Got Restaurant?

Recently, Rick Nelson and John Ewoldt joined forces for an article in the Minneapolis Star Tribune about the state of Twin Cities' restaurants during the pandemic.

I had a great conversation with Mr. Ewoldt, suffice it to say, we did not come to any great conclusion about the prospects of all of the local restaurant businesses surviving this current economy. In fact, I do believe that we'll see at least 20-30% of independently-owned restaurants close. Without a steady stream of dine-in customers, the margins are too thin for these businesses to survive. The outlook is that they will be allowed to re-open at a minimized capacity for the foreseeable future - say, 50% - and the Takeout business would need to make up the rest. It's a long shot that those combined revenue streams will add up to what the restaurants need to turn a profit - and pay back the debt the PPP funding provided, not to mention existing loans that many owners had before the downturn.

All that being said, what Mr. Ewoldt did not quote me as saying (but which I did say), was: Restaurant owners will be back. It may be a few years before our dining scene is transformed again, but restauranteurs are addicted to the restaurant business, and I'm confident they will build again. My hope is that when they do start growing, they'll have spaces that are affordable in which to grow. I guess that makes me in favor of a market adjustment, though one this sudden and sharp is painful.

In the meantime, as consumers, our job will be to pay attention to how the restaurants who are still open are surviving. This may mean we see increases in menu prices, the addition of administrative charges, or a scaled-back menu. We have to consider that the business model of a restaurant has needed adjustment, because restaurants have not charged customers the actual cost of running their businesses, and because customers have subsidized wages to the service staff through tipping.

As restaurants experience a slowdown, even after reopening, the tips will be less, and service staff will need a higher hourly wage that pays close to what they made pre-COVID, which means their employers will have to cover that cost. To customers, that looks like a price that's higher than we've paid in the past from the menu perspective, but likely the same amount of money that we displaced throughout our restaurant experience, by paying the menu price plus the cost of tipping.

We are entering into a new world, and this is baptism by fire for all of us, business owners and customers alike. The opportunity before us is to embrace the flux, to innovate, to explore new ways of doing business.