Two other thoughts:
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Movie Theaters**. I wonder how bad business will drop off after we re-open. I think some people will be reluctant to go to a theater and be stuck in one room with a few dozen people.
Major League Sports I suspect attendance will drop off here as well. A lot of people will be even more reluctant to be in a crowd with thousands of people, particularly in indoor arenas.
Taking a longer view, there was a restaurant industry providing many options to diners everywhere, and one of its components was a survival of the fittest mechanism whereby doing various things wrong would make a restaurant fail. I keep hearing it is really difficult to succeed for long in the restaurant business. One hard-nosed way of looking at it is that this mechanism keeps the surviving restaurants appealing and efficient and whatnot.
What the pandemic is doing is very different. We will wind up with much of the industry temporarily shut down. But there will still be all these facilities completely set up to function as restaurants, and all the skilled staff, and the whole supply system, and it will all be more suited for use in the restaurant industry than in any other. It’s not like the landlord can turn around and seek other occupants who can do better than the original occupants. Maybe their building goes unoccupied for several months, and there’s a financial hit, but why is some better rental candidate going to come along than the original occupants? Likewise the staff – they won’t have restaurant jobs for several months, but why are they all going to wind up in different occupations?
The financial hits will be awful, but they won’t change the underlying supply and demand, either before the demand returns or after the demand returns.
I read about the Black Death, in which some areas such as Mediterranean Europe probably lost a big majority of their population. One of the effects in the decades following was generally greater success and prosperity for the people who survived.
The big issue is what happens with COVID-19. Most people believe that after a few weeks of social distancing and partial lockdowns the battle will be won and things will go back to normal.
I quite disagree. My view is that to stomp out COVID-19 the country would have to get really brutal, as what happened in China. The U.S. is not going to do that so the social distancing and partial lockdowns are only going to slow down the rate of increase.
So the situation will steadily guess worse for a year and a half or more. What will change then is the development of vaccines, herd immunity (when most of the population has gotten it), or strongly effective treatments (so it doesn’t matter if you get the disease).
During this 18 month plus period even when there are no lockdowns people are going to be very selective as what retail and restaurants they visit. I see a major switch to either BOPIS (buy online and pickup at store)–where the store brings stuff out to your car, or simply online ordering and delivery by UPS, Fedex, etc. People won’t be interested in going to sit-down restaurants because of the risk of getting COVID-19.
And while can argue whether or not a business can afford a month-long shutdown, it’s absolutely clear no one can afford an 18 month shutdown.
After 18 plus months habits will have changed by then so traditional retail/restaurants industry will have much smaller revenue.
And I still don’t know what to do with the three seashells. At least I guess we won’t need all that toilet paper, at least.
Seriously, brick & mortar retail was already dying, and this will just accelerate it further. The restaurant business was booming but it is such a low margin industry it is tough for many to stay afloat even in good economic times, and without loan assurances, debt relief, and other subsidies it is just difficult how many operations both large and small are going to survive for the next few months. And yes, other restaurants will emerge to take their place, but starting a restaurant is both a capital and labor intensive exercise; if you can’t get capital, and (good) employees don’t want to do the labor because of how risky it is or that they can make more on unemployment than cooking or waiting tables for as long as that lasts, it is going to be tough to restart that sector.
If restaurants are still around, people will go to them because they are one of the few remaining “public spaces” we have in our culture where you can mingle and be served, but keeping the industry from collapsing is going to require some kind of bootstrapping. So support your local establishments by ordering in if you can afford it, because that is the only income they are getting right now, and that income may be the difference between paying rent on space and equipment and declaring bankruptcy and liquidation.
Stranger
So, Stranger, you don’t think ordering take out is an unacceptable risk? I am sincerely asking. I have been waffling.
I think the major question in terms of economic recovery is whether or not we can develop an effective vaccine and how soon. Without that, we are going to have to ride out wave after wave of this, retreating again and again, and it will never feel like we won–we will feel safer and safer, as the waves get smaller, hospitals become better equipped, treatment protocols (possibly) become better, and herd immunity rises, but we will never really feel safe.
On the other hand, if in a year there is an effective vaccine and in 18 months we can all get it, it will feel like a victory, like we won. There will be a burst of optimism, a desire to go back to normal. In my idle fantasies, it’s coupled with some form of universal healthcare, which will go a long way toward helping that burst of optimism actually blossom into entrepreneurial action–especially if it’s further supported by stimulus money. So it might be different restaurants and businesses, but they will happen.
