Adapt or Die

Navigating Our Way Through COVID as Small Business Owners in The Hospitality Industry

At this point in my career, I’ve become a bit of a serial entrepreneur. The title feels a bit douchey, but I guess it is what it is. I own a few restaurants, a construction company, a media company, a tech company, and a music studio. All of these are still small businesses though, so the wide range of operations hasn’t necessarily made me successful just yet.

When COVID hit we lost a restaurant in downtown Toronto, our construction company had to go on hiatus for a couple of months, our other full-service restaurant was closed temporarily, the new restaurant we’re building stopped, and the studio was closed. Nearly all of our operations came to a halt with the exception of our media business and a small takeout restaurant we have called The Feed.

Like everyone, I went through the five stages of COVID:

1. Wine for dinner
2. Oh shit, this is more serious than we first thought so no more wine for dinner
3. Existential crisis, because who really knows why?
4. Socially distanced, social life
5. Enough Already

As a small business owner, I’ve endured a few more:

1. The shutdown :(
2. The stimulus — i.e. “debt for a later date”
3. Restricted re-opening — feels like musical chairs
4. Oh Shit! These restrictions are not sustainable
5. It’s time to pivot
6. We’re going to be alright…in like 6 months.

While I have a sense of humour about things now, I was definitely frustrated with the government, and how they’ve handled this mess. But truth be told no one could have predicted this or handled it much better. The past six months have just been a series of reactive solutions on a 24-hour timer.

I was expecting someone else to solve my problems. I was hoping for a handout — something to help me stay afloat. But, as time passed, I recognized my flawed strategy so I'm singing a different tune today. I’ve pivoted from drowning in a puddle of problems and chasing government stimulus cheques, to finding new ways to stay alive.

So what happened to the hospitality industry?

Sorry, we’re closed…forever.

Like all ‘non-essential’ businesses we were forced to shut down our services aside from take-out. But at least they gave us take-out, right? Wrong.

When was the last time you grabbed a Steak to-go from Ruth’s Chris? Oh, that’s right — never.

The issue here is context, people don’t often grab take-out from their favourite full-service restaurants, similarly, these places don’t plan for take-out heavy sales. They know their items don’t travel well and the food prices include the overhead for service staff, larger square footage, and atmosphere.

After we closed down, we were all made very aware of what has happened to our beloved industry over the years. From March to July over 15,000 restaurants have closed permanently in the US according to Yelp.

Here’s why:

• Pricey rent — It’s been a bull market for over a decade, as a result, commercial rents have continued to rise well above their value. The general rule of thumb is that rent should cost you about ten percent of your revenue, but prior to COVID you would be lucky to land a unit at twenty percent in Toronto — literally, double the profitable amount.
• Inflation > Menu prices — Over the years the cost of good sold, including employment wages have grown much faster than the fair market rate of our finished product. The reality is, your $8 burger should be $12, and your $6 beer should be $9. I know, too much, right? Unfortunately, that’s where our prices should be in relation to inflation and wage increases. As a result, restaurants have been operating on razor-thin margins. What used to be 15% profit, is now closer to 6%, and this is why most places couldn’t survive the month, even with financial assistance.
• Late-night bar service pays the bills — It’s plain and simple, we have a restaurant called Nomads that pulls in just shy of $2 million a year, 70% of which is liquor, wine, and beer. Similarly, a lot of age-appropriate restaurants and bars make all their money on booze between the hours of 10:00 pm and 2:00 am. It just is what it is.

In many cases, rent relief was not an option. In the event it was, the financial assistance just meant all of your profits are going to the government for the next three years. That’s right, work your ass off 8 days a week just to stay afloat for the next three years — and that’s if we can even get this virus under control. Which we can’t.

How do I know we can’t control COVID? Texas University did a study in April, which had a ton of interesting information, most notably, and to my point, “If a county has detected only one case of COVID-19, there is a 51% chance that there is already a growing outbreak underway.” To me, this means COVID is an endemic, not a pandemic. Texas U Study

Our unique struggles — What we personally endured

Right out of the gates we lost a big restaurant located at a busy intersection in downtown Toronto. Truth be told, we had already started feeling the impacts of COVID in February. Day after day parties and reservations called to cancel. By the time April rolled around, we recognized that we were in a COVID hotspot and it would be a very long time before we recovered. So, as entrepreneurship goes, we loved the place enough to give it a heartbeat but knew enough to cut our losses before things got any worse for us.

In the west end, we tried to keep our other two restaurants open for the first couple of weeks of shutdown. Nomads (our full-service location) was a hard fail almost immediately. This goes back to context, people come to Nomads for the fun, atmosphere, food, and service — not for takeout.

The Feed, which is a take-out rotisserie chicken joint, opened the week before the shutdown. While the timing was terrible the business actually thrived because it’s a Quick Serve Restaurant (QSR). We dove into deliveries — the Uber delivery charge at 30% was like pouring salt in an open wound, but the growth of this business was the one silver lining through it all.

When we finally got the go-ahead to re-open, we did so with a skeleton staff. Primarily managers wearing every hat. Unfortunately, at half capacity, reduced hours, no late-night bar service, and the general public’s concern around COVID, revenue just wasn’t enough to keep management wages going. Now that the second wave is upon us, we have yet again laid off 80% of our staff and reduced our hours to survive.

The pivot to stay afloat

As entrepreneurs, it’s our job to adapt to the market and continue to sharpen our skills. If you don’t think you can do it, consider that 50% of running any business is pretty much the same across the board. We all know what makes us successful — the ability to solve all of our problems. That’s it.

This is why I started building my media company in late March. I incorporated Wallbanger Media Inc. on April 20, 2020 — My last name is Harvey and I grew up in the bar business, so the name is an ode to the Harvey Wallbanger cocktail — Another fun story: this is the third company I’ve started on 4/20, (the first two times were dumb luck, this last one was just to keep the trend alive.)

Originally I started the company because I felt like I owed myself some form of progress while we were shut down. As time went on and our billables started to grow, I recognized that this was not only my way to stay COVID recession-proof but also how I would be able to keep the restaurants alive through this pandemic.

On top of the media moves we made, we also reworked our long term strategy with restaurants. Our plan was to keep going with bars and restaurants, but after COVID hit we realized that The Feed was our golden goose. Take-out seems to be recession-proof, well COVID proof at least, so now we’re maintaining our bars and scaling The Feed as fast as we can. I’m hoping this is what will make my 20 years in the restaurant business worth it in the end.

What you can do to stay alive in this landscape

What can you do to stay alive through all the chaos? Well if you’re not keen on the media business, let’s consider what else you might do to add depth to your asset structure or help keep your current business up and running.

Here are some of the things you could do with restaurants:

• Change vendors to cash and carry places. We pick up our own products and save about ten percent.
• Prioritize the employment of your most versatile staff members
• Start a ghost kitchen, and launch a QSR brand for takeout and delivery only — see how The Wilcox Gastropub did it here (Ghost Chicken)
• Start a meal prep business out of your kitchen (we’re actually doing this — Get your healthy, weekly meals from Nomads starting November 1)
• Master your marketing for local and digital streams
• Diversify now — you’re an entrepreneur, your experience in hospitality has prepared you to run a business in any industry

For the foreseeable COVID is here to stay, the challenges will continue, and we all have to find a way to navigate through this chaos. As Darwin put it, “It is not the strongest species that survive, nor the most intelligent, but the ones most responsive to change.”