Coronavirus impact on restaurants
Carnage on the streets
It may sound melodramatic – and eating out might seem like a frivolous worry in a global health crisis – but the reality is that restaurants are an industry that creates employment, not just enjoyment.
And carnage seems the only way to describe what lies ahead in an industry where most need tomorrow’s trade to pay yesterday’s bills. Restaurants and chefs mostly live off cash flow, not profit – take the cashflow away and they can survive for only a matter of weeks.
The percentage keeps climbing but at last count, something like 40% of the world population is currently under some kind of lockdown, with restaurants, bars or any kind of place where people gather around food and drink, ordered to shut up shop.
It makes sense from a public health perspective, but for our industry it’s disastrous.
The restaurant industry needs tomorrow’s trade, and the next day and the day after, to keep going. What happens when tomorrow doesn’t come? In other words, when there can be no trade tomorrow, not the next day nor the day after – in fact, we have no idea for how long.
Consider that, outside of big restaurant chains, chefs are mostly independent proprietors of their establishments, they rent the premises, lease the equipment, run a credit line with suppliers – there’s not much in the way of assets or liquidity there, and thus very little finance available to them even when business is good.
Without financial backing and lines of credit, they’re basically using their creditors as their overdraft and it’s not uncommon to have the credit running for up to 60/90 days.
Take the cashflow away and after the first run of payroll and debit orders, you will have restaurants with empty bank accounts, and you won’t get bridging finance from a bank to fund a closed business with no prospect of when it will re-open.
In four to six to 12 weeks, these businesses will be completely suffocated with backlogs in rent, payroll, suppliers; and their utilities threatened with being cut off.
The knock-on effect is huge – landlords are not being paid, evictions are only a matter of time, not to mention the landlord’s financiers breathing down their neck. Staff are not being paid, and now they have their own landlords and creditors to deal with. Suppliers can’t supply, and they’re probably still owed money from pre-lockdown, and that in turn trickles down to the food producers.
Most countries have announced relief and economic stimulus packages, and they are targeting the small business sector, which is a good thing. But it’s unlikely they’ll be sufficient or last long enough once lockdowns are over and life starts to shuffle back to normal because customers are going to be short of cash too and it’s going to take time to re-start the industry.
Landlords may offer some relief for a month or two during lockdown, if their bankers agree, to allow staff to be paid, on humanitarian grounds, but the restaurant is still going to have the debt.
Hopefully, these business relief efforts will take in the whole supply chain – relief for property owners that can be passed on to tenants, relief for farmers whose produce isn’t moving up the chain, and so on. We need to see help like rent freezes, credit relief, amnesties on local authority accounts, and income grants to employees and other individuals, not only to businesses. Financial support to the business is one thing, but it’s not going to help you get back on your feet if you don’t have feet coming through the door in a time when everyone is going to be short of cash.
The challenge in times like these is that chefs are not necessarily the best business minds. They’re creators of experiences, they understand their customers and they know how to pull the whole dynamic together – the menu, the design, the right kind of music, the knowledgeable and attentive staff, everything that makes it all magic and sexy.
But in a cash crunch, they’re stuck in the back office with their heads down, with no money and no credit, trying to sort out the business – instead of in the shop where they should be.
Now you have a restaurant that’s an empty vessel without soul or personality. The vibe is off, staff lose motivation, unpaid suppliers that you haven’t paid put you last on the list so you’re not getting great produce. Service goes down, standards slip, customers vote with their feet and it’s all a downward spiral.
This is going to be the impact of COVID-19.
I think we are going to see a very different restaurant industry post this pandemic. The big chains will survive, but for the rest – it’s going to be a smaller industry with less employment, less courage to innovate, less variety and fewer choices for customers.