The coronavirus (COVID-19) pandemic has dramatically altered the existing restaurant industry, with forced shutdowns, the move to takeout and delivery, and more. The restaurant industry to date has lost approximately $225 billion in the U.S. alone.
For restaurant owners, the situation is challenging, at best – but how about the up-and-coming restaurateurs who were just about to open up shop for the first time?
You’ve done all the research, found your perfect location, and started putting together your marketing collateral. As you eagerly anticipated your open date, COVID-19 begins to make headlines, stopping your plan in its tracks.
So, if you were about to open a restaurant, what are your options right now?
You can do one of two things. In this guide, we’re going to cover all the steps you should take, if you choose to:
- Delay your opening
- Open as planned, with some adjustments
Delay Your Opening
There is a cost that comes with not opening your restaurant on time, but it could be the most financially-responsible option for you given the current climate.
Here are 8 steps you should work through if you decide on this course of action.
1) Speak to your insurance agent to see what you can claim, if anything
By now you’ve likely taken out policies for your restaurant and assets. You may want to start by having a conversation with your insurance agent about what a possible delay in opening may mean and how you’re covered.
If your coverage begins upon the restaurant’s opening, you shouldn’t have trouble moving that start date and any fees you owe.
If your policy has already taken effect, learn what you may be able to file a claim for. Most restaurants at this time are looking at their business interruption insurance for some relief.
Business interruption insurance is a type of policy that pays out claims to cover lost revenue when businesses are forced to shut down due to a disaster. The coronavirus has certainly forced restaurants to close their doors because of government-mandated lockdowns and continues to threaten their ability to generate sustainable revenue.
Unfortunately, some claims are being denied because many insurance providers began adjusting their policies to specifically exclude cases of viral or bacterial outbreak after the SARS pandemic in 2002 and Ebola in 2014.
Insurance coverage varies by provider, so make sure to read and understand your policy, thoroughly. You may not get the relief you’re looking for, but it’s worth investigating.
2) Negotiate with vendors and suppliers to push back start dates
Because you’re just starting out, you may not have that many suppliers right now, or strong relationships to use for negotiations, but now is the time to begin building those relationships and coming to a mutual understanding.
Go over your list of suppliers:
- Food suppliers
- Beer and wine suppliers
- Equipment suppliers
- Cleaning and safety suppliers
- Smallwares, tablewares, and other suppliers
When you approach them to discuss what your business looks like in the short term, remember that they are your partners. They have an interest in your success and often share your values, so they will likely be amenable to renegotiating start dates, delivery logistics and payments, so long as the relationship continues to be mutually beneficial.
If some suppliers aren’t able to make accommodations for you and you’re considering ending the relationship, evaluate the decision to walk away with your business plan in mind.
If you’re opening a steakhouse, for example, it may hurt your business in the long term if you upset the relationship with your butcher.
Prioritize your vendor relationships based on your business model and then decide how you’d like to proceed with them.
Get a better understanding of restaurant food suppliers, here.
3) Negotiate with landlords about your lease
The beauty of negotiation is that everything is negotiable. Even the most iron-clad contracts can be bent a little, in order to accommodate extraordinary circumstances such as these.
Because of COVID-19 and the drastic drop in revenue in the industry, many restaurant owners will be unable to continue paying rent. If you’ve already signed your lease, you won’t want to be on the hook for rent on empty properties, either.
Approach your landlord with compassion and understanding – this is affecting them and their livelihood as much as it is yours.
In the negotiation, you can:
- Defer the payments so that you start paying when you actually open your restaurant.
- Extend the lease in order to guarantee more revenue to your landlord in the long term.
- Renew the lease at a higher rate, starting when the market stabilizes.
- Create a new payment plan to ensure your landlord gets their money in some form.
In each of these negotiations, ensure you communicate clearly what your needs are, compromise and offer solutions that are mutually beneficial, confirm what is agreed upon and document it.
Many cities in North America are preventing landlords from evicting tenants and this may include you even if you haven’t officially opened your doors yet.
In all these matters, be sure to lean on the expertise of your commercial real estate agent (if you used one in the original negotiation).
More on how to negotiate your lease agreement, here.
4) Negotiate with your bank and investors about what this will mean to your bottom line
With no revenue coming in until later than expected, will you be able to service any debts you’ve incurred to launch your restaurant? Will you have enough cash to open your doors later?
When approaching the bank and your investors, it’s important to set the stage with some transparency. Outline your current fiscal position and what the coming months may look like. Demonstrate how much runway you have cash for and where you’re going to need some assistance through additional funding or deferred payments.
