Dealing with Distancing, Models, and Dealpoints with COVID-19

With COVID-19’s social distancing requirements hanging over the retail restart, Landlords and restaurant tenants are married partners more than ever. They jointly share the risks inherent in the restaurant restart. This shared interest is helping 4Site Advisors develop winning strategies with the realities both face, but this requires diligent preparation, open dialog, and flexibility.

Restaurateurs are experts at their craft. Awareness of cuisine, ambience, customer preferences, labor metrics, and supply chain are mandatory. Lease terms, cash flow models, new loans, and utilizing technology are all tools they should have for the restart.

Landlords have a wealth of experience in lease terms, financial models, and lending requirements. They leverage technology to determine risk, cash flows, asset management, and strategy. As close partners with the Tenant, they now are sensitive to customer demands, health requirements, and even labor percentages.

Working with Landlords and Tenants, we are helping them leverage each other’s strengths in solving the restart challenge.

How 4Site Advisors Will Help

• Navigating PPP & SBA Loans. Now that Congress has added funds addressing the initial shortfall, many restaurants can count on some protection and comfort. However, despite the loan’s importance, they are not a panacea for anyone. Depending on the restaurant size, these will help roughly 30% of operating costs for 60 days. Equity or terms for the remaining 70% and beyond 60 days are paramount for the business’s success.

• Cash Flow Modeling. Restaurateurs should model 40-60% revenue scenarios for the initial 6-8 months, depending on concept. We anticipate this model can adjust to 85% pre-pandemic levels within 8-12 months. Seating strategies, labor, menu, and lease decisions are all predicated on these models.

• Negotiating Lease Abatement or Deferment. Reasonable Landlords are expecting an adjustment in the rent term, and some are accepting relief, deferring to the lease terms end, or in some cases abatement of a portion entirely. The adjustment flexibility is in direct relation to the Tenant’s preparation and transparency.

• Assessing Technology to Increase Efficiency. Restaurants may already have access to many cost savings tools through their POS. Leveraging these tools to optimize staffing, maximize the most popular menu options, and create safe and efficient seating arrangements will be essential in running a restaurant during the next 8-12 months.

There are several other factors which restaurants will adjust to as the market opens. Labor will remain a key driver of profitability, and with lower volumes, front of house and back of house tasks may blend with less staff. Menu items will adjust with available supply chain, and we are encouraging a “special menu” mindset, whereas the menu is curated from the most popular dishes only for the first months. This will provide for easier training, lower food costs, and less waste. Pricing adjustments may also be an opportunity, depending on elasticity and concept price points.

Most restaurants have available technology which can assist in supply chain adjustment, labor tweaking, seating separation, and driving take out. These tech platform fixed costs should be maximized now as they will help drive both savings and growth. Although IT personnel may have been furloughed, we recommend systems evaluation for restart.

Although we’ve not seen a pandemic like this in our lifetimes, the fact is we are all dealing with the outcomes together. Landlords and Tenants equally are having to find ways to problem solve like never before, which strengthens their partnership and spreads the risk. We are encouraged by the initial signs of progress and hope these considerations provide guidance to those restarting during this difficult time.

*This report raises legal questions which are complex and fact dependent. We advise consulting with an attorney to best address them specifically as we are not attorneys nor practice law.