Kick-Starting the Restaurant Industry
Government support or discount programs: what is the right helping hand?
by Apoorva Prakash
As restaurants continue to navigate this year’s pandemic dining battle, in general, they are sticking to executing the minimum: keeping their business afloat. Working within the restrictions imposed by national governments and public health authorities, with reduced capacity and increased responsibilities, restaurant owners and employees are finding it hard to see the light at the end of this tunnel.
Many are being driven to close shop for good; the fortunate few who have been able to stay open are in desperate need of assistance. Earning what they need by relying on locals to open their wallets as they gain confidence in the economy is slow going, forcing restaurants to seek aid in the form of government support and discount programs. But are these measures effective? And what approach works best?
The Current Reality for Restaurants
Half-capacity dining and social distancing parameters mean more than just a loss of the old atmosphere of packed dining rooms. In combination with truncated menus and more cost-conscious customers, restaurants have seen revenues plummet. Making it work with a skeleton crew of staff has its limits. Constraints on reducing fixed costs and additional requirements due to stringent new rules have severely limited cash flow — the pandemic has stretched restaurants thin.
On top of that, the regulations in different regions are constantly changing, with no time to ease in. In British Columbia, liquor sales have now been banned after 10 p.m., and banquet halls have been shut for the second time around — shrinking an industry that is hanging by a thread. New York City plans to resume indoor dining at the end of September, but with a seating capacity of just 25% — which could rise to 50% if the number of positive cases does not increase. Business owners, managers, diners and employees are concerned, and with good reason.
Government-Led Support Programs
The hospitality, tourism and aviation industries are all intertwined, and with demand bottoming, cooks, servers, tour guides, pilots, flight attendants and support staff have lost their jobs. A sharp rise in unemployment rates has forced governments to lend a helping hand through programs to save their troubled economies, which vary from country to country.
The United States
The United States government focused their efforts on the CARES Act, which provided loans under the payment protection program to help small businesses stay afloat. Applying to all restaurants that had fewer than 500 people on payroll, the program aimed to protect paycheques and gave employers temporary relief, helping cover some of their costs.
Additional support for restaurants came from relief funds created by grassroots national and local organizations, such as the Seasoned Relief Project and the The James Beard Foundation Food and Beverage Industry Relief Fund, which focused their efforts on helping the workers and serving independent businesses with micro-grants.
The United Kingdom
The UK government has been paying 80% of furloughed employees’ wages since March under an agreement that they will be brought back into the workforce, and rewarding businesses with £1,000 per employee for doing so. With the payments ending on October 31, many hospitality businesses are concerned.
In addition, the government initiated a temporary reduction of sales tax (from 20% to 5%) with a goal of supporting food, tourism and accommodation. However, the reduction did not apply to alcohol — causing issues for pubs, who rely on their pints.
To help get diners back into restaurants, the British government initiated the “Eat Out to Help Out” program. Active for the month of August, the program paid half of diners’ bills (up to £10 per person, food and non-alcoholic drinks only) on Monday, Tuesday and Wednesday in participating pubs, cafés and restaurants. Approximately 84,700 outlets took advantage of the program, including big banner brands like Costa and Nandos, with a resulting government cost of over £522 million. For restaurants, the result was a much-needed infusion of cash and plenty of business on days that are traditionally more quiet.
With new restrictions on in-person dining released in September, capping in-person gatherings at six people, the UK can only hope that the relief they’ve offered so far will help some restaurants weather the storm.
In Canada, federal aid programs have focused on rent relief, emergency loans and wage subsidy programs rather than strategies for encouraging locals to spend at restaurants. In cases where a restaurant’s business dropped over 30% in April or May, the CEWS is designed to cover 75% of payroll. Restaurant owners who don’t qualify but who had a payroll of at least $20,000 in 2019 can qualify for CEBA — an emergency $40,000 loan that will continue to remain interest free until the end of 2022. The rent assistance program CECRA provides forgivable 50% loans to restaurant landlords and owners for three months — as long as the property owners reduce the rent by 75%, leaving the restaurant only to pay 25%.
While there are plenty of programs in place in Canada, many small businesses found the criteria and application process extremely hard to follow, and response times slow, adding unnecessary stress to business owners during an already challenging time.
Who Benefits From These Programs?
