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Health Hack #47 - Restaurant Life During COVID

This week marks six months since COVID-19 became a certified part of our national dialogue. What was “some virus” quickly engulfed the parameters within which we live, and flipped things upside down virtually overnight.

Of the variety of aspects of life that saw stark, immediate change, few were as austere as those imposed upon restaurants, and the retail industry at large. Draconian measures - which, to be clear, were mostly levied with seemingly good reason - instigated mass closures, since dining in, and even ordering in, were quickly forbidden. Many restaurants, particularly of the fine dining ilk, possessed very little takeout delivery experience and infrastructure, and as a result they were left with no choice but to close. Fast food, fast casual (the category that we fall into), and even fine casual establishments fared better than others in the beginning, given their familiarity with the takeout game. But in the end, virtually no restaurant that previously relied on customers ordering and/or dining in has been spared. Interestingly, the pizza industry has managed to do quite well. A large component at play is the fact that ordering and dining in-store comprised a very small contingency of business, pre-COVID; in other words, their modus operandi didn’t actually change quite much. The more that the experience and the theatrical components play into one’s decision making process, the harder it’s been for that particular establishment to stay afloat. Ambience, music, hospitality, vibe. Gone.

Streeteries have helped convert parts of Philadelphia into a European experience, with finer dining establishments getting creative in how to sustain themselves. This unfortunately boils down to luck of the draw in many ways, since only certain businesses have a frontage opportunity ample enough to conduct worthwhile outdoor business. They’re all trying and doing what they can, but it’s a far cry from what they’re used to. Inclement weather could easily knock off 25% of a week’s potential seatings, and at the end of the day, even a robust outdoor arrangement is highly likely to pale in comparison to the overall indoor headcount.

There is a much more nuanced conversation occurring within the industry itself, namely surrounding the manner in which restaurant leases are being handled. For the unfamiliar, it’s extremely rare for an urban-based restaurant to own the space in which they operate, and this is true even of most free-standing buildings in lesser dense regions of the city. On the surface it seems like a no brainer - the restaurant is highly compromised and operating at a fraction of standard capacity for reasons entirely outside of their control. Reduce the rent to match the reduction in volume. However, the totem pole is a bit larger than meets the eye. Above most landlords holding urban commercial real estate typically sits a lender (i.e. a bank), seeking payment on a monthly recurring mortgage payment. A landlord’s ability to service a mortgage is generally contingent on their ability to collect rent from their tenants. Unless these closed door negotiations between bank and landlord amount to favorable term adjustments for the landlord, there may not be a favorable trickle down effect extended from landlord to tenant. Granted, each lease is different, and some may carry force majeure clauses that can be cited to the benefit of the tenant, but there doesn’t appear to be many straightforward, ironclad agreements being struck. Frankly, it’s very difficult since no one knows what the future ramifications of this pandemic will look like.  

These tensions would largely all be moot if pandemics qualified as “business interruptions” from an insurance carrier viewpoint, but pandemics are excluded. A riot that shatters a storefront and ravages an interior is deemed an interruption to business because of the physical implications it carries. Things were broken and things were stolen. A pandemic has no physical impact on a restaurant, and therefore it’s not a business interruption. Go figure.

What Makes the Restaurant Industry Unique

Navigating how to operate a restaurant within a highly compromised, entirely new paradigm, on the fly, is obviously quite difficult. Compound that with the background concerns of rent payments and lease re-negotiations, and it can begin to feel a bit overwhelming. Granted, most lifestyles and companies have endured extreme change too, so we’re not very unique in that sense. But the restaurant industry is quite unique in one particular manner, which has amplified the strains on owners and operators, and is likely to have plenty of ripple effects into the distant future.

Statistically speaking, if you’re aiming to start a profitable business, you’d be a complete idiot to open a restaurant. The failure rate is astronomical. The industry-accepted margins for success are razor thin. There is truly no less desirable industry when judging via propensity for a return on investment. Aside from the occasional unicorn, most mainstay restaurants are doing a little better than treading water. For many, it’s a pursuit of passion. The drive to enact change within the food landscape, to scratch one’s own itch. Ego is a huge driver of new restaurant openings. All of those other players fail because they’re lousy. I can do it better. You watch.

The starting point for most restaurants is one of thin ice. They’re statistically doomed to fail. So what happens when a pandemic starts to crack that ice? Where is a restaurant to turn?

