Analysis of financial impact on restaurants as Michigan Executive Orders 2020-09, 2020-21 remain in effect

Citing her own March 10, 2020 State of Emergency Declaration intended to begin dealing with effects of the “novel coronavirus (COVID-19) … a respiratory disease that can result in serious illness or death,” Michigan Governor issued Executive Order 2020-09. [1-5]

Following actions the previous day in Illinios and Ohio, this was said to “temporarily shut down all bars, restaurants to ‘eat in’ service,” additionally including “closure of several other gathering places, such as gyms, movie theaters and spas,” starting “no later than March 16, 2020 at 3:00pm.” [6-8]

Today — after a full week of such restrictions — Executive Order 2020-21 will expand upon that, going further to “suspend activities that are not necessary to sustain or protect life.” This issuance is currently set to sunset at 11:59pm on Monday, April 13 (following Easter Sunday). [9]

That will work out to keeping restaurant dining rooms dark for over four weeks.

Based on budgeting format developed by the National Restaurant Association, a hypothetical one million dollar establishment operates with an annual 8.81% profit margin. This calculation is for a non-franchise, eat-in, serving liquor — before taxes. [10-12]

More to the point, almost 22% of expenses are fixed by design. While these places may utilize little more than carry-out kitchens for the better part of a month under the Governor Whitmer mandate, they still have to carry the burden of having been structured to serve customers within. That means the cost of prime locations, parking, and logistics organized around seating and movement of patrons and wait staff.

Shut down completely, and the hypothetical restaurant that previously brought in one million dollars per year will bleed a minimum of $18,250 per month. Best case, in less than five months, that business will be in the red for the year.

The two largest line-item expenses, at roughly one-third each, are food (including non-alcoholic beverages) and labor. However, each has an elastic connection to sales forecasting, which is not only an unknown (ie, How will patronage change with move from dine-in to carry-out-only model?) but variably so (eg, How will anticipated surge in US unemployment rate due to COVID-19 pandemic impact discretionary consumer spending?). [13,14]

Further complicating this math are the mechanics of new-normal shopping for food in general, restaurant take-out in particular. Advice abounds, some science, some conjecture, a lot unknown, about COVID-19 infection transfer via packaging under even the best of circumstances. [15]

In terms of Saline area restaurants, the exact dollar amount will differ — but the percentages and impacts will not.

Last week, a leading food service industry publication highlighted National Restaurant Association estimates that the “economic impacts from COVID-19 on America’s second largest private sector employer could reach at least $225 billion during the next three months, with 5 million to 7 million jobs lost. [16]

We are revising our business model to provide meals in different ways, takeout, delivery, safety-enhanced dine-in, but we are facing economic headwinds that will lead many restaurants to shut down operations, lay off workers, and end service in our communities ….

And that is with hours still to go before Executive Order 2020-21 signed by Michigan Governor Gretchen Whitmer goes into effect, with an additional three weeks yet to come.

References

1. “Executive Order 2020-04 – Declaration of State of Emergency” Governor Gretchen Whitmer (March 10, 2020) State of Michigan.
2. “Coronavirus Disease 2019 (COVID-19)” CDC: Centers for Disease Control and Prevention.
3. “Novel Coronavirus Reports” CDC.
4. “Coronavirus disease (COVID-19) outbreak” World Health Organization (WHO).
5. “Executive Order 2020-09 (COVID-19)” Governor Gretchen Whitmer (March 16, 2020) State of Michigan.
6. “Michigan to limit restaurant crowds; Ohio, Illinois go take-out, delivery only” Christine MacDonald (March 15, 2020) The Detroit News.
7. “Gov Whitmer to temporarily shut down all bars, restaurants to ‘eat-in’ service” (March 16, 2020) Fox 2 Detroit.
8. “Larger community logistics planning is needed to help local businesses survive protracted COVID-19 infection curve” Dell Deaton (March 19, 2020) Saline Journal.
9. “Executive Order 2020-21 (COVID-19)” Governor Gretchen Whitmer (March 23, 2020) State of Michigan.
10. “Michigan governor shuts down bars, restaurants dine-in service amid COVID-19 outbreak” Dave Bartkowiak Jr and Ken Haddad (March 16, 2020) Click on Detroit.
11. National Restaurant Association (home page).
12. “How to Create a Realistic Budget For Your Restaurant” Joe Erickson, Restaurant Owner.
13. “Consumer Trends and Your Restaurant – What You Need to Know” Lynne Pratt (November 28, 2018) Modern Restaurant Management.
14. “Congress’ $2 trillion coronavirus stimulus package, visualized” Ledyard King, Nicholas Wu, and Javier Zarracina (March 23, 2020) USA Today.
15. “Food Delivery Amid Coronavirus: Here’s How To Protect Your Dinner” Chloe Sorvino (March 20, 2020) Forbes.
16. “National Restaurant Association Expects $225B Impact, 5–7M Jobs Lost from COVID-19” Danny Klein (March 18, 2020) QSR Magazine.