Economy

Thoughts on Inflation, a Recession, and Regulation From Someone Who’s Seen ‘This Movie’ Before

July 7, 2022
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David Goldin Headshot“I can tell you that in the US that originators are starting to adjust their underwriting policies,” said David Goldin, CEO of Capify and Head of Originations at Lender Capital Partners, “I don’t know about pricing. I haven’t heard that yet.”

Goldin, who has been a small business finance chief executive for 20 years, believes that the economy, inflation, and interest rates are front-and-center issues that the industry should be thinking about right now. In the UK, one region that Capify operates in, Goldin said that several small business finance executives there are already talking about raising margin and doing shorter term deals to prepare for the increased risk.

“Some originators are smart enough to be proactive and others are saying, ‘oh we’ll just watch it.’ So it’s either going to take trickling down through the economy globally or defaults to go up for these adjustment to happen,” he said.

During the Great Recession of ’08/’09, Goldin was right in the thick of it as the CEO of AmeriMerchant, one of the first MCA companies in the US. He explained that there’s a notable difference between now versus then.

“One of the things that didn’t exist back then, someone doing a second [position] was like unheard of in 2008,” he said. “Now, what is it now? first, 2nd, 3rd, 4th, 5th? 6, 7, 8, 9. It’s like a horse race. Ten horses in the race in some cases. […] You have to be careful, right? You have to make sure you’re covering your margin by charging enough and going shorter.”

“THE POSITIVES ARE THE BANKS DO TIGHTEN UP.”

But in a competitive environment where nobody wants to reveal their cards or risk losing business, not every funder is keen to start making changes right now. Goldin said that many funding companies will wait to see if their competitors start tightening up first especially if they’re driven by their ISOs and brokers. The downside of becoming more conservative is that brokers might just decide to take all of their business elsewhere.

But a looming recession isn’t all bad. “There are some positives,” he said. “The positives are the banks do tighten up. It’s just a question of when not if. So, you may get applicants that come to alternative financing that may have never taken or considered these types of products because they got bank financing.”

Complicating the landscape now, however, is that funding companies are wrangling with new state regulations. Goldin is aware of several originators that have temporarily paused business in Virginia, for example, where a disclosure requirement went into effect just last week. The soon-to-be implemented New York and California laws are also causing rumblings about funding suspensions respectively. In each of those states it was “sales-based financing” products that were specifically targeted, a trend that looks sure to continue as states like Maryland, Connecticut, and others are determined to reintroduce disclosure legislation next year.

“I think more and more originators will eventually get away from the MCA model,” Goldin said, “and go more towards the business loan model by partnering with a bank. I think you’re going to see more companies trying to implement bank programs to become full business loans and not deal with all the nuances of a state by state and MCA program.”

Main Street Small BusinessesGoldin’s point of view, wisdom, and predictions are aggressively sobering. Only three months ago, industry sources were telling deBanked that their outlook for 2022 was optimistic and that the end of covid-era government stimulus suggested that there would be growth for non-bank finance companies. Suddenly the tone has shifted, the stock market has plummeted, and interest rates are rising.

“I think if you resurveyed originators now, I think you’d get a different response than you did eight weeks ago or even four weeks ago,” Goldin said. “I can tell you right now that capital providers are asking their originators about how they’re making adjusments in this environment…”

Indeed, deBanked did speak with several players just last week and did notice that the general sentiment had shifted to one of concern and caution.

“I think funders should be thinking about redundancy,” Goldin said. “More than ever the best time to raise capital is when you don’t need it. And I don’t know if [funding sources] will pull lines, yes if defaults go up, but they may not be as inclined to enter into new relationships in this environment.” Because of that, now might be the last best opportunity to secure additional credit sources even they’re not necessarily needed, he suggested.

With that, he said that funders should be thinking about tightening up the bottom of their credit profile, increasing their margins, doing shorter term deals, looking for more mature businesses, and working with businesses with higher credit scores.

“I think that those that don’t make credit adjustments, raise margin, and go shorter are going to have their you-know-what handed to them,” he said. “I’ve seen this movie too many times. It doesn’t have to be called a recession. […] It’s all about affordability to repay, and the more debt [the customers] have, and the more their margins are squeezed, or the more their sales go down. That’s when problems begin. You’re less likely to have a problem if you’re only out six months instead of eighteen months. I’ve used this saying a million times: ‘When the ships are too far out to sea and it’s a tidal wave, you can’t get them back.'”

Small Business Finance Industry Ponders Inflation, Changing Economic Conditions Ahead

July 1, 2022
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business team“I think what’s really important is just the same for our businesses and any business, is being able to make sure that as things change, you’re updating and changing what you’re doing,” said Seth Broman, Chief Revenue Officer at Yardline.