By now, most of us have heard of PPP, the acronym standing for the Payroll Protection Plan. Fewer are aware of the EIDL, the Economic Injury Disaster Loans. These federally instituted programs have managed to help businesses of all sorts stay afloat, and assuredly they’ve helped some more than others. The PPP, which has received the majority of the news spotlight, has had a very ironic slant in its application to the restaurant industry. It compelled employers to re-open their doors, or in some cases for businesses already open, to swell their operations. It incentivized restaurants to do so by offering forgiveness contingencies to the loan. Apply a certain amount towards payroll, and that amount is forgiven. Apply the remainder towards rent, utilities, and debt service, and see that portion forgiven as well. The irony within our industry is that bringing things back online in response to PPP meant that most restaurants were operating at a theoretical loss. Yes, labor was free. Yes, utilities and rent were covered. But at the end of the day, most restaurants were barely able to turn the dial on their sales. It helped to re-invigorate energy and breathe life back into the establishments, and it definitely helped the staff, who have suffered immensely during these past six months. But generally speaking, it didn’t do much to improve the health of the overall restaurant.

What We’ve Learned, Operationally

The cruelest irony of all, beyond the fool’s gold that PPP turned out to be for many, is the undeniable notion that it is substantially harder to run a slow restaurant than a busy one, when the foundations are predicated on using real, fresh foods. Why did it take so long for so many of our dearest restaurants to come back online, if only for takeout? Or to seize the opportunity for a streetery conversion? Or to immediately capitalize on last week’s clearance to allow for limited indoor dining? Don’t assume that they’re lazy, or that they’ve already thrown in the towel. Running a slow restaurant is hard work. “Slow”, defined not so much as a metric of overall volume, but as a comparison to pre-COVID volumes. A workflow is steadily built and refined to accommodate a predictable volume of business. When that volume is cut at the knees, that workflow model is out the window, and the razor thin margins shrink even thinner. It’s back to the drawing board.

Our particular restaurant model is unique in the sense that we offer a host of items that live out in public view, available at the drop of a hat. With standard customer volumes, our food is turned over regularly, and maintaining freshness is inherently a breeze. Remove all indoor dining for 6 months, freeze all indoor ordering for 3 months, and compel most high rise office buildings to scatter and work remotely and thereby forego their standard lunch spot, and it’s back to the drawing board for us.

A silver lining for us, personally, has been the attention we’ve granted to the delicacy of our menu. There is nothing more disheartening than having a beautiful vegetable, preparing it thoughtfully, and allowing it to wither and degrade inside of a hot well until it’s more suited for a trashcan than for a customer’s bowl. We’ve put tremendous focus in re-calibrating our kitchen methodology in an effort to produce smaller batches with higher frequency. We’ve met the slower pacing of things head on, and made an internal agreement that optimal freshness may mean a bit of a wait. Our customers have for the most part been understanding, and many have vocalized a detectable difference in quality.

This paradigm shift has given us pause, and compelled us to re-think not only our process, but our overall menu and our supply chain. Two articles written last month (Finding Compatibility Between Ourselves and Our Food Choices and Savor The Seasons) were undoubtedly influenced by the intimacy achieved when our kitchens began more closely resembling home cooking environments, feeling less and less like commercial food prep factories.

What Lies Ahead

We’re in the process of building a supply chain that brings us closer to our local community. By doing so, we’re aiming to provide the freshest produce possible. It suddenly feels misaligned to take a crown of broccoli from who knows where, and employ best practices to preserve its highest potential while preparing it. It’s as though we’re only completing half the exercise. Let’s find something near to us, since it’s much likelier to have been freshly picked. Let’s find something that we know full well has been nurtured from seed with the utmost reverence; an operation employing organic and regenerative processes. These attributes provide limitations, since not everything on our existing menu can be found locally all of the time. So what do we do? We bow to the seasons. We let Mother Nature be our guide.

At some point this Fall, our menu will undergo a fairly weighty change. There’s a cliche that when life throws you lemons, you make lemonade. What about when the universe throws pandemic restrictions on your restaurant? We’ve decided to do everything in our power to make a new and improved store, which we’ve internally coined RFE 2.0. We look forward to the ride, and we hope that you’ll accompany us on the journey.