Restaurants Are In A Perfect Storm That Will Last Beyond The Covid Pandemic

Restaurants have been in a perfect storm recently. It was formed long before the COVID 19 pandemic and the shelter-in-place mandates. And it will last far after the pandemic is over.

"The last two years have been tough sailing for independent restaurants across the country," said Dan Burkard, founder of At Better Menu. "There are a number of external headwinds they are facing, and for many restaurants, it is sink or swim. Labor shortages are requiring restaurants to find ways to operate with less manpower. Inflation is affecting food prices and making guests think twice before deciding to eat out."

"I am hearing about restaurants that have to close on certain days, reduce their hours and even reduce portion sizes of their food," adds Joyce Krawiec, a state senator in North Carolina.

The restaurant business is tricky. It involves the right combination of physical assets, raw materials and labor to deliver excellent meals and services.

Then there's competition, which erodes profit margins, and economic contractions that take their toll on the entire industry as consumers cut down on discretionary goods and services.

"One might make the case that restaurants, by virtue of a low barrier to entry, a sea of competition, labor intensity and fickle food tastes are always in a perfect storm. It's a hard business in the best of times," said Bill Catlett, a partner at Contented Cow Partners.

"Throughout the course of a normal day, restaurants have big peaks and valleys in terms of orders and workload," adds Atallah Atallah, CEO at Club Feast."For both kitchen efficiency and workload, the lunch and dinner rush are very concentrated bouts of activity where the teams and facilities operate at 110% capacity. Unlike other industries with similar spikes of work, restaurants and their workers also have long hours given prep-work and need to be open throughout the entire day."

But what makes the restaurant business most challenging these days isn't the industry competition and economic contractions. Instead, it's the many local government rules and regulations. Once, these regulations were confined to health regulations, ensuring that certain hygiene conditions were met. That's what economists usually call "good" regulation.

In recent years, local governments have extended their powers to determine how restaurant owners manage their businesses, from pay to working schedules. The "Fair Workweek" laws in effect in New York City and San Francisco require employers to prepare work schedules for their employees ahead of time. It devastates the restaurant industry particularly, as it employs many hourly-paid workers.

It is another burden for local businesses, limiting their freedom to adjust to changing market conditions.

While crises come and go, harmful regulations are here to stay. That's why the perfect storm the restaurant industry is in will last beyond the pandemic.

Catlett sees the light at the end of the tunnel for well-capitalized restaurants with competent management.

"After two-plus years of pandemic-related pressure, many of their competitors are gone. Diners who have been largely cooped up are itching to get out and just happen to have more idle cash than at any time in recent history. The big questions are, can suppliers deliver on time and can they put Humpty Dumpty back together from a staffing standpoint? I'm betting they can, and do."

Provided, of course, that government rules and regulations do not stand in the way.