Easing COVID restrictions

As the Government eases restrictions, many businesses are now facing an important decision: When do I reopen and how should I reopen? This is especially the case in the hospitality industry – in bars, restaurants, in cafes, some of which are in hotels as well.

So I might start with the rule of thumb: If the extra cost of reopening is less than the extra revenue, then it makes sense to reopen and if the costs, the extra costs are going to be higher than the revenue then it doesn’t. Now this sounds fairly obvious. It is important though to consider what happens at the margin. The extra costs and the extra revenue, not the total cost and the total revenue. So we take out of the equation any costs that are going to be there whether we reopen or we don’t. For example, you may already be paying some rent even with your business being closed. Take that out of the equation because you are going to pay it anyway whether you are open or closed. And there might be other costs such as accounting fees and any other committed expenses that will be there regardless of whether the business is open or not. So remove those from the equation.

Now there is one exception to this rule of thumb and that is, if you are going to be roughly line-ball, you might want to think longer term and say well its worth opening to keep my staff happy so that they don’t start looking for other jobs and to keep my customers happy so they don’t find other places to eat and drink as well. So just keep that in mind. But by and large, for most businesses you really should just be looking at your extra cost vs your extra revenue. So once you decide to open, the next question is how do I keep my costs down? That might be having a smaller number of staff than you normally would. In a restaurant it could be having a smaller menu than normal, with a slightly narrower range of options available.

In relation to rent, your best time to negotiate is before you open. Pick up the phone, call your landlord and say “I’m thinking of re-opening but it’s only going to work if we can keep the rent subsidies in place. And that way I’ll be able to get the business back on its feet and then be in a better position to pay you rent once the business is back up and running, pay out the full amount of rent once the business is back up and running”. As I said, is the best time to have that conversation is now before you open because your bargaining position will only weaken once the business has opened.

And the last thing I would like to address today is how you are going to charge your customers once you do open. I dare say you should probably be charging a bit more than what you charged before. That’s because demand is higher. Your customers are very very keen to get out there. They haven’t been to a cafe or a bar or a restaurant for 2 months and the supply is lower. You might have had space for 30 customers before but now, because of the 4 square metre rule, you can only have 20 customers. Same with your competitors as well. So your customers don’t have as many options.

You also need to consider the group of people that comes in, sits down at a table, takes up valuable space in your restaurant and they just sit and order one coffee and they stay there for 3 hours. You can’t afford that. So you might want to put some time restrictions on each table or maybe a minimum spend per person as well. The world has changed and if we are going to have successful businesses going forward, we need to change the way that we operate them as well.

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