April 19, 2020

Joey Hancock

Restaurant industry’s COVID-19 woes create trickle-down impact on other industries

 The coronavirus has spread across the United States quickly disrupting daily life with the closing of bars and restaurants. While this has an effect on the restaurant industry, there is also a trickle-down effect impacting businesses associated with these establishments.   

The economy is being impacted daily by the pandemic and as restaurants are being ordered to close dining areas and move to takeout and delivery only, the industry is taking a major financial hit. These closures, while hurting restaurants, are also hurting businesses that work with and for the restaurants including cleaning companies and restaurant financiers to home rental companies. 

Local business effect

Brad Pierce, owner of OSA Specialized Cleaning, is one of the businesses that the trickle-down effect of restaurant closures has affected.

Pierce’s commercial ceiling tile cleaning and high dusting services are no longer needed as dining rooms close-up-shop.

“I go out and clean restaurants and restaurants are closing, Pierce said. “They (restaurant owners) don’t know how long it’s going to last and they are conserving cash, so they are waiting to see what happens and once they get back open and people start coming in they’ll have more cash and they will give me a call.”

Pierce has had to change his way of doing business. Restaurants are some of his largest clients and these places are closed he has had to shift his focus to other industries that are still open for the moment.

“We have a few beauty salons, a pet boarding place, so we are doing non-restaurant stuff and that seems to be going okay, but the restaurants are really tightening their grip,” he said.

While companies are struggling during this time due to COVID-19 there are businesses, such as HQ98.com which sells two-way radio systems, that are reaching into new markets and finding new opportunities.

Stewart McClintic, Vice President of Sales for HQ98.com said his company has been able to stay in demand due to the COVID-19 outbreak and restaurants having to change their strategies.

“We seem to be getting more interest from restaurants who are trying to keep their doors open by doing curbside pickups and keep social distancing,” he said. “We have seen a few restaurants reach out to us specifically for radios because they think it will help with business.”

Even though HQ98.com is down in sales due to the COVID-19 outbreak different industries than normal have been reaching out to them specifically for radios that can help keep their businesses open and maintain social distancing.

“We are seeing more traffic from some industries and less from others,” McClintic said. “We have a lot of healthcare people coming in asking for radios because of COVID-19 and we even had a gas station who wanted quotes to keep their doors open.”

Cleaning companies and radio companies are just a couple of industries that are being affected by the closure of restaurants and having to change tactics. Other industries such as financial institutions are also being affected and this is having an impact on business owners and individuals who may be seeking a loan or other financial help during this pandemic.

Overall economy

The overall economy has taken a major hit over the past few weeks with the stock markets falling and people saving money instead of going out to restaurants and other entertainment venues.

John Waters, president and owner of Waters Business Consulting Group, LLC describes these impacts on the economy with the term “velocity of money” and how the slowing of this velocity affect the economy.

“There is what I call a velocity of money which is money exchanging hands for commerce,” Waters said. “This requires the interaction of employees and customers and when those two no longer interact the commerce stops.” 

When the velocity of money begins to slow, and as it continues to slow, more businesses will close and part of the issue behind the slowing of the velocity is social distancing being called for by the government. 

“The reason restaurants are shutting down is they are trying to create this social distancing,” Waters said. “That helps to minimize the interaction between human beings because that is what transfers the virus.”

As fear has spread through the television news and on social media, the economy has been affected due to the reaction of the people. With a time frame currently unknown as to when restaurants and businesses will be able to reopen the economy will continue to be impacted. 

“The economy is driven off of a lot of key economic facts but what impacts that are people’s emotions,” Waters said. “That’s why you’ll see surges in what’s happening in the economy or why the stock markets are overreacting. So it’s an emotional aspect and it is driven off of psychology.”

The generational aspect of this pandemic is also a key factor that is impacting how people are reacting to the current situation. This generational aspect is caused by people not having experience with situations like the world is currently in. The last major pandemic occurred in the early 1900s so people have forgotten about ways to react properly during pandemic outbreaks.

