Restaurant Owners Gain Bargaining Power to Limit Losses

Written by Aaron Wise
Tuesday, May 26, 2020 at 03:20pm CDT

There is a silver lining to the current crisis for restaurant owners. After an uninterrupted decade of rising costs and competition, COVID-19 has granted restaurant owners renewed power at the negotiation table. Owners are seizing this once-in-a-lifetime opportunity to lower nearly every expense, often well below pre-coronavirus rates.

The first item that most restaurant owners are renegotiating is rent. A new poll by the Associated Press predicts that as many as 15% of Americans could become “unable to make a rent or mortgage payment,” granting significant bargaining power to restaurant owners who plan to stay open. Already, most states have prohibited evictions for up to 120 days, and are working on programs to assist with rent and mortgage forbearance. Several states have passed moratoriums on commercial evictions. Property rates are in decline across the country, and landlords have lost their power to command higher rents for the first time this decade.

Next, owners are lowering variable costs like digital advertising. Without even picking up the phone, owners can take advantage of the cheapest ad rates of the decade. “Unit costs on biddable platforms like YouTube, Facebook and Search have lowered by almost 20%,” says Heeru Dingra, CEO of WATConsult. Reporters at the Wall Street Journal confirm April’s advertising declines around 20-25% at major social media outlets. Some ad rates declined by as much as two-thirds, hitting their lowest rates since the Great Recession ended in 2010.

Third, labor is becoming cheaper by the day. With unemployment officially over 14.7% and looming predictions over 20%, employers suddenly have the upper hand. Admittedly, many furloughed restaurant workers are currently making more collecting unemployment than they earned while working, due to temporary Federal Pandemic Unemployment Compensation (FDUC) which grants unemployed workers an extra $600 weekly stipend through July 31, 2020. Nevertheless, even the lowest paid workers understand that they will need to return to work within at least two months, and applications are flooding in to employers.

Over 39 million Americans have filed for unemployment benefits since the start of the coronavirus pandemic, a staggering one in four working age adults. Those restaurant owners who have been able to survive the loss in sales — estimated to reach $240 billion by the end of the year and shuttering one in four restaurants — are certainly in a position of strength when renegotiating pay rates for their employees.

Fourth, restaurateurs can take advantage of the crisis to pivot. Even Michelin star restaurants have started previously unthinkable projects, like casual outdoor eateries. Approximately 85% of Michelin-starred restaurants were closed as of last week. Meal kits and groceries have become new sources of revenue. Some restaurants have closed their dining rooms permanently, limiting their costs to takeout and delivery permanently. Others are utilizing their extra free time to lobby for additional fiscal stimulus.

Finally, restaurant owners are engaging with their local communities online. “Most social channels are reporting 30-70% more time on their platforms,” says Thinq Advertising CEO Renjith Ramakrishnan. Consumers are passionate about their local eating establishments, starting trends like #TakeoutTuesday and #SaveRestaurants which have earned millions of social media posts, as well as organizing benefit events across the country. Savvy businesspeople are using cheap advertising and quarantine-induced free time to build goodwill online among their local patrons.

The CDC has confirmed 24,958 new cases of COVID-19 since yesterday and 592 new deaths, bringing the total death count to 98,261. More than one quarter of restaurants could close permanently amid the fallout from the pandemic. The U.S. Small Business Administration continues to offer fiscal relief and cash liquidity options to qualified restaurant owners.

Photo by Arturo Rey on Unsplash