April 2, 2020
MarkBernstein.org
 
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The Disaster After The Catastrophe

Let’s say you own a little restaurant. COVID has slammed you: you have no customers, you can’t do business. So, you furlough everyone. You’ve still got to pay rent, and you’ve got a walk-in filled with food that’s going to top bad or be given away, but you still have to pay for it.

So, the business declares bankruptcy and you start over when everyone is better. If not you, someone will open a new restaurant in the old space. Right?

Maybe not. The problem is, a lot of money just went up in smoke. All that food you’d ordered? Gone. You’ve got maybe 100 grand tied up in decorations and painting and menus and signage: that’s as gone as the spoilt food. Lots of equipment that was good for you won’t be good for whatever comes next: the chairs that looked just right for you are all wrong for the next place. So they get sold for salvage. Other equipment doesn’t hold up well for weeks or months of disuse; it will need to be repaired or replaced.

The time and money you spent getting permits and inspections for the kitchen, the fire suppressants, the zoning waiver: the new place will have to do it all again.

You spent a lot of time and a lot of money recruiting good staff. Some will come back, but some won’t. Some will be dead. You aren’t recouping the employment agency fees or the training expenses or the costs when you hired someone who turned out to be inept or dishonest: you’re paying those costs again if you want to reopen.

And over the years, you’ve sunk lots of money into building customers and goodwill. You’ve given out coupons for meals at cost or below cost, because maybe those people will come back. You’ve sponsored little league teams and farmers’ markets and school contests and restaurant week and Taste Of Wherever The Hell You Are. You’ve done email and direct mail and maybe radio, and you've had a freelance publicist nobble the food writers and you’ve had someone build your a Web site. All that’s up in smoke, too.

Which means that not only is your chef looking for work: your publicist and your accountant and your menu printer are all looking for new clients. Finding clients is expensive. And each of them has rent to pay.

So neither you nor your accountant are going to be flying to many professional conferences anytime soon. And that hurts hotels, and restaurants, and airlines, and Uber drivers.

It’s not just restaurants, though restaurants are easier to understand. It’s medical practices and PR agencies and boutique hotels. It’s booksellers and gift shops and art galleries.

The Depression started with markets, but the real problem was destroyed business investment. In 1929, it was industrial plant that was suddenly surplus to our needs. This time in the US, we don’t have so much industrial plant: this time it’s the service industry.

We’re in a hell of a fix.