In March of 2020, the economy of the world shifted unexpectedly. (Note: “shifted unexpectedly” is how an economist writes “went to hell in a handbasket.”) In fewer than twenty days, the global economy shifted from broadly robust and growing, forcing hundreds of millions of workers out of jobs, sidelining entire industries, closing borders, fracturing supply chains, and moving the planet to a public policy situation unlike any before it.
I’ve been thinking about these public policies and the industries they impact. The company I lead is a payment processor that works in certain areas of the economy and strives to have a positive impact on merchants, giving me a lens into the economy which I share with you here.
While we are in the very early days of this tumult, the unwinding of the policy decisions which were provoked by the novel coronavirus is unlikely to produce a return to normalcy that is the sought-after outcome. More likely, these decisions will create a new economic norm: the Six-Foot Economy.
My description of the Six-Foot Economy is one where most every activity is conducted at a distance considered safe. The generally accepted safe distance is six feet. While the medical and scientific community often indicate that both a greater distance and more stringent restrictions are necessary, the “social distancing” mantra of six feet has stuck in popular culture. Some of the more stringent restrictions have included self-quarantine in the event of any fever (or for any illness at all, in some writing to include a runny nose or sneeze), indoor distancing of 8 or 12 feet, temperature checks at the door of any establishment, and similar medical criteria.
Take restaurants as an example of the challenges of surviving a Six-Foot Economy. In most cities, restaurants are laid out with tables with a 2- to 3-foot gap between them; in New York, that gap is often measured in inches. In the Six Foot Economy, tables would need to be removed or left unused. This isn’t as simple as removing a certain number of tables since a six-foot path would notionally need to exist between the door and the tables, as well as between one table and another.
For restaurants outside major cities, it is easy to imagine 30% fewer tables. For those in major cities, that number may be 60% fewer tables. These estimates are probably low since they presume all tables are moveable. For restaurants with fixed booths, they may lose at least half of their available seating in the Six-Foot Economy.
The National Restaurant Association estimated that 3% of restaurants were already out of business by the end of March, and 11% more would not open again after the COVID-related shutdowns. How many can return to profitable existence with half as many seats? Do patrons return, given the pervasive news reporting and the ongoing social shaming about the impact of not staying sheltered?
Restaurants are almost easy to consider when compared to sports complexes. How do the Red Sox assign seats now for a home game? How do the Bruins do it? How does any football team redesign its layout to accommodate the Six-Foot Economy?
The cost of these activities is sure to shift. There’s a move to help restaurants achieve a 19% net margin, up from the 1% to 8% that most restaurants had before the economic shift. The reduction in tables is a mathematical disaster for restaurants or for diners since some costs don’t change with business volume. If we limit the only fixed cost to rent, we see the problem:
(Sources for the example above: food and labor, more on labor, rent and occupancy)
To get to 19% profit in the Six-Foot Economy, revenue would have to go up $8.75. That means menu items increase by about 9%. That’s bad, but not terrible.
Did you catch the problem? With the revenue at half because of the Six-Foot Economy, we’d need half the labor and half the food. Based on data from the American Restaurant Association, that means we’d have roughly 7.8 million permanently unemployed Americans from just food service.
That’s 4.97% of the American workforce impacted by the Six-Foot Economy. And that’s just one industry.
About Dana Love: Dana is currently the CEO and a founder of Radpay, a Phoenix-based startup payment provider for e-commerce merchants that optimizes direct connections to multiple banks resulting in significantly lower rates. Radpay does this with a patent-pending merchant card payment solution: more than five dozen inventions that blend distributed ledger technology with PCI-compliant card payment infrastructure and mobile devices to merge convenience, security, and transparency. Based on Ethereum, Radpay is a blockchain-based peer-to-peer payment processing and reward framework, where peers may be merchants, consumers, banks, or enterprises. Dana holds a PhD in economics (The University of Glasgow, highest honors), an MBA in marketing (Harvard Business School, Baker Scholar), and a BS in physics (University of Richmond, Phi Beta Kappa). The founder of five businesses with four successful exits, including Cisco Capital-backed Metacloud and Warburg Pincus-backed Radnet, Dana has led divisions of public companies including GTE (now Verizon), Prosodie Interactive (now CapGemini) and ADC. Notable successes include building the first cloud-based ERP system (in the mid-90s), development of the first carrier-grade VoIP and unified communications platforms in the world (at GTE, now Verizon), and early work in big data systems (as an Oracle partner.) His work in big data, machine learning, blockchain, and VoIP has been written about in Wired, Oracle’s Profit Magazine, the Financial Times, and Telephony Magazine.
