As the coronavirus pandemic rages, our Facebook timelines got filled with farewell posts from beloved small restaurants. Many netizens mourned their loss, especially those hole-in-the-wall establishments in or near universities or office buildings. “Made so many memories here, you will be missed,” one netizen wrote, voicing sadness for the closure of a famous eatery on Katipunan Avenue that many students flocked to.
As the pandemic continues to affect the restaurant industry, it is not difficult for owners to lose hope. Some measures they had to take were losing both customers and staff, adjusting to consumer preferences and closing their establishments. The enhanced community quarantine imposed on Luzon last March forced restaurant owners to close their doors for months, leaving them to decide between offering delivery services or waiting for the lockdown to be lifted. Takeouts and deliveries seemed possible, but most small restaurants were not ready for it, as they had to prepare food differently, invest in good packaging and sacrifice their unique dine-in experience. And waiting for the lockdown to be lifted can be likened to surrendering, as money only went to paying rent and utilities. Lots of tough decisions had to be made.
To recover, restaurant owners must examine their strengths and capabilities to come up with effective recovery strategies.
The past as an indicator
Even before Covid-19, the industry was already facing various challenges. The clamor for regularization surely caused owners to make the necessary adjustments. Prices of meat and seafood rose, affecting restaurants offering dishes based on those. Concept restaurants were also becoming oversaturated with similar offerings, making competition stiff. The pandemic only magnified the effects of these trends in those subsectors.
Although this is the case, it is not advisable to view the effects of Covid-19 as just worsening existing industry problems. For example, an underperforming establishment in the fast-food segment would still be doing better than a relatively small concept restaurant. Fast-food restaurants are exceeding their historical figures during the lockdowns, but numbers are likely to return to pre-Covid-19 levels after the pandemic ends.
Making tough decisions
For a restaurant, the path to survival starts with examining the earnings before interest, taxes, depreciation and amortization of each branch or store. Restaurant chains should review which portion of its footprint is performing or, at least, breaking even. Another key performance indicator to investigate closely is same-store sales performance. Using such data, management would be able to determine each store’s profitability and act accordingly.
If maximizing value is the goal, eliminating underperforming stores would be vital, as buyers are unlikely to invest in a company that unnecessarily shells out money. The most optimal strategy would be reorganizing around a profitable store base and taking out unprofitable leases.
On a more positive note, record years of fundraising and low-interest rates attracted private equity interest and investment in mergers and acquisitions. Buyers are not only interested in fast-food chains doing well amid Covid-19, but also casual and fine dining restaurants that are struggling.
What matters to buyers is the potential of still making money in the long term. Geography will have an impact on the profit of a store in an urban area, since the number of corporate gatherings is declining. Establishments in neighborhoods are suddenly outperforming those restaurants.
Since there is hope for saving distressed restaurants with recent reports on the rollout of coronavirus vaccines, some trends may be more permanent.
Taking advantage of third-party delivery companies helped establishments thrive during the pandemic-induced economic downturn. The dependency on them has generated problems, including increase in service charges, which digs deeper into a restaurant’s profit margin. Once normal eating patterns return to normal, restaurants may gain negotiating leverage since their dependence would decrease.
Unfortunately, the impact of Covid-19 on casual and high-end dining may last. Since business lunches at high-end restaurants have stopped, restaurants that depend on these now struggle to generate income. Furthermore, many corporations cut down on client entertainment expenses this year, with their operations adhering to at-home arrangements. This begs the question on whether these restaurants would thrive again once business interactions return to normal.
Another problem would be the lack of employees, such as servers and chefs. Restaurant closures were likely to urge these people to leave the industry, and so the talent pool continues to diminish.
Relief from the government
The government has offered various tax relief measures for both big and small businesses with the passage of Republic Act 11494, or the Bayanihan to Recover as One Act. These include tax benefits for health workers, equipment, retirement and a longer period for claiming net operating losses carry over.
For micro, small and medium enterprises, agencies and institutions such as the Finance and Trade departments, Bureau of Internal Revenue, Social Security System, Philippine Economic Zone Authority and the Senate all issued various memos and announcements aimed to help ease doing business. These include the Small Business Wage Subsidy program; a 30-day grace period on commercial rent; postponement of rental payments for locators in certain ecozones; and the proposed Corporate Recovery and Tax Incentives for Enterprises Act. For more details on these, it is recommended that small business owners regularly check the websites of these state units to keep themselves updated on the relief offerings that may be useful to them.
Pathways to success
Besides being certified foodies and having well-curated taste buds for good food, restaurant owners must be able to navigate the path to stability and profit. Doing so requires skills and knowledge that go beyond the four walls of the kitchen. They can seek advice from professionals and experts who are well-versed in the business side of the industry. This can be one way to become productive in assessing and proceeding with unbiased examinations of their business’ current situation.
Hopefully, the coronavirus would be eliminated soon, so that Filipinos can once again enjoy dining out with friends and family. The resilience of business owners in this trying time can make or break the future of the restaurant industry. It is up to them to play their cards right with chosen experts, so that they may find the way to not only recovery, but also growth.
Mai Sigue-Bisnar is a partner of the Audit and Assurance and Advisory Services Divisions of P&A Grant Thornton. P&A Grant Thornton is one of the leading audit, tax, advisory, and outsourcing firms in the Philippines with 22 Partners and more than 900 staff members.
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As published in The Manila Times, dated 20 January 2021