This Too Shall Pass
After tapping the gavel just over a week ago to bring the Georgia Restaurant Association’s Board of Directors meeting to order, I started with a story.
Last week I called my Coca-Cola representative to coordinate the installation of the syrup lines. “Hey there, how are you?” we both exchanged. I took a few brief moments to share a few of the challenges this year and mentioned that I was calling him because of the fire at The Public Kitchen & Bar which he was not aware of. “Well, I’m sorry to hear about the fire. I had no idea because my mom died about that time.” After a brief pause, he then says, “and my wife also died a few weeks ago so it’s been tough for me as well.” I told him that I was sorry to hear that and thanked him for sharing. I’ve noticed that lately when anyone asks me how I’m doing; I find myself replying with “it could be worse.” To which they always reply, “Yes, Jamie, it could always be worse.”
After the story, I looked down at the Board agenda to see unfamiliar topics of discussion such as lease negotiations, accumulation of new debt, outdoor dining strategies – just to name a few. It was a reminder to all of us at the meeting that things are not well within our beloved industry. But it could be worse.
As of September, total restaurant sales losses topped $185 billion and most restaurants do not expect their business to fully recover in the next six months. For many restaurants, just treading water will not get it done. Forty-three percent of full-service operators say it is unlikely their restaurant will still be in business six months from now if business conditions continue at current levels. Among limited-service operators, one-third say they likely will not survive another six months if business conditions do not improve. One of the byproducts of COVID-19’s impact on the restaurant industry has been the lost opportunities for socialization that so many people crave. This was confirmed in a new nationwide survey commissioned by the National Restaurant Association which found that 78 percent of adults agree that going out to their favorite restaurant is one of the things they missed most during the last few months.
The restaurant business is no joke. It can not only swallow an operator’s soul in one large gulp and spit it back out, it can also quickly bleed you dry of cash. Cash flow is extremely volatile with huge ups and downs. Even a rainy weekend where outdoor dining patios cannot be used can be damaging. Now, more than ever, is just one of the many out-of-your-control situations that can drive the final nail in the coffin. Reopening a restaurant after a closure of more than a few weeks is difficult, costly and gets even more challenging as time passes. Reviewing a profit and loss statement after a four to six-month closure is, well, terrifying because the bills just keep coming.
In a pre-pandemic world, the average operator squeezes just a four to six percent profit from revenue. To illustrate in the past, I have taken a dollar bill and drawn lines across it representing what portion of the received dollar goes to controllable and uncontrollable expenses. Then I present that dollar bill to our staff and cut away the costs to show what is left over after the cost of doing business. Sadly, you are left with just one tiny little sliver of each dollar. So, when the revenue shrinks by even just a small amount, the restaurant goes into the red unless the operator pivots operations and dramatically cut costs. And even then, there is only so much one can do without the risk of shaving away the things that once made the operation successful. As operators, we are accustomed to quick thinking and change but this pandemic has brought about a new level of change that none of us were expecting.
In Savannah, we have already seen a few closures but I predict there will be more to come. For those that were lucky enough to have received federal aid, that much-needed support was a lifeline for the ongoing expenses during the shutdown as well as the ability to support reopening, dependent of course on how much money was received. But what happens when those funds are depleted?
We need the revenue to survive and we need it quickly. In the downtown area of Savannah, March through June are the months where much of the money is made. We use those months to help sustain our operations and cash flow for the rest of the year, but we missed those months altogether this year. It turned a little cooler this past weekend and my first thought was not about how nice it felt but rather, how much more time do we have to capitalize on al-fresco dining?
Everything is different now. Most Georgia restaurants went from a bi-weekly payroll to a weekly payroll due to unemployment insurance filing, ergo our cash flow cycle has now been reduced from fourteen days to just seven. The majority of restaurants are suffering during the week and busiest on the weekends but just as soon as the deposits clear on Tuesday’s bank reconciliation, sixty-five percent of the revenue going to the cost of goods and payroll gets swept right back out of the operating account on Thursday. It’s an awful vicious cycle. Weddings and corporate events? Down to a grinding halt. How does it feel to refund client deposits that you received over a year ago? Well, terrible.
I took a day trip to Charleston on Saturday to get a feel for how things were going in our sister city. Unfortunately, it appears that they have taken an even tougher hit than Savannah. Though, that’s not really surprising considering rent is typically higher in Charleston and the competition is fiercer than in Savannah. But it could be worse, right? You bet. I am thankful I am not an operator in Florida or worse, New York City!
As a nation, we are all hopeful that this pandemic will end instead of continuing to wreak havoc on our personal and business interests. Restaurants are the heartbeat of our communities but sadly they have suffered the most significant sales and job losses than any other industry in the nation since the COVID-19 outbreak began.
Operating a restaurant has always been a challenging business and will continue to be. Ask any of my peers on the Georgia Restaurant Association's Board of Directors what they love most about the business and they will tell you that it’s the resilience, the toughness and the outright passion that we have for the industry. And as the pain continues, so does the never-ending work of being an operator in the restaurant industry in the most uncertain of times.
Experimental is a word that comes to mind that defines how we weave in and out of the decision-making process. Every day seems to present new challenges and the only way to survive is to be nimble and ready for change. The only constant, particularly in today’s world, is change.
A glimpse of good news is that consumer comfort with eating at restaurants has hit a post-pandemic peak despite continued concerns about COVID-19. With nearly thirty percent of Georgia’s restaurants facing closure, we need the support now more than ever.
Consumers’ ability to being patient and open-minded as we adapt and develop our businesses is critical. When dining out, follow the posted rules. If you have entered a restaurant that has a mask policy – abide by it. Try to remember that many of us made promises to our staff about the policies, procedures, and rules of engagement which allowed them to decide to return to work. We cannot survive without them. When you pay your bill and you see a twenty percent mandatory service charge instead of the ability to write in your own tip, remember that due to unemployment insurance filing guidelines, the pay structure is different and while we don’t want to force anything on you, we’ve had no choice but to adapt. Third-party online delivery sites cost the operator up to thirty percent of whatever you spend with them. If you have a favorite nearby restaurant call them directly for takeout, hop in the car, and pick it up yourself if possible. You are doing them a great service by doing so because every shred of every dollar counts.
Regardless of how many restaurants sustain or cease to operate, one thing is for certain: restaurants are not going away. We need them for numerous reasons whether you are a patron, an owner, an employee, a farmer, or any other type of person or entity that is connected to the industry. Restaurants are more than just places to gather and eat; they are the backbone of our communities that, pre-pandemic, employed over 488,000 Georgians (eleven percent of Georgia’s population) and generated over twenty-two billion in sales! That is a lot of tax revenue and I can assure you that after driving to Charleston this past weekend, we should be thankful for Georgia’s restaurants! Eating and drinking make for a less bumpy ride!
There is another saying that anyone who knows me well enough has heard repeatedly. And so, I will say it again: “this too shall pass.” And indeed, it will.
Jamie Durrence is Chairman of the Board of Directors for the Georgia Restaurant Association and Managing Partner of Daniel Reed Hospitality, which operates four Savannah-area restaurants.