Restaurants made adjustments to reopen this summer. Now, they need to reinvent themselves.
So far, restaurants with outdoor spaces have been able to cope. With winter looming, the flexibility of their operations is being tested like never before. A myriad of solutions is being proposed to protect restaurants from financial disaster. Some involve technology or “remodels” of outdoor spaces, and others promote a completely new strategy with additional service lines. Many restaurateurs wonder how much they will need to invest to keep going and whether it is even worth it.
Video Spotlight: Serious Challenges for Restaurant Owners
This post is based on The Washington Post article, Outdoor Dining Has Helped Restaurants Avoid Disaster. But Winter Is Coming, by T. Carman, September 28, 2020, and the YouTube video, Winter Is Coming: Restaurant Owners Worry About Business Impact, by The Wall Street Journal, September 24, 2020. Image source: hatchapong / 123RF.
1. What can restaurateurs do to make their indoor and outdoor spaces safe during the winter months? What is the downside of these investments?
Guidance: Solutions for outdoor spaces include: outdoor heaters, private dining pods, heated tents (some with sliding walls), and heated tablecloths. For indoor spaces, the safety precautions include new filtration systems and bipolar ionization units. The primary downside of these investments is their cost. For many restaurateurs, revenue is down and they will need to incur more debt to make changes for less than full seating capacity. Moreover, it is unlikely that customers will want to eat outside in the middle of winter.
2. Strategy changes are also considered. Explain them and discuss the risk of changing direction quickly in the midst of uncertainty.
Guidance: These changes stem from restaurateurs’ doubts that they can stay afloat during the pandemic unless they create new revenue streams. They include an expansion of the take-out concept with ghost kitchens, family meal kits, and retail sales. Other changes focus on re-creating a special experience with virtual wine-and-cheese pairing classes, cooking classes, and a mixture of all of the above. Clearly, the pandemic calls for restaurants to deploy flexibility, a capability that rarely receives the same attention as cost, quality, or timeliness. With little time to craft detailed plans and uncertainty about customers’ behavior under new circumstances, restaurateurs have no other choice than strategizing on the fly. This is why they plan to try out a multitude of options even though only a couple may actually pan out, if at all.
3. What are the obstacles to breaking even?
Guidance: Review the formula for the break-even point. Even if their dining spaces remain mostly outside, restaurateurs still have to pay rent, insurance, and utilities for their indoor spaces. If they own the place, they have to pay property taxes. These fixed costs are very high in large cities. To cover the fixed costs, it is estimated that 85% of the seats need to be filled, perhaps slightly less in smaller cities and towns. Depending on state restrictions, capacity limits may be well below the threshold required to break even. Unless they receive subsidies or develop other profitable service lines, many restaurants will have to close their doors soon to stop debt accumulation.