If you run a cottage food business, your sales may have dried up in the past few months. Even still, you likely have it relatively easy. Let me explain... Even though restaurants CAN reopen, many of them won't. Do you know why?
Hi there,

If you run a cottage food business, your sales may have dried up in the past few months.*  Even still, you likely have it relatively easy. Let me explain...

Yesterday, I received an email from my health department announcing that all restaurants and bars in my area can reopen (with restrictions).

But even though restaurants CAN reopen (in my area), many of them WON'T. And even if they do, they might not survive. Do you know why?

It all boils down to basic math.

Recently, I listened to a podcast episode where the guest, who owns 14 Bay Area restaurants, explained the basic breakdown of a restaurant's expenses:
Add it all up, and that 87% of expenses leaves about 13% of profit.**

Just one problem though: that assumes income is at 100%. In other words, at peak times, all seats in the restaurant need to be filled.

But with the new coronavirus rules, only 50% seating capacity may be achievable, and that directly impacts a restaurant's bottom line.***

The business owner stated that although some things (like ingredient costs) can be cut back, making up for a 50% loss in revenue may be nearly impossible for some restaurants.

He predicted that many restaurants would simply choose not to open with such extensive restrictions in place.


Why am I telling you all of this? It's because I want to recognize the amazing adaptability of a cottage food business.

While listening to that podcast, I realized that although some restaurants are truly stuck, most cottage food businesses aren't.

If your cottage food business' income dropped to 50% (or even down to 0%), you likely reduced expenses accordingly, and relatively easily.

As a result, I'd expect almost all cottage food businesses to return when the lockdown is lifted.


And what is happening to all of the skilled kitchen staff who are currently being laid off?

Unsurprisingly, many of them are taking matters into their own hands and starting cottage food businesses!

To learn more, you might be interested in this SF Chronicle article that describes the recent influx of home chefs (albeit many operating illegally, for now). Also worth reading is this WSJ article about the recent large uptick in food orders on Etsy.

Until next week,
David

* Actually, many cottage food businesses have thrived during this pandemic.
** The business owner said that 13% would be a good, healthy profit, and assumes that the restaurant is run efficiently (many aren't). Bear in mind that this is based on his experience with a variety of restaurants in the CA Bay Area. Every market is different though.
*** The business owner revealed that despite remarkable and creative efforts during the lockdown, takeout orders at his restaurants only brought them up to about 20% of their pre-pandemic income.


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