COVID-19 is a short-, medium-, and long-term threat to an industry whose profit margins are razor thin in the best of times.
On one recent grocery-store trip, I was met with the unsettling sight of an entirely empty meat section. This was likely caused by the same issue that has beset seekers of toilet paper elsewhere: The supply chain of toilet roll is divided between home shoppers and corporate shoppers; once office buildings and other commercial enterprises stopped ordering, the demand shifted to the home. It is a measure of the strange times we live in that I’ve now placed my first order for toilet paper with a restaurant-supply store. I’m glad that the supplier could adapt to increased home demand. But that it must cater to a single-family home to survive is a bad sign for the industry it normally serves.
We have tried once a week or so to order in from our favorite local restaurants, but they are getting hammered by the lockdown orders from the state. David Chang is a famous restaurateur, the founder of Momofuku, and the food-media successor to Anthony Bourdain. “I’m not being hyperbolic in any way,” he told the New York Times last month. “Without government intervention, there will be no service industry.”
All my friends and family members who work in restaurants as cooks have been “let go” from their jobs. Will they ever recover? I hope so, but the design of Congress’s CARES Act relief package has put most restaurants into a bind from which they cannot escape.
One part of the “paycheck protection program” is an attempt to freeze the American economy, at least the healthy parts of it that could be thawed out later. It extends capital to businesses in the form of forgivable loans, so long as they keep or put their employees back on staff. It could have worked, but Congress’s limit on the total amount of money that would be discharged limited its effectiveness. Banks naturally gave priority to their largest customers, many of them publicly traded chains such as Potbelly or Ruth’s Chris Steak House. Now the Treasury Department is making embarrassed pleas for those companies to return the public money they received as headlines inform most smaller restaurateurs that the money available to them has already run out.
Other parts of the CARES Act increase unemployment benefits so much that re-hiring workers becomes impossible, especially for restaurants where everyone expects a dining room to be slow. Returning to work for less overall pay than UI benefits and the prospect of fewer tips makes little sense to workers, especially workers in an industry as brutal as the restaurant business. But, entrepreneurs won’t qualify for PPP relief unless they rehire all their fired staff, and rehiring everyone into an industry that won’t be able to employ that extra labor well is both unwise and impossible.
There are larger problems facing the industry too. COVID-19 won’t change everything about the way we live. But it has allowed home cooking to become suddenly fashionable on social media. Whereas before the pandemic a substantial number of customers looked to put their restaurant meals on Instagram, now they do the same for the things they cook themselves. If that trend lasts beyond the worst phase of the pandemic, it will make the restaurant industry’s recovery much more difficult.
Restaurants also depend on immigrant labor in a time when immigration is almost certainly going to slow to a trickle. One of the more arresting points in Christopher Caldwell’s new book, The Age of Enlightenment, is the American restaurant business grew into the behemoth it is today — and sustains itself as such — through low-wage immigrant labor, which greatly reduces the cost of meals prepared outside the home. In 1955, Americans spent 25 percent of their food budget in restaurants. Now, that number is over 51 percent, according to the National Restaurant Association.
If immigration slows down or the nationalist mood leads to tightened borders, will the favorable prices outside the home remain? How much of America’s recent cultural change, in which “enjoying food” became a fashion statement and an end in itself, will remain when the pandemic’s over?
Commercial real-estate owners have high incentives to be generous with once-profitable tenants. There are no alternatives in this market. A substantial number of people will want to return to as much of their pre-pandemic lives as possible. Those who saw no pay cuts, furloughs, or layoffs may be itching to spend big come summertime. On the other hand, it’s likely that some social distancing will still be mandated by some states even as lockdowns loosen. And big-city restaurants can’t make rent, let alone payroll, if their dining rooms are cut in half by temporary “spacing” regulations.
What’s not in doubt is that the small margins of the restaurant business exist at the tail ends of long supply chains, a long list of expectations of what the dining-out experience should be like, the long-term social phenomenon of mass immigration, and the decay of domestic cooking ability. When this pandemic is over, many if not all of those realities are likely to be changed — and with them, perhaps, the industry itself.
Source: Thanks https://www.nationalreview.com/2020/04/can-restaurants-survive/