If you have purchased the restaurant property and are servicing a mortgage, some banks have already begun deferring payments for the foreseeable future.
If you self-funded your venture but aren’t confident you’ll have enough resources to weather this storm, you could explore the idea of finding new investors to bring in capital.
For a more robust list of ways to help fund your restaurant, click here.
5) Apply for any available aid
Many governments and municipalities in North America are offering relief in the form of grants, emergency funds, and small to mid-sized business loans. The CARES Act in the U.S. is part of this effort but only applies to businesses that were operational by February 15, 2020, so you may not be eligible.
That said, even if you haven’t officially opened your restaurant doors yet, you may qualify for some relief programs based on the extraordinary circumstances of the COVID-19 pandemic. A good starting point would be to investigate the U.S. Small Business Administration Disaster Loan Assistance for any existing debts that may be challenging to pay right now.
For an updated list of grants, loans and emergency relief funds, you can check out the support finder on TouchBistro’s Restaurant Recovery Navigator.
6) What assets can you put on hold or sell, to free up some cash?
Things like equipment rentals may not have been delivered yet, so just like the negotiations you enter into with your food suppliers, landlord and investors, have a discussion with your equipment vendors to see what can be put on hold for now, without incurring any additional costs.
If your restaurant purchased top-of-the-line equipment, is each piece of equipment critical to your business right now? Can you fulfill the same menu by trading in your equipment for used equipment? Can you limit your menu, allowing you to sell some assets right now that you can repurchase later, when things turn around?
It might not be the most viable option and many restaurateurs opt to rent their equipment, but anything that can be made liquid to free up operating cash and runway, is worth investigating.
7) What is your exit strategy if you don’t have the means to open, after all?
It’s predicted that up to 30% of restaurants in the U.S. may never open again. This is the devastating reality of the restaurant industry right now.
You need to ask yourself the incredibly difficult question: Are you going to be able to open your restaurant at all?
Once you’ve had time to consult with your lawyer and your bank, take a look at how much cash you have wrapped up in the business and how long you can sustain yourself without going into large debt.
Though many municipalities are offering relief in the form of grants, funds, and small to mid-sized business loans, you may not want to incur any additional debts that may be too difficult to pay off when the economy stabilizes.
Think about what your risk tolerance is and your absolute threshold. When you will need to cut your losses and walk away from the project?
8) Readjust your sales forecasts
By the third week of March, 2020, the U.S. restaurant industry had already lost approximately $225 billion because of COVID-19 – about 25% of the annual projected revenue for the entire industry.
With the forced switch to takeout and delivery as the only means of operating a restaurant during the pandemic, restaurant owners have to toss their old projections in the trash and readjust their expectations.
Take a look at your sales forecast and your operating budget, one line at a time. It’s going to be difficult to predict exactly how the economy is going to rebound and when. It may be a slow build back to what normal sales figures looked like, or you could see an immediate surge in service as people clamor to be outside with their friends and families.
In either case, with your newly negotiated lease, loans, food supply and equipment deliveries, you should have all the information to start making some educated guesses about your profit and loss over the coming months.
Find out what your minimum viable operating cost is and how long you can sustain it. If you need a little help taking a deeper look at forecasting restaurant sales, click here.
Open as planned, with some adjustments
If pushing back the launch of your restaurant isn’t an option at this time, then with a few modifications to how you operate your business, you could proceed with opening.
1) Adjust your menu for takeout, delivery, or meal kits
In an effort to stop the spread of COVID-19, many restaurants have been forced to shut down their dining rooms, meaning the only means to operate are through takeout, delivery, and selling their food as meal kits.
This approach may limit revenue opportunities, but allows you to get creative with how you service your guests and focus on the food that moves the needle for you. Create takeout menus that are limited to just a few of your projected best-selling meals. Package your food inventory into meal kits that families can make at home or store for later in the week. Plus, several U.S. states and Canadian provinces have also loosened alcohol laws to allow restaurants to sell beer, wine and liquor with their takeout orders.
The revenue from any of these options won’t be on par with what it would be from dine-in service, but it’s definitely something to start with.
Learn more about how to adjust your menu here.
2) Get set up with online ordering
The demand for online ordering has already been on the rise for some time, but has jumped even higher because of COVID-19. The order to shelter-in-place for many states means that people are going online and placing orders for takeout and delivery.
Now would be as good a time as any to integrate online ordering into your POS so that you can capitalize on the increase in potential traffic and revenue. There are a myriad of benefits to using online ordering, most notably the fact that it can generate more revenue per order. On average, according to the State of Full Service Restaurants Report from TouchBistro, guests spend between 11% and 20% more on digital orders.
