What Restaurants Will Survive Coronavirus?
(CBSNewYork) -- The coronavirus pandemic is changing the restaurant landscape across the country in real time. In some places, restaurants remain closed as the virus ravages their community. The few that continue to operate are limited to delivery and takeout. In other places, the grand reopening is well underway, with local restrictions limiting the number of dining room patrons at any given time. A few lucky areas have yet to really feel the health and economic effects of COVID-19.
Any such immunity to the scourge that's claimed over 100,000 lives and tens of millions of jobs probably won't last. And the effects on the economy will likely linger long after a vaccine is found and/or the world settles into its new normal. Restaurant patrons will be looking at a future with fewer dining options and less variety.
Running a restaurant is expensive and risky, even in a strong economy. The typical profit and loss statement shows food and labor swallowing up 60 to 65 percent of total revenue and occupancy costs (i.e. rent) another eight to 10 percent more. A few other smaller costs figure in, as well as a profit margin ranging from five to eight percent. To reach the break-even point -- the point at which those profits start to be realized -- the restaurant must fill 80 to 85 percent of its available seats.
The costs and risks only grow in a struggling economy, especially one slowed by a pandemic. To limit the spread of coronavirus, restaurants designed to serve sit-down meals have had to embrace takeout and delivery. Third-party delivery services like Seamless and Uber Eats charge independent restaurants 15 to 20 percent of the overall bill. Those allowed to open their dining rooms often face patronage caps of 25 or 50 percent of capacity. And hosting customers often requires additional safety measures -- masks, shields, additional cleaning, updated bathrooms and more.
>>READ: Is Reopening A Restaurant Worth It?
Some sit-down restaurants can survive with these limitations and increased costs for a short time. Most cannot for an extended period. Forced to jury-rig their business model, many owners will find the effort not worth it anymore. "The reality is not all of these restaurants are going to come back," says Christopher Gaulke, a lecturer in the food and beverage area at Cornell University's School of Hotel Administration. "Expectations are that as many as 30 to 40% may not come back, of the independent restaurants, your mom-and-pop-style sit-down [restaurants]."
Some restaurants, however, were already positioned to thrive and will continue to. "Anyone that was in the takeout and delivery game before this has just done incredibly well," Gaulke points out. "If you look at Domino's, Chipotle, these chains that had invested so heavily in the technology for enabling third-party delivery or online ordering, etc., they're all doing really well."
Domino's stock price began 2020 at $293.78 and has pushed past $380 this week. Chipotle's stock price, which started the year at $837.11 and then bottomed out at $465.21 in mid-March, as the economy shut down, has climbed over $1050 as of this week.
That good fortune, born of premonition or fortuitous circumstances, extends to the local takeout place as well. "Your standard takeout... Chinese, pizza, and they don't need to be one of those multi-units," says Gaulke. "But they were just well suited. It was the type of food that people were comfortable getting as takeout and delivery."
Restaurants that relied heavily on delivery and takeout in the pre-coronavirus world had already configured their establishments accordingly. The store's smaller (cheaper) footprint was laid out with an eye toward food preparation rather than dining experience. In-house dining, if it existed at all, was a smaller part of their revenue stream. It might have been little more than a few tables wedged between the front door and the counter.
A few places have survived for now by innovating and adapting on the fly. Among these, some have scaled back menus and/or branched out beyond prepared meals. "We have a company here in town that has started selling meal kits and groceries, as well as pre-made foods," Gaulke notes. "They never did delivery before this, but they are now. And it's going well, because not only can you get a sandwich, you can also get three loaves of bread and a pound of flour if you need to, all in the delivery cart."
Going forward, we're likely to see more of the same, which is to say recognizable restaurant names and takeout, perhaps with a dash of innovation to keep things interesting. As local sit-down restaurants close, the big players may look to extend their footprint. "We've got these well capitalized, multi-unit restaurant chains taking advantage of a situation where we're about to see real estate become available," according to Gaulke. "They're going to be able to increase and grow their numbers fairly quickly."
But coronavirus is engendering a cultural shift as well. "People are afraid to sit in a dining room right at the moment, or uncomfortable to sit in a dining room," says Gaulke. "Even if they were hesitant before, they've probably become much more comfortable with takeout or delivery than they once were."
Restaurants that rely on in-house dining will continue to struggle, while delivery and takeout spots will continue to thrive.
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