The Restaurant Business During COVID-19
When we think of our communities, we often think about restaurants. Restaurants are where we come together for first dates, weddings and anniversaries. They are where we escape to enjoy a great cup of coffee in the morning, or that glass of wine after work. They are where we experience community whether at a rotary meeting or simply familiar faces at our local diner.
Beyond that hospitality is Washington’s largest private employer at nearly 300,000 jobs and it is where the majority of Americans got their first job.
So maybe that is why when Washington state shut down on march 17, 2020, – so many Washingtonians missed restaurants. Being part of our neighbors lives is huge part of why restaurants missed their communities.
In Washington state, with sales down over 70%, and over 100,000 hospitality workers suddenly unemployed, the hospitality industry is the sector hardest hit by the economic downturn created by the pandemic. Many are worried that a high number of restaurants will not survive this crisis.
The association has witnessed many social media posts and direct questions all wondering “why are restaurants so impacted by this crisis.”
It really comes down to the economics of restaurants. What we like to call “the restaurant Benjamin”
In normal times, when you spend 100 dollars with your family in a restaurant – where does it go?
Forty dollars of that goes to pay staff. The cooks preparing your favorite food, the server taking your order and all the people who provide for a great experience. This includes not only their wages but also all the payroll taxes, benefits and any other cost related to the team.
Another 28 dollars pays for the food on your plate.
After food and people, another $28 pays for everything else you see when your visiting your local restaurant. Things like forks, cash registers, soap, menus, tables etc. About half of these costs are fixed like rent, set taxes and energy.
With these expenses taken out of that $100 check, that leaves just four dollars for the owner to take home to his or her family, save in the restaurant’s rainy day fund or invest in upgrades and new technologies.
So, if a restaurant brings in one million dollars in sales a year, the small business owner on average earns forty thousand of that. Well below the average annual income in Washington state.
Let’s come back to the question “why are restaurants so impacted by this crisis.”
Restaurant operators are proud that 96 percent of what you pay goes back into the local economy.
But with the suddenness of restaurants being closed down, many restaurants spent that 28% of food cost without ever selling the food – so a total loss. At the 4% margin it would take the average small restaurant owner 7 months of regular business just to pay this unused food bill without taking any income for themselves.
Furthermore, when you turn off all the revenue as we did during this crisis those fixed costs still occur. The pile-up effect of these bills create a debt that restaurants must still pay. Each month of no sales creates another 3 months of regular business just to pay these bills without taking any income.
We are now talking about restaurants needing to be open for a full year in good times, just to pay off the bills that have racked up during covid-19. And most people predict the year following covid-19 will not be a good year.
Hopefully this explains why so many are concerned that this crisis may force many restaurants throughout our state to shut down permanently– and cause our communities to become less vibrant, less thriving, less social and less connected as a result.
Because restaurants are so intertwined with the fabric of our local economies, if the industry is failing, so is the broader economy – and if our sector is thriving, so is the broader economy.
At a time when economic stimulus is needed most, state lawmakers should remember that stimulus happens through restaurants.
How can lawmakers help?
With little to no cash flow and accumulating debt, restaurants need relief from – not deferment of – expenses, including tax and utility credits and rent relief.
New agency rules and requirements on restaurants must be deferred until businesses are returned to health. New proposals that would further compound economic harm should be reconsidered.
Stimulus funding is needed to promote our state’s great experiences and encourage Washingtonians to rediscover Washington when it’s safe to travel again.
With this help, when we reach the other side of this crisis, your favorite local restaurants will be there to welcome you and the community – ready to serve.
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