Legislation to Change U.S. Tax Code Would Help Restaurants Expand, Rebuild
Restoring depreciation, amortization to interest expense. The number of challenges restaurants are struggling with continues to grow. If it’s not inflation, supply chain disruptions, or the labor shortage, restaurants now are grappling with gaining access to capital and the cost of debt financing. A bipartisan manufacturing bill in Congress that aims to change the U.S. tax code could change that. Introduced by Sen. Roy Blunt (R-MO) and Reps. Joseph Morelle (D-NY) and Adrian Smith (R-NE), the Permanently Preserving America’s Investment in Manufacturing Act (S. 1077/H.R. 5371) would restore depreciation and amortization to the calculation for capping business interest expenses. Depreciation is the reduction in value of an asset over time. Amortization is a process used to lower the value of a loan or asset over a specified period of time. Prior to 2022, the total amount of interest a business could deduct in a given year was limited to 30% of its “earnings before interest, taxes, depreciation, and amortization (EBITDA). Beginning this year however, the maximum interest deduction was scaled back when depreciation and amortization were no longer allowed to be factored into the calculation. In other words, what once was EBITDA became “earnings before interest and taxes” or EBIT. Returning depreciation and amortization to the formula would allow for restaurant owners to invest money back into their businesses to expand operations, finance equipment and refurbishing expenses, and rebuild their workforce.
Outdoor Dining in New York and New Jersey Reach Crossroads
New York and New Jersey simply could not be further apart. Within hours of each other, a lawsuit was filed to end outdoor dining in New York City, while in New Jersey, the state signed off an extension of their al fresco program. The lawsuit, filed by 35 plaintiffs in New York late last month, cites a multitude of complaints ranging from excessive noise, traffic and sidewalk congestion, garbage and uncontrolled rodent populations as reasons to end the Open Restaurants program. These conditions, the plaintiffs claim, cause them to be “unable to safely navigate the city’s streets and sidewalks, and a diminution of available parking upon which some of the petitioners depend,” according to the official complaint. The lawsuit also blames the city for allowing or lending public spaces like sidewalks or roadsides in order to make outdoor dining a permanent fixture – benefiting private businesses but making it harder for residents to continue to reside in their communities. The New York City Council passed legislation to make outdoor dining permanent in February of this year, however this has been delayed by another lawsuit which calls for an environmental impact review. The Open Restaurant Program was launched during the beginning of the COVID-19 pandemic in order to help keep businesses afloat by allowing them to expand outdoor seating, however the lawsuit claims that “in fact, there is no public health emergency in New York City and, as shown above, there is no existing regulatory infrastructure in place tailored to respond to any such emergency.”
Workplace Violence and Active Shooter Preparedness
For restaurants & hospitality businesses. With over 300 mass shootings so far already across the United States in 20221, these tragic incidents have brought to light the reality that restaurants and all hospitality businesses need to be aware of to protect their employees from workplace violence. Restaurant workers have been on the front lines since the very beginning of the pandemic, and as such, have been increasingly exposed to the risk of violence, potentially exacerbated by the current stressors, such as health concerns and economic uncertainty. As high-profile acts of targeted mass violence continue to occur in workplaces across the nation, many employers are wondering how best to protect their people, property, and profitability. In one instance, Starbucks recently announced that it is permanently closing 16 locations in various markets over safety concerns and is instituting new strategies to ensure the well-being of employees inside its cafes. According to OSHA and leading industry associations, the short answer is employers should develop and implement a Workplace Violence Prevention Program to identify concerning employee behaviors early and provide a structured approach to prevent and respond to violence and threats.” As restaurant owners and managers, it is your responsibility to ensure a safe environment for your employees and patrons.
Is Sustainability the Future of the Restaurant Supply Chain?
Recent bottlenecks and shortages have restaurants reevaluating their supply chains. In the early days of the pandemic, George Frangos wouldn’t say that his fine casual Farm Burger was sitting pretty, per se, but it was definitely faring better than most. This good fortune was due in large part to the concept’s core values. When Frangos and cofounder Jason Mann opened the first location in Decatur, Georgia, in 2010, collaboration with nearby farmers and ranchers was paramount. The brand’s sourcing practice not only yielded a higher quality product, but it also kept dollars in local agriculture. A dozen years and about as many locations later, Farm Burger’s direct-to-the-source approach shielded it from some of the early chaos of COVID-19. “As you had disruptions to the meat industry and supplies with processors and big slaughterhouses being shut down and COVID outbreaks and everything, we didn’t have those issues because we work directly with farmers and directly with small processors and really have a vertically integrated chain around our proteins,” says Frangos, who is also the brand’s president. “Our prices held tight, and we didn’t have any problem with supply. We were actually in a strong position, kind of unknowingly so.” But the extent of these supply chain repercussions was not immediately visible. Instead, they unspooled gradually, casting ripples up the supply chain. As orders from restaurant clients ebbed, manufacturers and distributors curbed output and, in some cases, laid off employees. When orders started to ramp up again, there was a shortage of not only product, but workers, too.
