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Can Hospitality Be Rescued?

July 13, 2020

The show “Bar Rescue” features hospitality industry veteran Jon Taffer using his know-how to improve bars and restaurants’ bottom lines. He knows what works.

 

Unfortunately, his outlook for American hospitality establishments is gloomy. Taffer said 40 percent of them probably won’t survive this pandemic, which is rather scary.

 

His main concern centers on the difference between sustaining and opening.

 

The government stimulus package gave businesses money for people, rent, and utilities. But it didn’t include help with inventory, which is what’s needed to open. As these establishments operate at full capacity again, they’ll do it after running deficits for months or longer.

 

They won’t have the resources to fill the refrigerators, beer kegs, and so on. They also won’t place orders with food distributors, meaning manufacturers won’t make food they normally produce, and farmers will stop growing the required crops.

 

If restaurants don’t stock up and have customers, we’re going to have big impacts along the entire supply chain. This ripple effect could be enormous and overwhelming.

 

Taffer said food costs consume about 30 percent of a typical restaurant’s expenses, while beverage costs take up 20 percent. Thus, restaurants make considerably more off drinks than food (and beverages can be sold without a kitchen staff).

 

But because bars are treated differently than restaurants in reopening rules, beverage sales are more restricted. This puts revenue in jeopardy.

 

Taking beverages out of a casual dining operation that typically generates about 30 percent of its sales in drinks could be devastating. It means food will need to carry the load, despite its lower margins.

 

Between that and operating at less-than-full capacity, how can these places survive? Taffer doesn’t think many of them can. The math leads me to agree.

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This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. Please consult with a professional specializing in these areas regarding the applicability of this information to your situation.

Andrew Wood, Dan Simon and Alison Slezak are Investment Advisor Representatives. Advisory services are offered through CoreCap Advisors, LLC., a Registered Investment Advisor. CoreCap Advisors, LLC and Daniel A. White & Associates, LLC are separate & unaffiliated entities. 

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