Opinions And Ramblings By Adam Kmiec On All Things

Navigating COVID as a Restaurant Owner

Food - Credit Consumer Reports

Let me open with, I’ve never owned a restaurant, bar, eatery, or food truck. Also, other than a very brief stop working at a Dairy Queen when I was 13, I’ve never worked in the food industry. That said, I’ve eaten out a lot, I love food, and the one thing I do know really well – economics.

There’s no doubt that the shelter in place policies that have been enacted by local leaders to help combat COVID-19 are crushing the restaurant industry. Some places are getting crushed because they were already in a poor economic place. Others because they relied on seasonal foot traffic; think of all the places that surround ballparks. There are others that didn’t embrace digital channels fast enough or at all – there are restaurants that are still cash only, for example.

For a guy that’s never been involved in the food industry, I sure do have a lot of friends and colleagues that own, partially own, or are part of family-owned eateries and bars. I’ve had some thought-provoking conversations with many of them and I’ve observed a lot of their decisions/actions to position their businesses to survive COVID-19 measures.

I’ve found the conversations and observations to be riveting. They’ve been a really nice break from the things I normally ponder, consider, and get involved with. Based on the collection of all the wisdom, I set my brain to work with a hypothetical scenario – what would I do if I owned a restaurant? How would I try to survive and thrive on the other side of the COVID-19 measures that are currently in place across the country?

To start with, the problem that exists for most restaurants is fairly simple to articulate, but no simple to solve. The monthly fixed costs for owning a restaurant can be marginally reduced, but for the most part exist in whole, despite not having the appropriate monthly revenue needed to offset those costs. Let’s use some round numbers to work with. The fixed costs are loosely:

  • Bank Loan
  • Rent
  • Food
  • Labor
  • Taxes
  • Utilities

You can reduce the food, labor, and utilities, but it’s really hard to reduce the bank loan, rent, and taxes.

Let’s say our goal is to break even, not generate profit – over the months that COVID-19 measures are in place. For the purposes of this post, let’s assume 6 months of fixed costs on the annual revenue of $1M is roughly $200K. This post has some great details on startup and ongoing costs for restaurants. Said differently, we need to solve for $200K.

The real question is how can we create revenue that’s not tied to costs (e.g. labor). We don’t want to simply pull forward revenue. For example, if I buy a $100 gift card now, but it’s only usable in 6 months, the $100 looks like short-term revenue, but it’s actually debt and will eventually need to convert into a real cost (e.g. food and labor) when presented.

Here’s my thoughts on what I’d do:

  1. Naming Rights: “Norm!!!!” The iconic bellowing in Cheers was indicative of, in fact, everyone knowing his name, but also everyone knew which seat was Norm’s. If I had a place, I’d look to sell the “rights” to specific elements. For example, “Adam’s” parking spot – as the owner, this costs me nothing, but it carries with it, some perceived value. What about a specific bar seat? Maybe, we’re a sports bar and I have jerseys on the wall, do you want your jersey on the wall? Cool, I’m happy to sell the space.
  2. Menu Management: You’ve eaten at a place before where you’ve thought, here’s how I would make this item better. I’ve always had this concept of a “fair” strategy for restaurants. When you get a burger, it comes with lettuce, tomato, onion, and pickle. If I want bacon or cheese, it costs me more. That makes sense. But, it doesn’t cost me any less if I subtract the lettuce. Fair would mean, I should pay less when I subtract. But, I digress. What if you sold slots on the menu. For example, If Lisa wanted her burger on the menu, great! There would be a slotting fee, she’d pay. BUT – I’d return a % of the profits back to her, for each burger sold after we re-open. After all, it was her idea and her menu item.
  3. Shares: We’re not going public, but we’re going to take a page out of the Green Bay Packers playbook and sell shares in our restaurant. The shares cost money and while they don’t offer you controlling rights, maybe they offer you the ability to vote on decisions, receive 1 free meal a quarter, or be part of special events (e.g. a tasting).

I’m not the expert. I don’t know the first thing about running a restaurant. The people who do own them are doing their very best to take care of their team members, customers, family, and community. Knowing so many of them personally, it really is something admirable to watch.

Hopefully, my out of the box ideas offer some additional help to the wide assortment of recommendations, options, and actions they’re already considering. As an avid eater and fan of many local eateries, I’d sign up for all of the above if offered.

If you’ve read this far, let me make an ask of you. Do what you can do to support your favorite local eateries. Where you can, call them directly and cut out the Grubhub, Door Dash, and other platforms. While they give you a bit of convenience, they take a significant amount of money out of the pockets of those local restaurants. Take the extra step and order direct, where you can.