How Can the Hardest Hit Local Businesses Survive?
Chef Alan Wong
Commentary, Special to The Hawai‘i Herald
This is a chaotic, stressful, fearful and uncertain time for everyone. We are in uncharted waters. There is so much information available today, it is mind-boggling. And so, instead of talking about what you may have already heard, I want to share with you how a restaurant actually makes a profit (or not) by explaining what the financial business model looks like for a restaurant to help quantify what we are facing. Then I can also share what I think is needed to preserve our islands’ cultural and economic treasures — local businesses.
Restaurant 101 – The Business Model
One dollar represents one hundred percent. For every dollar, let’s say we allocate 30 cents for all of the cost of goods, which means the purchase of all the food, beverages, nonfood things like aluminum foil, take out containers, chopsticks, etc. Then, we allocate another 30 cents for the labor costs and/or payroll. We have used up 60 cents so far. Overhead is around 25 cents — this covers a lot of things which include utilities, taxes, credit card fees, medical benefits, gas, electricity, flowers, menu paper and so much more.
If your rent is ten percent, when you add all of it up, we have spent 95 cents so far. That means your net profit of five cents is five percent if — a big ‘if’ — you did not exceed your allocated expense in each category.
Typical Challenges Without the Pandemic
Lately, the labor costs have been steadily rising, simply because the minimum wage is going up, and with that all the other wages to keep pace. The cost of goods increases each year and some vendors charge a delivery fee now, which is factored into the cost of goods. Ideally, when you add the labor and cost of goods, it should not exceed 60 percent, in order to stay in business.
I chose to talk about this because it shows how slim restaurant margins are to begin with. Cash flow is the key thing. We bring in monies today, to pay bills we incurred 30 days ago, “net 30” on an invoice means we have to pay within or up to 30 days, and we usually wait until its almost due to pay.
When we don’t have revenue for the day and we are still incurring expenses, it means the cash flow has stopped, our bills are becoming bigger, and we are going over thirty days in paying our bills.
When you have more than one restaurant, the total sum of gross revenues is your cash flow to pay bills which includes employees’ paychecks. The larger the cash flow, the easier it is to pay the bills on time.
COVID-19: Our Immigrant Legacies Are In Danger
For the mom and pop stores or independent restaurants, having only one source of revenue makes it harder to pay the bills when business slows down or stops. That is why I predict that many of the small businesses will perish in this pandemic.
The local restaurants and businesses are like the unique colors of our community. It will be a sad day when you go down streets like Wai‘alae Avenue, anywhere on King Street, or Farrington Highway when you are hungry for Japanese, Hawaiian, Filipino or Chinese food. All of these places are part of who we are as local people or people who have come to Hawai‘i because they fell in love with our “mixed plate” culture.
These ethnic restaurants represent our immigrant plantation history. When people ask me “ What kind of food do you eat in Hawai‘i? Where would I go to eat local food?” — I almost always end up telling a short story on our culinary history and our immigrant ancestors that initially came to work the sugar and pineapple fields. Some of these restaurants are generations old, trying to survive, and this crisis may be the straw that “broke da buggahs’ back.”
Kökua On Every Level
Individuals and families using take-out and delivery service help. But, we also need help from our government. Landlords will be hesitant to lower or discount rents, because they have their own problems, too. They will need help from the government, so in turn, hopefully, they pay it forward to the tenants. This pandemic is a medical situation, that requires everyone to have a medical plan. It’s hard to think about how to maintain benefits when the cash flow is dwindling or non-existent. There are a lot of programs being discussed at the moment from the government — like the Coronavirus Aid, Relief and Economic Securities (CARES) Act — and that is great news. Figuring out which one fits you is quite the task now.
It is amazing that you can spend 25 years trying to build your business and brand, and watch it slowly disappear in a month. Some businesses took generations to build.
The restaurant industry will survive, people will still go out, sit down and eat. But how that will look, and how long it will take to get back to what we remember is unknown.
Aloha Will Pull Us Through
What makes Hawai‘i special is her people. We have shown that we can come together and help each other out in times like this. It’s rooted in our ancestry. We have shown resiliency during adversity. Our spirits, and hope, need to remain positive, and optimistic, that together, we will see better days.
A 1996 James Beard Award Winner for Best Chef, Pacific Northwest and a master of Hawai‘i regional cuisine, Chef Alan Wong has made a successful career marrying elements of the different ethnic flavors of Hawai‘i’s immigrant past. Using the finest island-grown ingredients, he enjoys taking something old and reinterpreting it with a contemporary twist, always giving his customers a taste of Hawai‘i.
Chef Wong, author of “New Wave Luau” and award-winning cookbook “The Blue Tomato,” is chef/owner of Alan Wong’s Restaurant on King Street.