Online ordering also helps with accuracy, minimizing miscommunication over the phone and capturing all the necessary details for each order.
There are two options for online ordering. The first is an integration that aggregates third-party apps directly into your POS. That means your restaurant can be on a variety of popular takeout and delivery platforms like Uber Eats and Grubhub that could bring in new customers, without having multiple tablets on your counter – everything is streamlined into one system. However, remember that each third-party provider will take a percentage of your order totals, usually between 10% and 40% per order.
The second option is online ordering directly through your own website, with the pickup or delivery facilitated by your own team. Your POS provider should have an option for this, to allow orders to flow right from your site into your point of sale. Direct online ordering lets you keep 100% of the profits from each order – no more fees to third-party apps. The feature will play well with the rest of your POS system, meaning no clunky integrations, either.
Direct online ordering also lets you build a customer database that will help you identify when guests are dining with you, what their preferences are, and more. This data can be integral to optimizing a guest’s experience and getting them to make repeat orders.
3) Evaluate your staffing needs
With many restrictions in place around dining, it’s likely you’ll be opening with a skeleton staff for the time being. Take a look at all the roles your restaurant will need and determine which roles will be integral to your operation right now.
- Restaurant Manager
- Food Runners
- Head Chef/Kitchen Manager
- Sous Chef
- Line Cooks
It’s likely you’ll be using your back-of-house staff at almost full capacity, since they’ll still be preparing food regularly.
From the front-of-house team, you may not need everyone right now – at least not in the roles you originally hired them for. If you’ve already hired people for roles, ask them whether they’d be willing to change some of their duties. For example, if you have a team of servers, find out if they’d be able to facilitate deliveries for your restaurant instead. They may appreciate a change in responsibilities more than having to apply for unemployment benefits.
Restaurant staffing can be challenging, but having the right people in the right roles will help you operate your restaurant more efficiently.
Learn more about how to properly staff your restaurant, here.
4) Connect with other restaurateurs and your community
One thing is for sure: you are not alone. The restaurant industry is collectively banding together to find resources, community and hope amongst each other.
Take some time to introduce yourself to restaurateurs in your neighborhood to discover how they’ve been weathering the coronavirus pandemic. What has worked for them, what hasn’t worked, and how can you potentially help each other?
Many restaurateurs are partnering around relief, lobbying, and charitable initiatives in this time of need. For example, John Gallo of Pinch Kitchen in Miami has launched a GoFundMe for employee relief and joined the Miami Restaurant Employee Relief Fund to support his industry overall. Bro’Kin Yolk restaurants in Calgary have partnered with Brown Bagging for Calgary’s Kids (BB4CK) to provide families in need with a packed lunch each weekday.
Take some time to research local initiatives and see how you can get involved to help create sustainable change for the industry you’re entering.
5) Run some low-effort marketing (like email list-building) to put your restaurant on the map
Just because dining out has dipped as people limit their time outside, doesn’t mean you can’t still reach potential customers. In many cases, people staying home and hanging out online makes this the perfect time to reach them.
One of the best online marketing tactics you can be doing right now is email list building.
Having a robust database of potential customers allows you to update them on how your restaurant is progressing through the COVID-19 pandemic, when you will be opening your dining room and more.
To begin list building, you can run giveaways on social media, start a loyalty program, or simply create a pop up on your website, prompting guests to submit their email address.
For a full list of marketing ideas you can implement while your dining room remains closed, click here.
6) Take note of what you could learn from the pandemic
The COVID-19 outbreak is an unprecedented event for many businesses today and when industries finally begin returning back to normal, that new normal is likely going to look much different than it did a short time ago. As you navigate each step of getting your restaurant open and operating through the pandemic, document the conversations you’re having, the results you’re producing and even the feelings you’re having. Right now, there’s no playbook for what’s happening to the restaurant industry.
Having a record of how you managed through the crisis will allow you to put together a step-by-step plan in the event something like this were to ever happen again – fingers crossed you never need to use it.
The COVID-19 pandemic has changed the restaurant industry landscape for the foreseeable future and, in some cases, forever. You were likely excited about opening your new restaurant, but now may be feeling scared at how you’re going to accomplish that.
You could delay your opening, or open as planned with a modified business model. Both are viable options that will help you find a path forward during this time.
As with previous economic downturns, the industry will rebound eventually. With the right balance of negotiation with partners, strategic planning and some compromise, you can find a way to make your new restaurant a reality.