will either add a Food Truck or transition entirely to a Food Truck as they adapt to customer expectations in a COVID sensitized world.

Bottom Line: Many small restaurants, as we knew them before COVID, will fall victim to the effects of the pandemic and not survive.  New restaurants, or re-purposed restaurants, designed to satisfy the needs of a changed marketplace, will emerge and many will survive and prosper.

 

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Harry Herget