Fear is undeniable as government mandates intersect with business objectives and operating practices during this COVID event. Fears open our eyes to what these main street entrepreneurs are facing. I’ve talked to many business owners in the restaurant industry. Some are clients and some are friends and business associates. They echo what we all see in the news from businesses in almost every part of the country. The local stories are representative of the national economy, although anecdotal in nature. The restaurant industry is one directly impacted by COVID, that’s a fact. Whether this is caused by a real risk or perceived risk, the result is the same … fewer customers, more restrictions, and more human resource obstacles. Yes, there are many other industries that have been hit and more likely to be impacted in the coming weeks but this is a look at the restaurant industry.
Coming to a Restaurant Near You
What we are seeing in our local communities are the same stories being lived out in cities and towns across the nation. The latest response to the increase in positive COVID cases is many local governments are mandating wearing masks in public. Whether this decision is based on fear, science or just submitting to public pressure, the outcome is more headwinds for the restaurant owners to overcome. Certainly, full service, dine-in restaurants are more impacted than drive-through, fast serve or delivery and take-out.
In a June 22, 2020 article in the Houston Business Journal, the headline was “Coronavirus headlines: Texas Restaurant Association seeks mask mandate; more mask news”. In an article posted by The Texas Tribune on July 2, 2020 the headline read, “Gov. Greg Abbott orders Texans in most counties to wear masks in public”. In Florida, many local governments have mandated masks in public, although Governor DeSantis has not issued a Statewide mandate for masks.
The industry has been on the COVID roller coaster ride since March. First full closure for all in-door dining, then re-open to partial capacity for in-door and outdoor seating. Most reopening rules started with a 50% in-door capacity. There were many variations and details relating to allowed capacity in this re-opening phase. At this capacity reduction, most businesses would not be able to survive, and the business model certainly was not created for a capacity less than ‘all of it’. For the restaurant industry, the challenge of having business volume restricted by government (or any other external force) is even more challenging considering the low profit margins, high fixed costs for facility costs and dependence on trained employees.
CARES Act and PPP
Fortunately, the Feds injected needed liquidity into these businesses allowing them to retain employees and survive the first COVID impact. These funds also provided much needed hope and time to get through the tough times. Now, most have used all PPP funds and cash reserves.
Currently, these businesses are in round two of the COVID impact, caused by increase case numbers, increased fear and more government intervention. The result is fewer customers dining-out, more uncertainty and increased number of restaurant closures.
So, what’s the short-term outlook for the restaurant industry?
It’s going to be a bumpy ride for the industry. There will be a lot of closures caused by financial hardship. Some businesses may close temporarily, but many will close permanently due to lack financial resources to pay for continuing fixed overhead costs, like rent and debt service.
The type of restaurants that survive and thrive will change to mitigate the fear and reality of COVID. Likely, more open-air facilities, more delivery and take out type restaurants will be the norm. We’ve already seen that these types have done the best during COVID so far. So, look for more of these restaurant types over the months to come.
What is the long-term outlook for the industry?
Eventually, the restaurant industry stories amidst COVID fears will subside, either from a vaccine, treatments, or a normalization of the risk factor (perceived and real). The new model of the dining facility and operating practices will evolve and then be accepted. This will lead to new restaurants entering the market or the reopening of restaurants, but a reopening based on the ‘new model’.
Check out this podcast interview with local restaurateur Drew McLeod, owner of Savour restaurant in Tallahassee, FL.