Death of a Mexican Restaurant
A few weeks back, The Captain and I headed out to one of our preferred local eateries. I wouldn’t say we were regulars, that is a distinction and definition for another time, but for the last three years, we frequented the little Mexican cantina, enjoying the speedy service and our favorite menu items, including the wonderful white salsa that accompanied the tortilla chips. But, pulling into the parking lot that day, we were saddened to find it closed. Forever.
Living in such interesting times, it is impossible to ignore the hardships many small businesses endured under the shifting restrictions of health orders. As with other establishments over the last year, we often placed take-out orders to help keep the cantina’s kitchen running until conditions improved. When the restrictions eased enough to allow some dining room service, the staff reorganized and were serving as many meals as they could in the state mandated configuration. In early June, when the bulk of the restrictions ended, we were pleased to see the dining room fully open and a help wanted sign was in the window. The staff was working very hard and tried to make everybody feel welcome. As far as we could tell, the business had weathered the worst of the storm.
When we next went to visit, the parking lot was empty and there was a sign on the door. The cantina would be closed one day a week, in order to give the staff a break. It was our first indication of trouble, but it wasn’t surprising. Several restaurants in the area were under reduced operating hours in an attempt to keep up with staffing problems. We wrote it off as an adaptation to the changing conditions, and would try again on another day. Unfortunately, somewhere along the line, the owner was forced to pack it in. Apparently the storm wasn’t over, after all.
Business failure is still a disheartening trend in our area, as I’m sure it is all across the country. While driving over to the “back-up” restaurant, The Captain and I discussed the other places that went under during the recent struggle. Between the two of us, we could name a half dozen establishments within a few miles of home that folded, not including the three recently boarded-up Burger Kings. With that thought rattling around in my brain for the rest of the night, I wondered how many entrepreneurs have seen or will see their hard work disappear in a puff of aerosolized anxiety before it’s all over? When we got home from dinner, I searched the interwebs, and the answers I uncovered were not exactly reassuring.
The most comprehensive source I found was the The Federal Reserve’s recent report on what the Division of Research& Statistics and Monetary Affairs calls business “exit” or “death” during 2020 and 2021. The big take away? Because many small businesses close without telling anybody until tax time, there won’t be a complete picture for a while. Probably not until late 2022 or 2023. So, in the absence of solid data, it’s really hard to make a near-term statement about when or how the “excess business death” will resolve. While that seems pretty grim, there is a bit of positive news. The Fed has some economists that are trying to piece together what’s happening using “non-traditional measures.”
The first place our economic fortune tellers are looking is Yelp! You’ve probably seen the internet search results that contain information about a business, it’s location, and customer reviews. The data generated from your customer interactions is being mined for clues about what is still open, what is closed, and what’s new in the neighborhood. The next source of information comes from credit card processing. One of the most important items to a small business is its “point of sale” machine. Consequently, the credit card processing companies can see when a business starts and stops making transactions. The third place is the commercial real estate market. If a small business doesn’t renew its lease, there is a fair chance it isn’t in business anymore. Finally, the guessers are looking to paycheck processors. When nobody at the business is getting paid, there is a good chance there are no employees. While these seem pretty reasonable ways to collect information, they are about as air-tight as a t-shirt.
So what does all this guess-timation get us? An estimate that somewhere between 100,000 to 200,000 small business “deaths” or “exits” occurred over and above the baseline 600,000 per year. The kicker is those 700,000+ defunct businesses were replaced by roughly 485,000 new start-ups. Kudos to all those folks who try again, but it’s still a big net loss, and the mix of new business types isn’t the same as what died. Restaurant start-ups are down by 18%. Salons and other personal services are also way down. Not surprising to anybody in a locked-down status, food delivery services were up (128%) along with notaries (48%), landscaping (42%), auto detailing (37%) and contractors (5%).
Without a doubt, small businesses will face additional obstacles well into next year. Expect to see a lot of boarded up buildings and space available signs for while. In the mean time, I’m keeping my fingers crossed for the folks formerly employed at the cantina. We may never know if the cantina was lost to the usual struggles of business, or if the current exceptional circumstances relieved them of their jobs, but I do know they were good at what they did and worked hard, so I suspect they will land on their feet.