“For many of us, the idea of a gracious meal is long gone, and it may never be back.” That’s a doleful line from this incisive analysis of the pandemic’s long-term impact on restaurants by baby boomer Howard Tullman, executive director of the Ed Kaplan Family Institute for Innovation and Tech Entrepreneurship at the Illinois Institute of Technology. His advice? Eat out and get out.
The COVID-19 virus isn’t going anywhere any time soon and, in the real world, hospitalizations and confirmed cases are exploding and setting new highs in dozens of states of every color across the country. One in four cases in Wisconsin are now testing positive. Emergency rooms in multiple states are turning away patients. And while no near-term end to the pandemic is in sight, the collateral damage to millions of businesses and to our Main Street (as opposed to Wall Street) economy is already increasingly clear in many different sectors.
But in times like these, no business in the United States is more challenging or needs to be more entrepreneurial and resilient simply to survive than running a restaurant. Few industries have been hit harder by the economic effects of the virus. A big part of the current difficulties is obviously the pandemic, but there are also fundamental structural issues with the business model. Opening a restaurant entails huge upfront investments and then the painful wait to see when and whether a sufficient number of initial customers will appear and later return. Today, the angst is even more complicated because there are serious concerns about both attracting new and retaining returning customers.
Much like COVID-19 itself, one of the biggest concerns has to do with lingering behavioral changes in the way America will be dining out in the future. For many of us, the idea of a gracious meal is long gone, and it may never be back. Sadly, today and for quite a while, it’s going to be all about “eating quickly and getting out in one piece.” Two-martini lunches were already well on their way to oblivion, but these days, given the budget-busting constraints on size and separations, customer counts and hours, even the restaurants themselves are posting signs about how long customers can occupy their booths and tables. It’s the worst possible reminder and message. This is hardly a way to encourage long liquid lunches and multi-drink dinners and, as any good operator will tell you, liquor sales are the mother’s milk of the trade and represent almost the entire profit margin in most places.
Now, as the weather worsens and the nation’s misery mounts, there are exceptions but in general, prospects for the grown-up restaurant industry continue to dampen. These businesses operate perpetually at the very edge of profitability with razor-thin margins and little in the way of reserves, credit capacity, or rainy-day savings. Restaurants are basically perpetual startups-– at risk each and every week-– at the mercy of the various product availabilities, supplier and vendor shortcomings and delays, regulators and inspectors, weather and health concerns, and, of course, viruses. They may have “regulars” among their customers, but they rarely if ever have recurring, demonstrable revenues. Every day is a new day, and the main goal is to get through it without any major catastrophes.
The truth is that the various government bailout programs failed to acknowledge that across the broad spectrum of the economy, the narrower the margins, the greater the need for assistance. As we now all know, the continuing pandemic wasn’t just a couple of rainy days run together or even a few weeks, it was and is a full-blown storm that has yet to end except in the fantasy land of Trumpville. It’s entirely likely that, once the dust finally settles and the air finally clears in major cities, we will have lost 30% to 40% of our favorite restaurants along with the millions of jobs those businesses used to represent. And many of the survivors will just be limping along.
While many have shuttered already, the worst is likely yet to come for a variety of reasons. Most obvious of all is that it’s no fun to sit outside in freezing cold weather, especially when accompanied by the stench of space heaters and the fearsome prospects of poor ventilation. If the particles don’t get ya, the propane probably will.
Next up is the major shift to WFH (working from home), rather than in the central and downtown business districts, which means fewer and fewer customers, less catering, infrequent gatherings and events, and, of course, a ton less tourists in all of the major cities. Then add in those large and small companies in expensive and extensive downtown office towers who are all now scrambling to shrink their spaces, bail on their leases, and find much cheaper and smaller spaces in the burbs.
Also add in tens of millions of unemployed and under-employed workers who won’t be joining the ladies who lunch or entertaining each other any time soon. And millions of others, with far less job and financial security than they believed that they had less than a year ago, who won’t be spending like sailors anymore. And finally, thousands of college students staying at home here and abroad whose presence supporting town and gown communities across the country will be sorely missed. It’s not exactly the last supper, but it’s pretty grim.
We’re living through one of Schumpeter’s evolutionary waves of creative destruction which will require both continuous innovation and the best entrepreneurs we can find. It’s going to take new ideas, great flexibility, support from the various regulatory authorities, and considerable patience to save our restaurants, but the alternative is just too painful to imagine.
Howard is author and co-author of several books, including his newest, “You Can’t Win a Race With Your Mouth: And 299 Other Expert Tips from a Lifelong Entrepreneur.”