Fewer restaurants, fewer diners and lower prices
The restaurant business is a brutal one even in the best of times and tragically, there are an astronomical number of people who make and serve food for a living who recently have no jobs due to COVID-19. We are in uncharted waters – something the industry has never experienced before and in all likelihood, restaurants as we know them are not coming back for some time. In fact, several restaurants may not come back at all.
Covid – 19 has shown us that the industry is on even shakier ground than we suspected. In reality, the number of restaurants in Colombo going bust was on the up, while the high number of places opening was equally misleading, as most of them lacked a business model that was sustainable.
I don’t see many silver linings for independent operators. Many are not well capitalized. They do not have any cash stockpiled or sufficient private equity nor will banks bale them out. Some of them got into this business like those who put up hotels, believing ‘if you build they will come… and that’s not going to happen for now. They live off the credit they’re provided by their food suppliers – which will be a lot tighter as these vendors sit hard on accounts receivable.
Restaurants have lost over three months of revenue. They face steep bills to reopen including re- cleaning, restocking and rehiring costs, and that’s expensive. Most people simply cannot afford it. To add to these challenges, restaurants will have to remove half their tables to ensure physical distancing – thus cutting sales by half and profitability even more.
There will be a lot of landlords that will lose tenants and not be able to replace them. This can spread to food courts, where there will either be restricted seating or no seating, with food on offer only via pick-up and delivery options.
Ever since the pandemic took a stranglehold, diners have become thriftier. With worries about their income, many are exploring optional expenditures, to the extent that, there are people who are learning that they can live without restaurants. With a very small margin for error, how do restaurants lure back nervous diners?
To survive restaurant owners will need to find creative solutions in this new environment. These solutions must align with the customers’ plight. After ensuring the safety of the food, restaurateurs may have to look hard at their pricing. Survival plus two other words – ‘slowly’ and ‘gradually’ are the magic words in 2020.
Your new goal for the rest of the year should be to minimise losses by focusing on contribution margin (revenue minus variable costs).Let’s face it – many of your costs are sunk (land, building, kitchen fixtures, licenses’, etc) as they are incurred whether or not your restaurant is open,
This crisis will force the industry to re-examine what it means to be a restaurant and the restaurants that are the most adaptable will find their own solutions - focusing on the community and simplicity.
Ilzaf Keefahs – writes on hospitality related matters that he is passionate about, and likes to share his views with hoteliers and customers alike
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