Bar and Restaurant COVID Survival Guide
The Independent Restaurant Coalition recently commissioned a study that estimates a staggering 85% of independent restaurants could permanently close their doors by the end of 2020. The global pandemic is already laying waste to our industry. Front-line employees and small business owners are struggling to survive while national chains and hotels have received the bulk of government assistance. No one knows just how bad things are going to get, nor how long this pandemic will continue to decimate our industry’s ability to achieve the sales numbers required to be profitable. While there’s hope for government assistance still to come, it’s far from a sure thing. This survival guide will attempt to outline some strategies to help you maximize your chance of survival in truly apocalyptic times for the food and beverage industry.
The cold hard reality is that many small businesses will close. Even more sobering is the reality that many of these will close despite doing everything they possibly can to hang on. David Chang recently closed multiple highly-profitable Momofuku locations, not due to any failures on his part, but simply because economic reality dictated that his business models would no longer be profitable.
Many restaurant owners and especially bar owners need to seriously evaluate their ability to keep their doors open without revenue from dining-in. For many owners, the least worst option might indeed be closing your doors and liquidating your assets. If there doesn’t seem to be a profitable path ahead of you, liquidating as soon as possible might be the best choice for you and your employees. The more you delay, the more expenses will continue to pile up.
A restaurant owner I’ve worked with recently accepted a PPP loan for $200K, which was more or less the same amount as his initial capital investment. His business has only been open for a couple years and with great effort was just beginning to turn a profit. With only $10k/week in sales before the pandemic, it would take him four years of using every cent of profit to repay the loan, assuming that he was making the same money as he was before dining rooms were closed! While I wish him the best, I doubt that loan ever gets repaid. There are some ways to dodge repaying the full amount, but make sure you speak with a financial expert before you take on additional debt during this time of crisis.
While I realize that it’s not very common, any bar or restaurant in a position to liquidate its assets and walk away with enough cash to open a new location should almost definitely choose that route. I imagine things will return to some version of ‘normal’ eventually. Reopen a new establishment then. Treading water in the meantime is a costly endeavor that places you and your employees in an insecure economic position during a time of global crisis.
Survival requires adaptation. If your business is going to make it to 2021, there is no area of your business that shouldn’t undergo scrutiny. A barely profitable business plan in 2019 is a failing business plan in 2020. Your business model was based on the assumption that you’d be able to pack as many people as comfortable into your dining room. In order to approach profitability in the meantime, bars and restaurants will require business models and pricing strategies centered around takeout, delivery, and limited outdoor seating.
Focus on Your Strengths
When developing business plans for new restaurants I advise clients that most successful places fall into one of two categories: Those that specialize in one thing and nail it (think pizzeria, dumpling house, or taco truck) or those that try to position themselves to accommodate varying guest preferences (diners, up-scale dives, fine dining) and have lots of programs (craft beer program, handmade pasta program, wine program, third-wave-coffee program, cocktail programs, sake programs, farm-to-table produce program, etc.) I love the latter. Some of my favorite bar/restaurants throughout the world and especially in NYC nail the guest experience and provide quality options whether you came to drink craft cocktails, eat tapas, or sample different bourbons. Unfortunately, I don’t think these ‘nail everything’ business models are going to work in this “new normal”.
I would recommend most everyone move to more of the ‘specialization’ model for both their food and beverage programs. I’d be willing to bet, your menu is too big. Smaller menus are always more profitable and every penny counts right now. Customers still want variety so offer variations on a few of your strongest dishes and get rid of the rest. The reduced menu size should also free up some back-of-house labor costs as well.
What are the two or three items from your food menu that are your best-received and top-sellers? 60% of your food sales at your gastropub are your burger? You’re a burger spot now. The second-best selling is your mac and cheese? You’re an upscale burger spot which offers a variety of different burgers and build-your-own mac and cheese. You can always re-assume your old identity if and when things get back to ‘normal’.
You’re a restaurant known for it’s craft cocktails and you’re getting by on to-go cocktails? You should not still be offering your full menu. Batch a few of your signature cocktails and rotate a stirred and shaken selection to provide some variety. Now is the time to reduce inventory tied up in less-essential items and take advantage of case breaks by focusing your sales.
