More than 90,000 restaurants have closed their operations permanently or long-term across the country as the industry grapples with the devastating impact of the COVID-19 pandemic.
by Noor ul ain Ali
These are unprecedented times. It seems like the whole world has been brought to its knees, from the rapid and destructive spread of COVID-19. The food industry isn’t exempt.
More than 90,000 restaurants have closed their operations permanently or long-term across the country as the industry grapples with the devastating impact of the COVID-19 pandemic. And more pain is ahead, with a potential shutdown of outdoor dining in Punjab just as the temperatures rises. The restaurant industry simply cannot wait for relief any longer as expenses are also climbing amid the pandemic.
“We’re not the only industry certainly that is struggling at all, but we seem to have been singled out and repeatedly targeted and there’s only so much they can handle,” Mr Ahmad Shafiq, Secretary General of Lahore Restaurant Association said.
As a matter of fact, it’s never been easy to make money in the restaurant industry as it is a highly fragmented sector dominated by 70 percent independent owners and operators. An average restaurant’s annual revenue hovers around $1 million and generates an operating profit of just 4-5 percent. A financially sustainable business model for small independents is often elusive. So when a crisis of the magnitude of the COVID-19 global pandemic forces restaurants to close, and their revenue drops to zero overnight, things get particularly dire. Unlike the oligopolistic airline industry, where a few large firms can easily band together to lobby for government support, the concerns of restaurant owners and the unique realities and concerns of their industry remain largely unaddressed by the government programs designed to help small businesses.
Second-order effects of restaurant closures ripple through the economy, bringing economic pain to farmers, fishermen, foragers, ranchers, manufacturers, and other producers who supply the industry. Equally hit are supply chain partners who move goods across the country.
The severity of this business interruption will continue to endure and be further complicated by the closure of outdoor dining since restaurants are universally labor intensive—by any productivity metric they rank among the least productive industries. Labor is required to both produce food in the kitchen and serve to consumers in the dining area. On average, restaurants spend 30 percent of their revenue on labor. With increasing focus on fair wages and legislated wage increases, restaurants may easily exceed that average.
Moreover, restaurants spend roughly equivalently for the cost of goods sold (COGS). Independent restaurants typically purchase without the ability to hedge or otherwise lock in pricing, and so are at the mercy of supply-price fluctuations.
Another critical factor that will impact the industry is the sheer number of unemployed people overall and the cadence of their return to employment across all parts of the economy. With their real disposable income severely impacted, discretionary purchases from restaurants may be reduced. Moreover, when employed, consumers have less time for meal preparation and turn to away-from-home solutions; when unemployed, free time enables more home cooking.
On the other hand, the restaurant industry has been long marked by creativity and resiliency, intrinsic to restaurant operators’ DNA. Consumers long for a return to restaurants. In a consumer survey, when asked what activities they wish to resume, “dining at my favorite sit-down restaurant” topped a list that included visiting movie theaters, shopping centers, meeting friends and family at restaurants, and attending events at stadiums or arenas.
In a nutshell, it is too soon to know when and how the industry and the economy will emerge from the pandemic. But sometimes a major crisis becomes a turning point where industries emerge stronger than before. Companies that focus on the health of their employees and customers, that deliver the meals and dining experience that consumers crave, that manage their capital wisely and look after the corporate health of their business, these are the companies that will uncover opportunities amidst the carnage this crisis has brought.
The author is a digital journalist, a foody and can be reached at email@example.com.