Restaurant Extinction Event

Restaurant Extinction Event

Morning folks,

The modern-day restaurant experience can be traced all the way back to the French Revolution. Aristocratic households had long employed skilled chefs, who, following the execution of King Louis, found themselves suddenly unemployed. There had been food stalls and taverns dating all the way back to Roman times but following the French Revolution, the trappings of the nobility became available to the better-off public. One could, for example, order “prix fixe” or “a la carte”, and have food served on delicate china with silver cutlery.

Another big change was the adoption of “Service a la russe” (service in the Russian style) in the 19th century, in which food was pre-portioned on the plate by servants before being brought to the table sequentially. This replaced the older “Service a la francais”, in which all food was brought to the table at the same time, with diners serving themselves.

Then, of course, you had the fast-food revolution that began in the USA and swept across the world.

All this cumulated in what we have today, or rather, had, until just a few months ago. At least in major urban areas, one had ample choice of cuisines at multiple price points, in various settings. Now we face what chef Andrew Zimmern refers to as “an extinction event for independent restaurants”.

As the CV-19 pandemic continues to spread across the United States, restaurants have taken a tremendous hit. Early successes in stemming the cases gave some hope to restaurateurs that they would be able to operate some form of takeout/alfresco hybrid throughout the summer months to keep themselves afloat, but as new clusters emerge, that optimism is fading rather rapidly. Restaurants that can’t run at full capacity don’t survive long and no one is going to be dining outside in Chicago or New York come November.

According to stats from Yelp, over 15,000 restaurants in the U.S. have already closed permanently, including some of its most successful independent enterprises. Economically, this could spell disaster. Over $900 million is generated from the restaurant industry every year and it employs over 15 million people — 15 times that of the airline industry.

That’s before we consider the other industries that are heavily reliant on a healthy restaurant sector. Farmers, vintners, distributors, and commercial real-estate will suffer. I recently noticed that the price of fish at my local grocery store had dropped dramatically. Why? Because 70% of all fish is consumed in restaurants.

This comes at a time when the industry was already facing significant headwinds. From 2001 to 2017, the number of restaurants in the U.S. grew from about 460,000 to 620,000 — a 34% increase. That would be fine if population growth had kept up at the same pace, but of course, it didn't. Over the same time period, the U.S. population only grew by 14.5%. On top of that, there were significant cost increases like rent and wages.

This is an investing service, and with that in mind, I suppose it’s important we mention the opportunity. Certain companies will survive this pandemic and when it’s all over will have far fewer competitors to deal with. The likes of Chipotle Mexican Grill and McDonalds have the ability to weather this storm and emerge strengthened. But that’s a pretty grim reality in my opinion.

If you can, support your local independent restaurants as much as possible through this time of crisis. If you have the option of visiting them safely then do so. If not, many restaurants are doing home meal kits and takeout. Buying a gift-voucher now that you can use later is a great option for injecting much-needed cash flow. Finally, ordering alcoholic beverages from them can make a vast difference as this is a high-margin product. You may be able to get it cheaper elsewhere, but don’t be surprised if your only option for a meal out next year is Olive Garden or KFC.

To read more about this, check out Matt Goulding’s piece in The Atlantic.


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