Value Is the Restaurant Buzzword
For the summer. Restaurants are presenting a value message to connect with potential guests concerned with rising costs and inflation. David Portalatin, NPD Food Industry Advisor and author of Eating Patterns in America, said there are three ways consumers are responding higher menu prices: they trade down to lower-priced items; cut back on the number of items ordered; or reduce restaurant visits altogether. “Restaurant operators and manufacturers can win in this environment by differentiating value, understanding that value doesn’t always translate to the lowest price,” he advises. “Quality and value become a critical differentiator when consumers spend on a restaurant meal during these challenging times.” Seated surveyed 50 of their top partners based in New York, Dallas, Boston and Atlanta to get a deeper look at how inflation has impacted their businesses – and how they are responding to it. The most common methods used to increase foot traffic and sales:
- Create a loyalty program
- Increase in specials and promos
- Stronger digital presence with new websites, promotions on delivery platforms and social media, and thank guests via social media
- Host more events, happy hours, and live music
- Encourage catering and delivery
Here are just a few examples of campaigns based on value that have been or are being offered at restaurants.
Outsmarting Third-Party Delivery
How restaurants can navigate around the delivery beast. Restaurant operators have a lot of emotions about third-party delivery services. Hate them, love them or tolerate them, there’s no way an operator has neutral feelings about delivery services. Today, they’re the cost of doing business. Soon, however, that may not be the case. New delivery solutions are popping up from restaurants across the country, while new companies are trying to outsmart the third-party delivery giants — and the stakes couldn’t be higher. About one in 10 consumers get food delivered via third-party delivery apps, but about one in 10 also get their food delivered via restaurant apps or the restaurant itself, according to Datassential’s “Five in Focus Third Party Delivery” report. Meanwhile, data from Lisa W. Miller & Associates’ “Journey Back to Joy” survey series found that 59% of consumers were driving less because of surging gas prices, thereby creating more opportunity for delivery. Though restaurants and third-party delivery companies ultimately pay more for the gas, the price isn’t typically pushed onto the consumer in a noticeable way.
Whole Foods Co-Founder Plans to Launch Vegetarian Restaurant Chain
John Mackey, co-founder of Whole Foods Market, plans to build a plant-based restaurant chain. Mackey is listed as a partner in Healthy America LLC, Bloomberg reports, which aims to launch vegetarian restaurants nationwide. Healthy America, founded in Austin, Texas, in 2020, has raised $31 million from investors this year to support its growth plans. In addition to vegetarian restaurants, the company also plans to create a national footprint of medical wellness centers. Diners’ increasing demand for healthy food is reflected in the growth of chains like Sweetgreen, Chopt and Tender Greens. Mackey’s concept, however, is a bit differentiated as it focuses on holistic wellness. Mackey’s past success scaling a business promoting healthy lifestyles could attract more investor attention as vegetarian and vegan diets grow in popularity. The vegan retail food industry is projected to sustain double-digit growth through 2028, while Bloomberg Intelligence also reports the global market for plant-based dairy and meat alternatives could reach $162 billion by 2030 compared to $29.4 billion in 2020.
Did You Know?
There’s still time to cash in on the Employee Retention Tax Credit. It can be as much as $5,000 per employee for 2020 and $7,000 per employee per quarter in 2021. Whether or not additional federal aid is coming for restaurants is anybody’s guess at this stage. The SBA confirmed in early August it was working with the Department of Justice to distribute $180 million of Restaurant Revitalization Fund awards. About a week later, more than 70 members of Congress, led by Sen. Catherin Cortez Masto and Rep. Earl Blumenauer, penned a letter to SBA administrator Isabel Guzman asking to immediately release the grants. “While $180 million is a small amount compared to the full amount needed to replenish the RRF, it will have an impact for the select restaurants who can now receive grants,” Sean Kennedy, EVP of Public Affairs at National Restaurant Association, said in a statement. “We hope that SBA will have answers for the local restaurants waiting for more information soon.”
Employee Tip
Five ways to combat restaurant manager burnout. The majority of restaurant operators expect the restaurant staffing shortage to extend into 2023 or later, according to the National Restaurant Association’s 2022 State of the Industry Report. Inevitably, the constant stress of being short-staffed and working tirelessly to fill the staffing gaps is causing many restaurant managers to suffer from job burnout. Stress is part of the territory as a restaurant manager. The long hours, endless tasks, and physical demands are expected, but can also be managed. However, if the stress begins to carry over into one’s personal life, taking a mental and emotional toll that makes a person feel they can no longer function, it may be considered burnout. The physical and emotional stress of job burnout not only cause increased manager turnover but can also lead to serious medical conditions including fatigue, depression, sleep disturbances, cognitive impairment, and more.
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