Despite the US government’s CARES act being the largest economic stimulus package ever passed in the United States, nearly 80% of restaurant owners said that it wouldn’t be enough to save their business, even combined with the Paycheck Protection Program. And, much of the allotted money was earmarked for large corporations and restaurant chains rather than independent restaurants, leading to justified fears that this could be the end for the country’s vibrant restaurant scene.
The “Eat Out to Help Out” program was a delight for restaurants, filling their dining rooms with laughter, joy and conversation. According to the UK government, sixty-four million meals were claimed in the first three weeks alone, helping many people find a cost-effective way to dine out for the first time since the COVID-19 pandemic began. In terms of restaurant staff, managers returned to the floor to oversee socially distant dining in, while chefs were back in the back, cooking up a storm — in short, they were employed. For those who were furloughed, with no extension of the subsidy announced, anxiety about the future continues to rise.
In Canada, government aid has focused more on business owners, helping them cover the costs of rent and payroll. While there were also programs to help subsidize the wages of servers, it was up to employers to apply for them and decide to what extent to use them. Overall, the ultimate goal for restaurants is to be earning enough revenue to cover their costs and make a profit — whether that comes from customers, the government or both — and the government needs to be addressing that.
Another Approach: Discounted Dining
In Vancouver, over one hundred restaurants, suppliers, craft breweries and wineries come together under one banner to form Canada’s largest food & drink festival — Dine Out Vancouver.
The goal of the program is to attract locals and tourists to dine out by offering a set menu with at least three courses for a lower than usual price. Generally, the festival runs in January and February, a traditionally sluggish time of year for restaurants. This year, an adapted version — Dine OutSide — is running from August 21 to September 21. Participating restaurants must offer either patio dining or a picnic to-go pack; dine-in only restaurants with no outdoor space aren’t eligible. Sounds revenue-generating on the outside, but is it?
The Unintended Consequences of Discounted Dining
The average cost of a table for one at a fine-dining restaurant in Vancouver is about $100–$120. If the same outlet has to offer a $45 prix-fixe menu (the highest tier offered through Dine OutSide), customers are saving over 50%, and the restaurant is pocketing about half as much money for the same amount of work. Really, nobody benefits from this approach. In contrast, government aid through the Eat Out to Help Out program brings in more money by enabling customers to spend more than they usually would on a meal out, without having to cover the entire bill.
Taking part in Dine OutSide has a cost to restaurants, rather than a benefit, forcing them to re-tailor and discount their offerings, and filling already limited seats with customers who are spending less. To make the margins work, they’ll have to be creative — skipping dairy in their recipes, forgoing the pricey garnishes, keeping the cost per portion to the bare minimum and generally compromising on quality. Once you add in the cost of rent and labour, restaurants are at a huge disadvantage.
Offering discounted set menus may bring in a greater number of guests and give the impression of a more bustling restaurant, but it diminishes the value chain by cultivating customers who are unwilling to pay the right price for the product. Ultimately, it isn’t just the restaurants who suffer, but also the suppliers, from the farmers whose livelihood depends on their produce to the fishers, who have heavy up-front costs to do business in a safe and sustainable way. And in the front line, servers have to waltz their way into the dining room acting as if everything is normal.
Looking to the Future
In the short term, discounting meals allows more people to dine out, and employees to clutch onto their jobs for a little longer. But the long-term effects have yet to be seen. Those restaurants that do survive these times of turmoil by any means possible may have the unlooked-for effect of disturbing the local food ecosystem around us that has taken years to build.
In Canada, the restaurant industry employs 7% of the workforce including numerous entry-level jobs. While current government-funded aid and grants assist their employers, it’s hard to say how effectively these measures trickle down to help support the employees, too. In time, many of our local businesses will pull down their shutters and close shop for good. With businesses in the economy shrinking as we enter into the fall season and the end of patio dining, there will be a limited number of job openings for restaurant workforce to get back into.
Governments need to focus their efforts on saving the industry as a whole, not just providing short-term grants — we need billions of dollars. As we wait to see the long-term effects on the industry, one thing is certain: if the administration wants to save the Canadian restaurant industry (and as a result, the entire supply chain and related industries), they aren’t doing enough.
Apoorva Prakash is a freelance writer with a strong affinity for food, travel and culture. Her culinary stints include L’espalier, Boston; GAA, Bangkok; and Masque, Mumbai. She is currently at Hawksworth Restaurant, Vancouver.