A Restaurant Meal Is Going to Become a Luxury Good

(Bloomberg Opinion) -- Reopening the economy is going to be a gradual process and for at least the first couple of months likely to be closer to our current reality than the economy we had in February. Restaurants, in particular, will have to deal with two new and wrenching changes brought about by the crisis: Social-distancing requirements will reduce the number of diners allowed in at any one time, and enhanced unemployment benefits and the health hazard of being exposed to the public will make hiring low-paid workers harder. Being able to only serve a limited number of customers and having to pay more for labor might mean that dining out becomes a luxury only for the well-off.

Social distancing will pose even more of a challenge for restaurants in high-cost, dense urban areas such as New York City. Taiwan, one of the countries that has had the best response to Covid-19, has mandated that restaurant tables be spaced 1.5 meters (5 feet) apart. With New York City arguably being the epicenter of coronavirus outbreak in the U.S., a similar policy might be a sensible way to ease back into normal life. Perhaps removing half the bar stools and restricting standing crowds in drinking establishments also might be part of an effort to enforce social distancing. All of these changes will mean that even if dining demand returns to normal on Day 1 of the economy reopening, supply would be significantly curtailed at the same time that it's become harder for restaurants to make money.

For restaurants that turned to deep job cuts at the onset of the crisis, hiring may pose a significant challenge as well. Although it's true that millions of hospitality workers now are out of work and available for immediate employment, the generous unemployment benefits passed by Congress in the $2 trillion rescue bill may make some of them less interested in going back to their old jobs. Ernie Tedeschi of Evercore ISI notes that between state insurance and the federal supplements, the average weekly unemployment benefit for workers in states such as New York, California, Washington and Massachusetts will be more than $1,000. That's the equivalent of $25 an hour for a 40-hour work week. For restaurant workers who earn significant tips, returning to work may offer enough economic incentive to be worth it. For lower-paid dishwashers and line cooks, unemployment might be a better deal -- at least through the end of July, when the benefits are set to expire. That means restaurants may have to pay much higher wages than in the pre-virus market level to staff up.

Combining these two dynamics -- restaurants aren't going to be able to serve as many patrons and they will have higher labor costs -- and it's likely that many restaurants won't survive. The most obvious way for the survivors to make up for this is to charge more for the same menu offerings, perhaps much more. The good news for the restaurants that do survive is that between fewer seats available at each restaurant, and fewer restaurants competing for customers, eating out might become a scarce, coveted experience, particularly after weeks or months of much of the population sheltering in place.

Restaurants, entrepreneurial and inventive by nature, may experiment with a variety of levers to adapt to the new reality and find a way to be profitable. They can adjust their menus to remove lower-priced or low-margin items. They might also end happy hours and blue-plate specials that entail discounts. They can add in fees or surcharges to account for additional sanitation and emergency costs. Special higher-priced menus and services akin to Valentine's Day and New Year's Eve specials, or chef's table service, might become more common. What's inevitable is that a restaurant with a higher cost structure and ability to serve half as many customers as before is going to have to do more than tinker around the edges to stay in business.

This isn't to suggest everyone interested in having someone else cook for them won't have options. Many restaurants have pivoted to takeout or delivery service during the crisis, which will likely remain an important part of their business even after sit-down dining comes back in some limited capacity. Fast-food and drive-through windows still exist. All sorts of services -- say family-meal packs to-go at restaurants in summer vacation communities -- that didn't make sense to either diners or restaurants in the pre-virus world may get a look as we all seek some semblance of normalcy.

But if you're looking to physically sit in a restaurant and have your meal served to you by a human in the near future, be prepared to pay up.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Conor Sen is a Bloomberg Opinion columnist. He is a portfolio manager for New River Investments in Atlanta and has been a contributor to the Atlantic and Business Insider.

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