What Will it Take For Local Restaurants to Survive the Coronavirus Pandemic?
If there’s one certainty that local restaurants and breweries are facing in the midst of the coronavirus pandemic, it’s that the future is uncertain.
As the state starts in on week five of bars and restaurants being closed to dine-in patrons, with at least another two weeks to go, a picture is emerging that there’s no blanket situation or solution that will ensure Ohio’s small bars and restaurants make it to the other side.
How flexible is a restaurant’s landlord? How prepared is their bank to process Small Business Administration loans? Are they able to adjust their menus and pivot operations to support carry-out and delivery?
The life or death of these businesses depends on questions like these.
Independently-owned restaurants have historically operated on low profit margins, says Sangeeta Lakhani, owner of The Table, with the most profitable netting maybe 10-15%.
With tight profit margins in a notoriously difficult industry, “There’s no way to accumulate a cushion against this kind of thing,” says Matthew Heaggans, co-owner of Ambrose & Eve and Preston’s.
Businesses literally had hours between when the order was announced and the time they were supposed to close their doors.
Bob Szuter, co-owner of Wolf’s Ridge Brewing, says that even before the dine-in ban started, they had seen a slow down in on-site operations and began looking at ways to maximize revenue across all areas.
With that foresight, Wolf’s Ridge was able to launch beer delivery the day the order came down on March 15.
“The beer delivery has been hugely important,” Szuter says.
In January, the brewery unveiled its new canning line – the timing of which has been both a blessing and a curse. The canning of beer is what’s currently bringing in the most money for Wolf’s Ridge, but it’s also additional debt which the company just took on.
Adding beer delivery is just one of the pivots and changes Wolf’s Ridge has had to navigate.
In the kitchen, Szuter says it’s like starting a brand new business. They’ve pared down to the taproom menu for carry-out, with plans for a revamp to focus on dishes that will travel well to create a better guest experience. The situation also has them using third-party delivery apps like Uber Eats and DoorDash for the first time.
Szuter says that while the support from the community has been fantastic, they’re very much in survival mode. He says they have been able to muster enough cash coming in – and get enough bills deferred – that they haven’t had to dip into a line of credit yet, but that will likely change very soon.
Navigating business pivots to delivery and carry-out options hasn’t been the only challenge. Understanding and accessing support resources is a struggle all its own.
Wolf’s Ridge has been looking into the SBA loan options created by the stimulus CARES Act, which earmarked some $376 billion for small businesses.
The Paycheck Protection Program (PPP) is one new option available to small business owners. According to the SBA, PPP loans “are available to cover up to eight weeks of average monthly payroll (based on 2019 figures) plus 25% and payments are deferred for six months (interest does accrue). The SBA will forgive the portion of loan proceeds used for payroll costs and other designated operating expenses for up to eight weeks, provided at least 75% of loan proceeds are used for payroll costs.”
The loans have a fixed 1% interest rate and maturity of two years – eight years shorter than the 10 years that was initially announced, Szuter points out.
Szuter says even being on top of things, the process to apply for a PPP loan has not been smooth. He filled out the paperwork once, then had to fill it out again when the SBA changed the application.
Unlike other SBA loan types, PPP loans are administered on a local level, meaning, “Depending on your bank and their level of competence working with the SBA, it’s probably going to be harder for some and easier for others,” Szuter says.
Szuter and Heaggans share some of the same reservations about the PPP loans.
“It’s really not specific enough to help us out,” Szuter says.
With businesses like bars and restaurants losing between 80-100% of sales, it doesn’t make sense to pay employees to come in if there is no business and therefore no work to be done. Restaurants are having to leverage decisions about paying employees with little to no revenue coming in, and thus little hope the loan will be forgiven if they don’t use it for payroll. Compound that with the diminishing possibility things will be back to “normal” after the eight-week period is over.
“If I take a PPP loan and re-open the business over the next few months and I don’t do very well, then I’m going back to square one,” Heaggans says.
He points out that a two-year debt from a PPP loan will be a significant bite of a restaurant’s profit margin, especially considering the expectation that sales will be down even when restaurants do open back up.
As for what would actually help businesses like restaurants and breweries through the crisis, there is no one answer.
Szuter believes that direct assistance with expenses restaurants have to pay regardless of revenue – rent, insurance, certain debt payments, etc. – would be more helpful.
He also would have liked to have seen a more cohesive and proactive approach from the federal government on down. Szuter says that almost any restaurant will have some kind of debt, and if a restaurant’s bank or the SBA are receptive to deferring payments, that will help see some through the crisis.
However, because there is no state-level or national-level order, it’s each individual landlord or bank’s discretion whether to defer payment, and what that deferment process would even look like. And another thing for business owners to try to navigate on their own.
In Ohio, Governor Mike DeWine signed an executive order recommending a 90-day suspension of rent and mortgage payments for small business commercial tenants. But, “A recommendation doesn’t do anything for us,” Szuter says.
Nobody is ready to speculate about what restaurants and breweries will or will not make it through, but the impacts on the industry will likely be long-lasting.
“There’s a lot of uncertainty and I think that’s the scariest thing,” Szuter says. “There’s going to be a lot of folks that don’t come back from this.”
Heaggans wouldn’t be surprised to see a roughly 50% closure rate of restaurants across the country.
Lakhani hopes the current crisis will create some changes in the way the service industry operates.
“It’s sad that we’re seeing these times, but I think in times like these we have to look at why we got here, and I’m not just talking about the virus,” Lakhani says.
Heaggans sees one place to start in making a change. He implores developers and investors to be a part of the solution on the other side of the pandemic.
“Restaurants need funding and they need restaurants in their building,” Heaggans says.
He says that people that invest in high-growth companies are working to attract people to Columbus. Columbus’ culture, part of which is its restaurant scene, factors into that decision making. It factors into the bottom line.
Heaggans says if things continue the way they have, “[We’re] going to lose places that we care a lot about.”