Cut the Slack
If it’s not directly contributing to your profitability, it probably needs to go. This goes for menu items, employees, management, advertising, and professional services. Take a hard look at every penny you’re spending and ask yourself how it’s contributing to your financial success during the pandemic.
Cancel your entertainment utilities like your television and radio packages. Cancel things like window washing that you can do yourself. Learn to clean your own draft lines. If you can do it yourself, you probably should.
Take a hard look at your marketing budget. If you’re using a service for your marketing, make them demonstrate the actual additional sales they’ve created for you or cancel them. Your money is probably better spent advertising on delivery apps than a fancy Instagram presence right now and you can do that yourself.
Your labor needs to reflect your current sales not your pre-covid sales. Find a way to get as close to the industry standard of 35% target labor as possible. Adjust your opening and closing times to eliminate staffing during unprofitable hours. Shrinking menus down should also help reduce labor costs.
You’re probably going to have to lay-off some front-line employees, but don’t neglect to look at your management labor. Managers produce no direct profit for your business. Their only value comes from increased return on your investment in front-line labor. As you’re probably on the front lines with your employees now, the value of that investment becomes questionable. “Shift Manager” type management labor costs should be cut back without question.
Get Your Hands Dirty
If you’re going to make your labor work, I’d highly suggest getting out there on the front lines as much as possible. Cover front-line positions to cover scheduling gaps that will inevitably be caused by your reduced staff size as well as gaps left behind by reducing your management labor. Not only will this save on labor, your remaining employees will be more inclined to make some sacrifices if they see you’re doing everything you can to save your business, from washing dishes to taking guest orders.
Make Your Menu Delivery-Friendly
Competition for delivery business has never been so fierce. There’s a reason pizza dominates this field nationally. It travels well. Successful restaurants need repeat delivery customers more than anything right now. It’s essential that your food is reaching your customers in a state that makes them want to order from you again.
Certain foods, especially fried foods, just can’t survive for 45 minutes in an appetizing state. Lose the french fries. They’re awful fifteen minutes after they leave the fryer. You can replace them with tater tots if you need an easy fried side. Check your menu to see how ‘delivery-friendly’ it is by packing it up in a to-go container and waiting 45 minutes. If you wouldn’t want to eat it for your shift meal, you can be sure customers won’t want to reorder it.
Although it can be costly, make sure you’re getting delivery packages that are adequate for your needs. Low quality to-go packaging can greatly reduce the window in which your food tastes it’s best. Consider buying in bulk or even going in with other business owners on large quantities to reduce costs. A lot of discounts on these to-go containers happen when you buy thousands of pieces at a time. Don’t forget to include decent napkins and cutlery with all your deliveries. Customers find it frustrating to spend $18 on a salad only to have a fork that breaks on lettuce.
Renegotiate Your Rent
There is little to no demand for commercial property right now. Use this to your advantage as your landlord has little incentive to evict you when there’s no one to take over your lease and pay rent in your place. You might be able to reduce, defer, or write-off rent for the duration of the pandemic. Even if you’re in a position of liquidating your business, you’ll still want to negotiate with the landlord in the hopes of negotiating late-payment fees, subletting, or lease buyouts.
Do the Right Thing
Current news cycles are full of the cautionary tales of restaurants being called out for unethical behavior (like this, or this, or this, etc.) You’ll have a hard enough time making it through this pandemic as things are. Don’t add to your troubles by losing the support of your community or becoming the target of a boycott.
Many businesses have been stepping up and helping to feed their communities and finding other ways to contribute positively. Winning the favor of the communities we serve is going to be essential for surviving in the current climate. On a more pragmatic note, giving back to your community is likely to be more cost effective than traditional marketing in garnering community support and introducing your business to prospective customers.
Vincent Vee talks about Coronavirus impact on the Food and Beverage Industry.
Our consultants can help you get that spark ignited behind your bar via staff training as well as help empower you to keep the passion alive and self-sustaining long after we leave.