Though the coronavirus pandemic has been tough on countless businesses, restaurants have perhaps struggled the most. It's estimated more than 100,000 restaurants had closed either permanently or a long-term basis as of mid-September. All told, the restaurant industry lost $165 billion from March through July and is projected to lose $240 billion in sales by year's end.
Unfortunately, the winter months might dig restaurants into an even deeper hole. For months, many restaurants have managed to generate revenue by offering outdoor dining, but in much of the country, that option will disappear as the weather gets colder. Of course, there's indoor dining to fall back on, but that comes with capacity limits and shutdown potentials if the outbreak worsens (which is already happening thus far in October).
It's therefore not surprising to learn that some restaurants are making plans to shut down -- though not permanently -- ahead of the winter decline. It's a tactic being billed as hibernation, closing temporarily until warmer weather returns or things on the pandemic front improve. A number of Boston restaurants, in fact, are already looking at shutting down temporarily. But will that do the trick in preventing permanent closures?
The struggle continues
Some restaurants -- those that have managed to successfully pivot to a delivery and takeout model during the pandemic -- may be getting by reasonably well in the absence of in-person service. But for higher-end and even moderate restaurants, that model doesn't work as well.
Many restaurants rely on liquor sales to boost revenue, but diners who pop in for takeout are unlikely to order marked-up cocktails in to-go cups. Furthermore, those who frequent high-end restaurants are there for the experience and ambiance, so while it's conceivable pizza sales won't slow down much during the winter, $40 entrees in takeout containers are a much harder sell.
By hibernating for winter, some restaurants might manage to eke out enough cost savings so they're able to reopen once conditions (weather or otherwise) improve. Of course, restaurants will need to either prepare to make good on their leases or negotiate with their landlords during those temporary closures. But while some may still be liable to pay rent, they'll at least save on other overhead -- food costs, supplies, and payroll.
Will landlords be willing to work with hibernating restaurants?
Temporary closures become a far more effective cost-saving measure when rents are forgiven or slashed. And while commercial landlords may be hesitant to go that route, it could actually be in their best interest to work with restaurant tenants seeking to hibernate for months. These restaurants closing down completely could result in costly vacancies, so landlords may be better off agreeing to pause or reduce rent for a number of months than risk having their tenants go out of business completely.
A true hail Mary
It's clear restaurant owners are growing increasingly desperate, and in the absence of additional funding, many could inevitably close within the next six months. Hibernating for winter could be a temporary cost-savings measure that saves many restaurants from permanent closures -- and the landlords who rent to them from a full-blown vacancy crisis.