Reviving restaurant businesses

AN interesting article in The Economist entitled, “The Pleasures of the Table”  traced the economic history of the restaurant. Briefly, the article noted that in its earlier versions, stores that used to sell food were more like community kitchen, or quasi-charities. It used to be a low status activity as people preferred to eat at home.

Over time, the notion of eating a meal in public would  become a preferential arrangement.  Professional kitchens benefited from economies of scale that provided meals at lower cost than people could provide themselves. Improvements in the competition policy and capitalism took off making entrepreneurial ventures in restaurants attractive. Eating out to see and be seen in public places saw the emergence of restaurants as a both a culinary and a cultural experience.

Despite modernization allowing cooking at home to be convenient with new  kitchen appliances, and therefore cheaper than eating out, the demand for restaurants grew. The Economist attributed this to three factors: (1) immigration and its effect on the area’s restaurants; (2) the changing microeconomics of the family with women entering the workforce; and (3) less free time for leisure while having more disposable income to spend for dining.

The onset of the pandemic necessitated the imposition of lockdowns and this adversely affected the restaurant business. According to an article quoting Defend Jobs Philippines, 80% of food establishments were hit by lockdowns and only 20% were able to recover losses. In the US, the National Restaurant Association estimated the closure in America of at least 3% of operators with at another 11% in the edge of collapse at the height of lockdowns.

With the relaxation of restriction guidelines as vaccination rollout improved, especially prior to the Omicron variant, the US saw a blitz in reservation demand for restaurants. People are again flocking to dine out in restaurants even as OpenTable reports 12-15% fewer diners in December 2021 compared to same period in 2019. Still, the worse seems to be over even if uncertainties remain.

Unfortunately, the Philippine case seems to be one of prolonged stupor, especially with the recent surge. I remember reading an online article about closed restaurants in the country and the names are very familiar. It includes Chocolate Kiss, Elberts Cheesesteaks Diners, Quezon City’s Shangri-La Finest, Bo’s Coffee, Roku Sushi and Century City Mall’s Hole in the Wall, among others.

Will the restaurant business, at least those who are still around, survive? I know that a number of those still in place find their capital position in the red zone, and some have piled up debt. Moving forward, the challenge is to be able to adapt. We’ve seen some restaurants which were able to thrive with the assistance of third-party delivery companies. The pandemic has led consumers  to buy more takeouts than before and for sure, this pattern will persist. In the US, when the restaurants reopened, they encountered new problems like dearth in labor, servers and chefs. Some of the talents had to change course and getting them back in an uncertain setting may be difficult.

The growth of the Philippine economy is largely consumption led and this means the food establishments’ revival will play a role in our recovery. Both the government and private sector must collaborate to make this happen. Restaurant owners need support by way of financing (credit), tax breaks, as well as assistance from auxiliary industries like suppliers for better payment terms and their landlords. In the UK, for example, operators in the hospitality industry were provided with tax breaks like reduction in VAT. In Canada, government has agreed to pay 50% of all small commercial tenants rent, have asked landlords to absorb 25% and the tenants pay the remaining 25%. Some landlords in the UK have agreed to schemes where rent depends on how much  business is coming through, a win-win situation for both.

Family bonding and the development of communities depend on the interaction among people. Many of these take place when friends and family break bread and restaurants are the most natural setting. Government must realize the importance of these facilities for human interaction and have to incentivize the setup, just as we need an enabling environment to develop a sense of community and country for all. Industries hard hit by lockdowns and other effects of the pandemic deserve a helping hand.

When we return to the next normal, restaurant dining will be needed, despite present proclivity for takeouts and the new discovery of home cooking as both an art and passion. To quote from The Economist, “eating out fulfills needs which seem fundamental for human nature. People need to date, to seal deals and to peer at their fellow humans. At a good restaurant, you can travel without travelling… (Restaurants) offer those who need to eat a taste of romance, glamour and love.”

Benel Dela Paz Lagua was previously executive vice-president and chief development officer at the Development Bank of the Philippines.  He is an active FINEX member and an advocate of risk-based lending for SMEs. The views expressed herein are his own and does not necessarily reflect the opinion of his office as well as FINEX.