Marc Cuniberti The shutdown from Covid 19 has taken a devastating toll on American business and indeed worldwide.
Nowhere has it been felt more than in the businesses that solicit their wares in a group setting.
Motel, hotels, convention centers, airlines, concert halls and venues, movie theaters, resort destinations and theme parks all encompass the necessity of group gatherings or close person to person contact.
The full effect on these types of businesses is incalculable. It won’t be until we get a vaccine and relax all the shutdown restrictions that we get an idea of just how bad the damage will be.
In this analyst’s opinion, it will be much worse than anyone can imagine.
Although strong balance sheets and high relative profit margins can fortify a company’s ability to withstand a prolonged shutdown, one particular business has notoriously thin profit margins with little room for error. That business is the restaurant business, both individual and corporate owned.
Keeping the seats constantly packed with patrons is a major key to a successful restaurant and those that thrive do exactly that.
Obviously the shutdown has shuttered many of these establishments either partially or completely.
Some have closed for good.
So goes the ongoing bleed-out of restaurants everywhere.
I estimate hundreds of thousands of mom and pop restaurants will go four feet up and never return.
Some notable restaurant chains have also cried uncle and sought protection in the bankruptcy courts.
They include:
-Food First Global Restaurants including the Bravo and Brio chains
-Sustainable Restaurant Group including the Bamboo and Quickfish stores
-NPC International. Wendy’s and Pizza Hut operator
– California Pizza Kitchen
-TooJays
-Soup Plantation and Sweet Tomatoes
-CEC also known as the iconic “Chuck E. Cheese”
-Fig and Olive
-Sizzler
No doubt this list will get a lot longer. As detailed in my article on May 17 entitled “The Changing Business Landscape”, I forecasted a plethora of companies large and small would start to line up for bankruptcy protection in the courts around the nation. This has already started and will likely continue with a vengeance.
Not only will many people be fired or furloughed during the restructuring, some companies will not return under a Chapter 11 (restructuring) but be entirely dissolved in a final Chapter 7 filing. Those jobs will never come back.
As a result, their creditors may not be paid, which in turn will cause other bankruptcies, which in turn will cause still others. A domino effect of filings will ensue affecting much more than the restaurant industry.
We can also expect bankruptcies in the hotel/motel chains, vacation resorts, airlines, cruise ships, theme parks, energy companies and a host of other industries too numerous to name here.
The fallout from Covid in human terms is beyond anything previously witnessed in modern times. Add to that the damage to business and subsequent economic damage the shutdown has and will cause and it boggles the mind.
Many argued since the onset a prolonged shutdown would cause too much economic damage to consider initiating, this analyst being one of them, while others insisted it was a necessary evil to contain the virus. Some experts believe authorities have concluded another shutdown is off the table, the damage is just too great, and that some may have realized to shutdown at all might have been a huge mistake.
Indeed, with Corona still rampant and many areas opening up regardless, the shutdown may be one of those unfortunate decisions in which no one will wontedly admit to a bad decision in hindsight.
There is no right answer to the Covid event.
But as an economist I am petrified by just how bad this will be for our economy and the indeed the entire world, the worst being that millions will needlessly die of starvation due to the business downturn.
I have always held to the opinion the shutdown was a huge mistake and it never should have been mandated. The damage would be just to great and indeed, it is.
But to go that route now is impossible. We will have to live with our decisions, and hope as a nation and globally, we will be able to deal with the consequences and persevere.
And I have no doubt that we will.
But in the meantime, as to the damage it will cause, I will say “you ain’t seen nothing yet”.
Opinions expressed here are author’s alone, are opinion only, and not those of any bank, investment advisory firm or news media company. Nothing stated is meant to insure a guarantee of any kind, or to be construed as individual investment advice. Neither Money Management Radio (“Money Matters”) nor Bay Area Process receive, control, access or monitor client funds, accounts, or portfolios. For a full list of the services Marc Cuniberti provides, please contact him directly. California Insurance License #0L34249. Insurance services offered independently through Marc Cuniberti and not affiliated with any RIA firm or entity.