“The younger population has never experienced something like this,” Waters said. “I have gone through a stock market crash, September 11th, the recession in 2008, so this kind of stuff is certainly unprecedented but when you haven’t experienced it you have no comparison.” 

The influence of social media and news media has exacerbated the situation but when it comes to people’s reactions to situations like this it is all relevant to life experience, Waters said.

Businesses need to prepare for the long haul as the virus is still spreading and restaurants may be closed for a long period of time. Once businesses begin to reopen the economy will slowly repair itself as money is put back into the system. The velocity of money will then return to normal and people will be able to begin getting back to the normalcy of their daily lives but this still may be a way off.

“The truth, in my opinion, is we are two, three, four weeks, not necessarily returning to normal but beginning to start getting back to normalcy,” Waters said. “If people hadn’t reacted in the ways in which they have then this thing would be exponential and would be affecting the economy for months.”

Financing opportunities dry up

Bobby Barnes, Executive Vice President of Scottsdale Private Lending, has seen the effect of Coronavirus on restaurants first hand.

“I was talking to a friend of mine, who owns a bar, and he said he doesn’t know what he’s going to do because he has to sell booze to pay his bills, his rent, his mortgage, his lenders,” Barnes said. “With the government saying ‘don’t go to restaurants and spend money,’ that industry is going to be pretty crushed.”

With restaurants being closed owners and lenders are in a difficult position since the restaurants aren’t bringing in revenue.

“Lenders can’t lend on something that doesn’t have a solid base of revenue,” he said. “If I were a lender lending on a restaurant and I hadn’t funded the loan yet, and this was going on, I probably wouldn’t fund the loan.” 

This doesn’t mean that lenders aren’t still responsible for loans that have already been funded as they still have the responsibility of funding those loans. If a restaurant owner was in the process of seeking a loan from a financial institution then the process may be halted until the pandemic has eased and businesses begin to reopen.

“I think if financing hasn’t already gone through then those places are probably going to be put on hold,” Barnes said. “I think it’s going to be just sitting and waiting to see what happens.”

The issue with not being able to procure a loan is putting the development of restaurants into a holding pattern but restaurant owners should discuss their options with their lenders if they aren’t able to make payments. 

“I think they should call their lenders and make them aware of their situation,” Barnes said. “Some restaurants are probably going to have more savings than others. Some are living paycheck to paycheck and others can cushion the storm a little bit but they should just call their lender and let them know they are worried they might not be able to make their payments.” 

 Effect on workers and suppliers

The trickle-down effect of restaurants closing affects all aspects of the business and not just the aspect of serving food to customers.

For example, when we go to a restaurant to order a hamburger there is someone who is cooking the burger, someone ordering the buns and the meat, someone who has a bill that needs to be paid and restaurants aren’t going to be able to pay their suppliers. With this happening they aren’t able to order food and as things get back to normal companies and lenders are going to need to give everyone a bit of a break to get back on their feet, Barnes said. 

Restaurant closings are having effects on all of the workers in these establishments. The owners are being forced to lay off workers and these workers, cooks, servers, dishwashers, etc. are feeling the brunt of the impact because they are losing much-needed paychecks to pay their rent and other bills. People not being able to pay their rent is having an effect on landlords as they need to make money from their properties.

“I know a woman who is a constable who puts tenants out if they don’t pay their rent and she has a lot of landlords calling and asking her what to do because they have tenants who pay on time and they are cooks and restaurant workers and they’re going to lose their jobs,” Barnes said. “She tells them she doesn’t know what to do but it’s better to have someone in the house than not because they are at least trying to find a way to pay the rent.” 

People who are having issues paying their rent are being told to contact their landlords and discuss possible payment plans or other ways in which to pay off their rent over time.

 

Joey Hancock is a freelance writer in Phoenix, Arizona. He is an experienced journalist having covered politics, business, education, entertainment and sports for multiple publicationsJoey received his Bachelor of Arts in religious studies from Arizona State University and M.Div. from Liberty University. Twitter: @joey_hancock.