Back from the Future—Perspective of a Restaurant Entrepreneur

Small business restaurants are on life-support.  Many are in danger of failing during the next year. Hopefully there will be some innovators who will figure out how to make money in this environment.   Sadly, entrepreneurs who have worked hard to build businesses will be in danger of losing their life savings.  

Many restaurants are currently closed.  They are not paying rent or their rent is being deferred, they are deferring paying their suppliers, they are not paying utilities and they have no payroll expense unless they are open for take-out.  They are also not paying many other expenses they have when they are open forbusiness.  I fear the real pain will come when they open and start incurring all these expenses again.  If their business is only 40%-70% of their previous volume as I believe it will be, that is when the real problems will start.  The margins are very low during the good times for most restaurants.  There will also be additional costs.  Labor will be required to maintain a much higher level of sanitation in addition to costs of dividing or separating customers and employees from each other.  Tables will need to sanitized, not just wiped with a rag, after each customer leaves.  Masks, sanitizer, gloves and cleaning productswill be an added expense.  There may be additional equipment and labor required to take employees and customer’s temperatures.  Supplies will need to be restocked with potential supply issues. Labor issues are certain with restrictions of when an employee with any health issues can work.  Taxes, work-comp and payroll taxes will go up.  Food cost will also go up as livestock and chickens are being euthanized and milk is being dumped.  Restaurant chains will be discounting their products to generate traffic in the aftermath.  Individual operators will have difficulty competing.  

Restaurants with well-known brands will have an advantage.  Some have gone to ghost kitchens.  Unfortunately, this is not an option for an operator with a full service restaurant.  A ghost kitchen is a single facility that houses multiple restaurant operators to prepare food for takeout or delivery only.  Basically when a customer orders from a ghost kitchen they are ordering online or by making a phone call.  It does not matter where the kitchen is located as most customers will have the food delivered.  There may be a small percentage of customers that pick up the food.  This type of operation only works for well-known chefs and brands and is not an option for full-service restaurants.  

My former concept, Michael J’s Catering Kitchen was one of the forerunners of the current ghost kitchen trend.  We did corporate catering delivery to all of Los Angeles County and parts of Orange and Ventura County from the San Fernando Valley and beginning in 2000 from a USC medical center building.  We created a menu of Italian, Mexican, Greek and Asian food with a bakery.  Unfortunately, that type of catering will no longer be viable in the current covid world we now live in.  People will not be scooping pasta or lasagna from a large tray anymore unless they are served from behind a barrier.  There will be individually packaged meals, but the associated costs are much higher.  In the past we would typically serve a tray of pasta, a tray of chicken and a tray of salad for 20 people.  Everything will now need to be packaged individually.  Instead of 4 or 5 trays, the order will require 60 or more containers.  Also, groupmeeting where attendees are fed may be done on Zoom.  Businesses may still order lunch for some employees, but they will be individual orders and the employees will not eat in a group setting.  They will probably return to their desk to remain socially distanced.  Corporate lunches of the past are over for the time being.  Many restaurants did this type of catering on a smaller level.  They will not have this business to add to their bottom line in the near future.  

I fear the new proposed $3 trillion stimulus plan could be the final nail in the coffin for many small restaurants and other small businesses.  The adding of $600 per week to unemployment benefits has been very harmful for the restaurant business.  If that is continued on a longer term basis that may a death blow to small businesses.  I know restauranteurs who are getting ready to reopen and their employees don’t want to return because they are making double what they previously made on unemployment.  A restaurant worker who makes $500 per week or $25,000 per year is now making $50,000 and not paying social security or Medicare taxes on that money.  Our representatives who think they are helping workers may eliminate their jobs forever.  The unemployment and the additional $600 will run out some day.  We will eventually run out of other people’s money and the money we have printed with also eventually be only worth the paper it is printed on.  I fear high inflation and possibly deflation which could be worse in the long run.

The one positive is most small business people are risk takers.  They will continue to be creative and do whatever is necessary to survive.  They will not give up.  Many have had to endure tremendous hardships to be able to start a small business.  Hopefully this spirit will enables us to get through this.  

Michael J. Ourieff

Los Angeles, California