So basically, will it be the 50s or the 70s? Will it feel like we won a war and we can start to build again, or will it feel like we barely escaped with our lives and we should stay worried about the next blow?
I think everyone needs to make that decision for themselves. Unless you are a doomsday prepper with a shelter full of food and…toilet paper, I guess…you’re going to have to go out or have stuff delivered to you, anyway. Is prepared food more of a hazard? There is no particular evidence to say, although it is a potential vector for contagion unless you reheat it up to a high enough temperature to deactivate the virus. I certainly wouldn’t order anything not thoroughly cooked or served cold if you are concerned about catching the virus. Since we have no effective tracking and testing we just can’t know whether restaurant kitchen staff are clear or not.
Personally, I think I’ve already been exposed to the virus and experienced a very mild case based upon symptoms of COVID-19, and besides, I’m a household of one and can avoid daily contact with people, so my hesitation is minimal. I wouldn’t speak for anyone else, but having worked in the food service industry I know just how bad this is hitting a lot of people who are already struggling, and I hope to at least give some of those businesses a fighting chance with my patronage.
Stranger
There’s a restaurant my spouse and I normally eat at every Friday on our ways home from work. Last week and this week we’ve ordered by phone and picked up in their parking lot. I always tip generously anyway, but both these weeks I’ve tipped extremely generously. They express tremendous gratitude on the phone. I imagine what is going on is that they’ve dropped staff hours considerably, with more people unable to work when they wish they could, rather than working unwillingly.
Food is a necessity, of course. There’s no necessity to go to this grocery store rather than that one, or to big stores versus small ones. I figure it’s the same for businesses selling cooked food versus uncooked food. But I certainly wouldn’t begrudge them the choice to close for safety reasons, if they so chose.
As long as they want to continue the business relationship, I’m inclined to. Though I think I will ask how they actually feel about it.
Well, I am a real estate broker and have done commercial real estate, and I pay attention to what’s dead and dying in my home city of Indianapolis.
A better candidate probably won’t come along. The building goes dark and stays dark. If you look, you see buildings in “prime” areas that are empty for a decade or more. Whole dead malls, etc. etc. If you are the owner of that property, you are just screwed.
I think it does because there is a kind of “legacy demand” or “inertial demand” that sticks around because of habit–but break the habit and the demand evaporates. Example: Would paper magazines be created today by an entrepreneur? No, they still exist because, even though they are obsolete, a lot of people grew up reading them.
People will still want to go to restaurants, but a lot of places are surviving on inertial demand right now. This crisis is teaching people just how much they don’t really need to go back to Red Lobster, for example, for the cheesy biscuits.
Restaurants are an experience and a gathering place (as another poster pointed out), so there will always be demand for that. I think the survivors can fare better.
But I think the effect on regular brick-and-mortar retail will be pretty devastating across the board. Maybe stores that offer a bargain hunt experience like TJ Maxx, etc., can do proportionately better, but more and more people are going to switch to ecommerce for a wide range of things, as they were doing already. B&M retail was already doing miserably, and I think this is ultimately going to benefit very few chains and indies.
Some updated info:
$25 billion in sales lost already, according to one estimate.
Well, that’s bad. Every service industry is getting hit hard but restaurants are particularly vulnerable because it isn’t something you can offer via online shipping (beyond local delivery), and higher end restaurants are typically reliant on beer, wine, and liquor sales to really bolster their bottom line. Even the restaurants which do a vigorous take-out business are left paying for space and other leased items they aren’t using, and unless it is fast food that is still maintaining a high volume of sales, the take-out business is generally a loss leader at the best of times just to keep customers aware and interested. Even the big chains are not immune; places like The Cheesecake Factory pay for premium spaces on the theory that they’ll get enough foot traffic (and alcohol sales) to make it worthwhile, and now are stuck with huge monthly lease payments for unproductive spaces. Kitchen equipment is often leased as well, and without the volume to justify using it is a loss. But the worst hit are servers; the vast majority are gig workers who, in some states, may not be eligible for unemployment payments because they don’t have enough hours at any one job, and many live paycheck to paycheck with minimal savings. Even under the notion that we should just suck up the deaths and get back to work pronto, that business is not going to rebound while people are still in fear of contagion.
