Welcome to the first post in our Coronavirus Case Studies series. In each post, will we talk about how the coronavirus pandemic of 2020 will affect different businesses for years to come. We’re all still processing this massive, life-changing event. This week, we talk about how coronavirus will affect the restaurant industry.
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The Restaurant Industry Was Devastated the Minute Coronavirus Became Serious
Restaurants occupy a special niche in social life, whether urban or rural. Our favorite eateries contribute so much to the character of every city that we adore and provide necessary social gathering places in even the smallest of towns. They’re more than just places to serve food, and this is important to remember when talking about how coronavirus will affect the restaurant business model in the intermediate future.
As early as mid-March, restaurants on average were seeing a nearly two-thirds decline in patronage in cities like Boston, New York, Seattle, and San Francisco. This, of course, isn’t even taking into account the effects of stay-at-home orders on restaurants, mandatory closures, or anything that’s still unfolding as I write this article.
Restaurants are a uniquely vulnerable business in the best of times. Maintaining quality food and customer service is difficult, the profit margins are low, and it’s a ton of work. As an industry, restaurants tend to be a magnet for first-time business owners who have neither experience nor deep pockets.
Many within restaurant industry were already sitting on shaky ground. Then the coronavirus happened. Talk about the ultimate sucker punch.
The Short-Term Problems that the Restaurant Industry Experienced Were Formidable
The coronavirus pandemic, along with subsequent lockdowns, left many companies with no revenue. This means that in order to pay their expenses, which may or may not have been meaningfully reduced during that time, they had to tap their cash reserves. Overnight, the most important metric for almost every business became days of cash on hand.
The average business in the US according the JPMorgan Chase Institute has 27 days of cash on hand, which is not much. For restaurants, it was a mere 16 days. For any restaurant without adequate access to cash, which was most restaurants, that meant a serious cash crunch.
The coronavirus was a Thanos snap for the restaurant industry. Many restaurants whose business models were otherwise solid, could not survive the complete cessation of revenue for even a short period of time.
With many businesses reopening, there are new short-term problems. This is still unfolding as I type these very words. Restaurants are now limited in how many people they can seat, which puts a hard revenue limit on many restaurants. Bear in mind: a lot of people don’t eat out for the food, they eat out for the experience. Takeout isn’t the same.
On top of that, a lot of people feel unsafe eating food in public. While the coronavirus isn’t known to be spread by food, you still have to take off your mask to eat it, and they risk of coming into contact with someone else while sitting in the restaurant is fairly high. Many otherwise enthusiastic customers don’t want to take such a risk.
The Restaurant Industry Will Struggle for 3-5 Years
The continuing short-term problems of restaurants will likely lead to a mass exodus of small businesses in that sector. Your favorite restaurant may very well close.
I know that’s a doom and gloom prediction. I take no pleasure in writing it. The logic is cold and simple: the only businesses which can survive an event like this are the ones with a lot of cash on hand and the ability to ride out a year or two of reduced revenues.
In the next 3-5 years, most restaurants will probably be chain restaurants like Chipolte, Starbucks, McDonald’s and so on. Buffets will probably be relegated to the history books. It will be a while before small businesses will be comfortable reentering the restauraunt business.
The restaurant business in the 2020s will likely be sparse, safe, and corporate. It will take a while for small business owners to want to get into the restaurant business again.
The Restaurant Industry in 5 to 10 Years Won’t Look Like it Does Today
The above predictions are ones that I am confident about. The next ones are more presumptive, but I feel are worth mentioning.
At the time that I’m writing this article, the worst affected areas in the United States on a case-per-thousand people basis are Chicago, the entire Washington-to-Boston corridor, New Orleans, and the Deep South.
With the exception of the Deep South, all of these areas are densely populated cities. A lot of people will want to escape cities because of bad memories of diesease outbreaks. Many companies who headquarted their organizations in big cities are starting to talk about having people work from home permanently.
It is my instinct, yet to be tested, that the resultant aversion to cities and probable crash in commercial real estate will make people flee to suburbs and rural areas, not unlike in the 1950s when suburbanization first started to take off.
In the late 2020s or perhaps early 2030s when starting a restaurant becomes attractive again, changes in the way people live will likely make the suburbs a more attractive place to start a business. What effect this will have on cuisine, in general, is not something I am knowledgeable enough to predict.
Chaos Will Create Room for Innovation, So There is Hope
The restaurant industry’s outlook is bleak. I don’t enjoy saying this, but I feel it improper to mince words. Even still, the absolute chaos of our current time creates unique opportunities. The entrepreneurial mindset will live on, reincarnated in a million unique ways.
Perhaps would-be restaurateurs will find themselves creating at-home meal kits. Lovers of gourmet food may focus their energies on creating better ingredients or exotic coffee blends. Foodies may very well come up with a new style of cooking known as “quarantine fusion.”
It’s hard to say how people will proceed from here. The spirit of creativity will survive. Food has been a part of human culture since we gathered berries and hunted on the savanna. It won’t go away because of a short-term problem – it will just find a different way to exist.
What do you think the future holds for the restaurant industry? Do you think this article is spot-on or off-base? (I hope I’m very wrong.)
Let me know in the comments below. I’d love to hear what you have to say so we can process this together.