Social Distancing: The Enormous Threat to Hospitality

Everything you need to know about Corona Virus in the hospitality industry can be found here.

Update: Pennsylvania appears to be the first state to fully close liquor stores, and encourage “non essential retail” to do the same, in an effort to contain the outbreak. The town of Hoboken, New Jersey has closed all bars that do not serve food. Illinois and Ohio may close all bars in the next few days.

It has been less than a week since the World Health Organization declared the novel Coronavirus CoVid-19 a pandemic and the consequences have been severe in the service industry.

There are now multiple countries which have completely shut down the service industry. Italy was the first, followed soon after by Belgium, Israel, France, and Spain. These reactions are by far the most extreme that we have seen, but they are quickly becoming standard containment procedure across the globe.

Stateside, there are several states and cities that have either given themselves the power to shut down the service industry, or have already done so to some extent.

New York, for example, has ordered that bars and restaurants reduce their capacity by 50% with no anticipated expiration date on that order. Mayors for Seattle to Indiana to Jersey City have also given themselves the power to close down restaurants and bars for 30 days or more. Counties in California have banned gatherings of 100 or more people for the next 30 days.

Therein lies the major problem for the service industry. These social distancing measures are going to be in place for a minimum of 30 days. That has to do with the incubation period of Coronavirus, as the infected may not show symptoms for as long as 14 days.

Managers and owners may be hard-pressed to admit the truth of the matter to their employees, but it needs to be said:

Some restaurants, hotels, and bars are going to close their doors because of the Coronavirus and social distancing.

One of the most gut-wrenching stories comes from Seattle, where the owner of 13 restaurants has decided to completely close 12 of them. For two months.

As we have discussed before, the closest approximation that we have to what is happening now is a study of Mexico’s service industry after the swine flu of 2009. In that scenario, some areas lost as much as 5% of their tourism and hospitality revenue. That may not sound like a lot, but put in the context of the countries that have already shut down, we are talking 15.8 Billion Euros or $17.5 Billion US Dollars.

If the US suffers the same 5% loss to its tourism industry, we are looking at a severe $80 Billion lost.

So what can be done about it? That is a difficult question to answer, because it largely depends on how long these distancing measures are going to last, how long people are willing to live in isolation from each other, and how quickly a vaccine or medicine can be found to treat CoVid-19.

However, we can speculate on what could happen.

Scenario One:

Best case scenario, the Coronavirus is contained and all restrictions on gatherings are lifted by the first week of April.

This is a somewhat optimistic view, as the declaration of a pandemic a few days ago meant that health officials across the planet completely lost track of who was infected and could potentially spread the disease.

However, if this were the case–and it very well could be, we simply don’t know–the best thing that the industry could do is cut hours, reduce the menu, and push hard for people to use delivery services and gift certificates.

These are things that can help a business stay afloat for a couple of weeks with as little loss as possible–at least in terms of staff. It will mean that some people might need to be let go, but it helps preserve a core group of staff members that can preserve institutional knowledge and keep the doors open.

Scenario Two:

The virus continues to disrupt global commerce until the end of June. This is something that one of the world’s largest banks–Citigroup–forecast last month for China, though they believed that there was only a 20% chance of this happening.

More recent information from the bank suggests that they believe this scenario has become more likely since they put out their initial estimates. We are using the estimates of a bank, simply because–in the absence of estimates from health organizations–this is the best source for estimates we have. The worlds investors are looking to them, after all.

If this is the case, and we have 6+ weeks left of this, restaurants are going to need to get very lean, very quickly. It’s one thing to hold out and try to keep all of your staff, hours, and menu items if you believe this will all be over in 3 weeks, but if this is going to last for more than a month, the longer a business waits the more its going to damage their cash reserves.

Our industry relies heavily–perhaps too heavily–on cash. There isn’t a lot of savings or diversification going on for a lot of our industry. That being said, now is the perfect time to start. Individuals and businesses can invest in the stock market. As it continues to go down, the barrier to get in on the action is lowered.

The economy will recover, and when it does, those who invested will be better off than those who didn’t. A side-bonus to this is that the sooner the stock market stabilizes, the more comfortable people are going to be going back out to restaurants to spend their cash.

It’s a win-win and definitely something for everyone to consider going forward.

Scenario Three:

This is the nightmare scenario. This is the scenario in which the virus is un-contained, infections increase, and there is no end in sight.

This is the least likely scenario to occur, and really, it’s not worth spending a lot of time thinking about. If–and that’s a serious if–this comes to pass, there are major, major issues that nobody has any answers to.

Again, luckily, this appears to be the least likely to occur.

Immediate Relief

There are several states that are allowing employees to use unemployment insurance either as a form of sick leave, or as wage replacement in the event their restaurant closes or is forced to close due to government mandate. However, these programs are either in the early stages of discussion, or are being implemented in the next few days.

If you are working in the hospitality industry and you are looking at hour cuts or your business shutting down, you should search for “Coronavirus unemployment in ______” to find accurate information about what you can do–right now–to help yourself.

Conclusion

We simply don’t know how long all of this is going to last. The scenarios that we just went through are a guess. Educated guesses, to be sure, but guesses none-the-less.

That being said, delivery is going to be the saving grace for a lot of restaurants. Services like Uber Eats, GrubHub, and Door Dash are not particularly well liked among the staff of established restaurants, but with the bans against social gatherings, (as well as general fear of being in public) this is likely the only way that the business will be able to make enough money to survive the next several weeks.

Each city and restaurant is going to need to make decisions based on their individual economies and gut feelings. There will be some economic relief, either in the form of payroll tax cuts or–in some cases–straight up bailouts, but for now, we are going to have to wait and see what happens. There is no singular answer here. We are all just going to have to put on our thinking caps and try and figure a way through this. Perhaps when we come out the other end, our industry will be more robust than when we went into this.

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