This really calls for extreme measures at the national level, and by extreme I mean loan guarantees, debt forgiveness, mortgage/rent freezes (with compensation for landlords so they can maintain their properties), and at least temporary universal basic income (UBI); not one time “stimulus” payments but guarantee of having enough money to eat and necessities through the duration of the shutdown. There is a lot of focus on the big industries like airlines, chain retailers, and (still, for some reason) the luxury cruise industry, but small businesses are actually where you spend a lot of your disposable income and they are dependent upon a steady flow of profits for even marginal success.
Or we can just lift all shutdowns, encourage everyone to “go back to work”, and then see what panic and fear looks like when hospitals are overflowing with COVID-19 patients and we start seeing droves of supposedly low risk, young people becoming ill and dying from the SARS-CoV-2 virus. Because…that’s a plan.
Stranger
Good comments, Stranger. I agree with you about UBI.
I think Papa John’s advertising is indicative of the way things will go:
In these times, the ideal restaurant would have food cooked and handled solely by robots in sterile conditions and dropped off at your door by a drone. Since that is more science fiction than reality, I think restaurants that thrive will maximize food safety and minimize the possibility of transmission of the virus. Until everyone has been vaccinated, I think crowded hot spots will be a thing of the past.
This is a tough situation to predict, because…
I don’t think this will happen with a Republican President and Senate, but…
I’m not sure it’ll be as simple as this, either. For one, not all governors are going to pay the least bit of attention to Trump’s “suggestions.” For another, I think Trump cares about mass deaths, because it makes him look bad and hurts his re-election chances. As I’ve mused in another thread, I wonder if the responsible governors instituting and extending shutdowns make any sort of assumptions about aid from the federal government, and if they do, what those assumptions are. Could Trump just leave blue states holding the bag financially? I’m sure he wants to.
And then there’s the times I second guess the one liner I wrote above. I’ve got a nagging feeling that even though big business (e.g. commercial landlords and banks) is loathe to lose money, I’m actually wondering if they have a choice? Is it financially smart, or feasible, for them to have mass evictions when the virus subsides? Will/can they shrug at all the bankruptcies, because it’s not them who doesn’t have money? Might they be more willing to do things (and thus encourage them to their representatives in Washington) that they would’ve thought unthinkable a couple of months ago?
I really do wonder.
Skipping the details, a sizable portion of my life’s path kept me out of mainstream culture, forcing me to miss a great deal of the normal pastimes. Over time, I discovered they really weren’t that important and their absence became normal. As time went on I found and invested in other hobbies and pastimes, and going out became less and less desirable.
I suspect a lot of people will find they enjoy their newly learned kitchen skills, and the picture on their own flat screen TVs are just fine. Going out, especially to sports stadiums, was becoming unaffordable for the average family already. I’m just guessing, but I wouldn’t be surprised if a lot of former customers are gone for good, at least as regular attendees.
Except they can only formally end the “shutdowns”. If there are numerous experts appearing TV decrying and denouncing ending the shutdowns there will be mass non-compliance. The only effective way for this to end is when there is an agreement by the experts that it will be safe. And even then there will be those who will insist on still self isolating themselves as much as possible.
I can’t speak for all countries but this will likely be one of the worst economic crises in our nation’s history. It’s a black swan event.
The government is putting cash in people’s hands but it won’t be for consumption; it’s just to pay the rent.
We’re also facing a production crisis and disruption of the food supply.
It’s a nightmare for restaurants. The big boys will survive, but that local bistro that everyone loves? Its future is very much in doubt.
Of course that only works if the restaurants have figured out how to do a feasible takeout setup. I’m impressed with some the upscale restaurants I’ve heard about in the US that have created a gourmet takeout business. I have yet to see anything like that around here. Most restaurants that had no takeout facilities have simply closed, as I noted in the previous post, though I imagine if this goes on much longer they may have to rethink that, despite the federal wage subsidy.
No doubt it is hard. A few of my favourites are doing takeaway. When I have asked how they are doing the answer seems to be pretty universally “OK - not great, but not going under.” They are of course on a skeleton staff. Sometimes the owner is cooking. Maybe three people all up. Even some quite high end places getting into the act.
Here in Oz there is quite a bit of additional government support for those who have been laid off, plus a mandated rent holiday for businesses. So, again, whilst not great, things are ticking over. There will be businesses that don’t make it. But I suspect that they were already in poor shape. One of our well known established restaurants went under late last year with some publicity. It is a hard game at the best of times. Even before the lockdowns restaurants were near deserted. The mandated lockdown and government support is probably a blessing. With no government intervention they would probably be in vastly worse shape and many would fail.