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Free rides on the restaurant roller coaster

I would bet that none of us saw this coming, way back in late 2019. That we would need to shut down so many businesses, in order for the community to feel safe, and somehow get us to a place where everyone is not sick all at once. I have no idea what lies ahead, how our economy will fare through this. I am amazed, though, at how many restauranteurs have been able to pivot - quickly! - to maintain a revenue stream. This is great, but not sustainable.

The question I'm asked most often now is: how are restaurants faring?

The answer is: barely.

While take out and To Go services maintain a revenue stream for the restaurants that chose to continue these sales, for most restaurants this is 10-15% of what their normal sales levels would be.

As a refresher, here is the magical equation for making a profit in a restaurant in a normal operating environment:

Sales 100%

Discounts -3%

Food and Beverage Costs -30%

Wages, Benefits, Payroll Taxes -35%

Operating Costs (To Go containers, credit card fees, licenses, tools, supplies) -20%

Rent and Loan repayments -10%

And this is if the owners and managers are doing it right. That leaves a profit margin of about 2%.

In the current environment, the equation looks a bit more like this:

Sales 15%

Food and Beverage Costs -5%

Wages, Benefits, Payroll Taxes 0% if PPP funding was received

Operating Costs -3%

Rent 0% if the landlord has agreed to abate ALL rent, CAM and expenses

Loan repayments 0% if the bank has agreed to abate payment

This leaves a profit margin of about 7%. But 7% of Sales at 15% of their normal rate is akin to 1% of profit on the normal 100% of sales. And keep in mind, the Rent and Loan repayments, in all likelihood, have been deferred, not forgiven.

This means that we have to return to normal business practices, or start stepping in that direction, if we want these small businesses to survive. Since restaurants employ so many people, I think we would all agree that they need to survive.

The next question I'm asked is: what will change about restaurants?

The answer is: everything.

Restaurant Owners will need to decide which systems will continue to function in a sterilized society. Meaning, how will their menus and point-of-sales systems be utilized in a way that limits contact between people?

They will need to decide how to pay their people, and provide them benefits. We've seen that the employees who have fared well in this downturn, through the help of unemployment payments, are the ones who are paid a regular hourly or salary wage, as determined by their employer. This may mean that tipping goes away, in favor of a pay structure that is determined by the Restaurant Owners, as employers, versus the old model of the customer contributing to that pay structure individually. As a customer, you will need to know that this is beneficial to all of the employees at your favorite restaurant, and embrace this change, should it occur. This may mean that prices look different than before, though the overall cost to the customer would be the same.

Restaurant Owners will be tasked with setting up their dining rooms with social distancing guidelines in place, as well as increasing communication to customers about their cleaning standards, which are already sound practices that are inspected regularly by the Minnesota Health Department. How you are served, what you are served, how long you linger in a restaurant, will all be different.

Change is all around us. It is common for innovation to take place in an environment where change is occurring. I think we'll see many innovative ideas abound from our favorite restaurants, as they are allowed to open. Our job, as consumers, is to support the restaurants' innovation, and be willing to change our mindsets about what it means to frequent our favorite restaurants at that time. Be willing to change your mind about how you experience restaurants, and be supportive of it.

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