With the constant changes in the economy, inflation being on the rise, and a rumored recession, businesses providing financing are analyzing whether or not their customers will be able to withstand challenging times ahead.

“For us a big factor is the increased costs of being able to source goods from overseas, for example, the challenges around getting those goods in a timely fashion,” said Broman. “That’s the first thing we saw. And then similarly, in the e-commerce space, you’re seeing brands that aren’t able to sell at the same level as they were beforehand.”

Like Broman, John Celifarco, a Managing Partner at Horizon Funding Group, acknowledges that inflation is directly affecting his customers.

“It’s definitely going to have an effect on the industry as a whole in terms of our clients, I’d say it’s going to affect certain ones more than others, depending upon how their business is structured, and what type of relationship they have with their customers,” said Celifarco.

And with recent concerns for a recession, Celifarco believes this won’t affect a client’s willingness to borrow but rather the ability to get them approved.

“Having seen this in the past, there have been times where the economy has slowed or there’s been a recession, and the customers still want money, but because of the trouble the businesses are having it’s a lot harder to get people approved on the lending side,” said Celifarco.

Not being able to access credit for customers is also an area of concern for Luis Hernandez, CEO of CapLadder.

“There are going to be more cash constraints in a recession. Obviously, funding companies won’t want to take on certain risks so they’ll obviously be more careful on how they disperse those funds just to make sure they’re getting paid back,” said Hernandez.

Hernandez suggests companies should limit hiring and expenses to better weather the storm.

“With the recession looming, and pretty much it is going in this direction, the best practices right now are what’s always been tried, which is, hold on to your reserves. Cash is definitely better in your pocket than out there,” he said.

The Single Most Important Problem that Small Business Owners are Facing

June 16, 2022
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nfibInflation is now ranked as the single most important problem that business owners face. According to a survey conducted by the NFIB last month, 28% of respondents ranked inflation as the biggest problem, beating out nine other categories including poor sales, cost of labor, and taxes.

A year ago, only 8% of respondents cited inflation as the most important problem. Small business owners have been forced to raise prices because the supply of their own goods have increased to an all time high. The increase in prices has been more prominently felt in wholesale, manufacturing, retail trades, and construction.

Close behind inflation, 23% of business owners complained that the quality of labor available was actually the most important problem. That was only down 3% from where it was a year ago. Along with all the other problems business owners must deal with, they are now worrying about the quality of their products not being produced at their best. Sixty-one percent of owners reported few or no qualified applicants for the positions they were trying to fill which seems to be why labor quality is currently a point at issue. Thirty-three percent of owners reported few qualified applicants for current open positions and 28 percent reported none.

The least important problem that business owners seemed to be worried about is finance & interest rates, which was listed at 1%. Last year the percentage of that being an important problem was the same at 1%.

Kabbage Survey Shows American SMBs Recovering Post-Pandemic

March 30, 2022
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Kabbage

Kabbage from American Express issued the fifth Small Business Recovery Report, an online survey that tracks recovery trends and potential growth of small businesses in the US. Respondents represented industries across retail, marketing, healthcare, financial services, technology, food and beverage, construction, automotive, manufacturing, media, professional services, education, agriculture and more.

After polling 563 small business leaders that included 255 of the “smallest small businesses,” the latest report showcases how many small businesses are doing well in a changing market, as they look beyond challenges over the past two years while simultaneously overcoming the new problems of inflation and supply chain issues.

“Small businesses are preparing for a new type of market. One that’s not driven by the direct impact of COVID-19 – but rather, one determined by the economic aftermath of the pandemic,” said Kathryn Petralia, co-founder of Kabbage. “Economic indicators like inflation will require adjustments, but the new data illustrates how small businesses are making changes and adapting.”

According to the study, small businesses are becoming less concerned about COVID-19’s impact on their operations. The report’s responses showed over 90% of businesses did not have to “stop, slow, limit or shut down” their companies due to the Omicron outbreaks during the holiday season of 2021, while 70% surveyed said they weren’t affected by the variant in any way.

Along with pandemic-induced wounds beginning to heal for small business, respondents to the survey reported their average monthly revenues increased 77% in the past six months, from $47,900 in July 2021 to $84,935 in February 2022. Along with those increases, merchants reported average monthly profits have increased an average of 39% in the same period as well. The study does hint that these growth percentages are heavily weighted toward larger small businesses.

Kabbage says that the smallest small businesses, those with 20 or less employees, reported a 13% increase in average monthly revenues and a 12% increase in average monthly profits from July 2021 to February of this year.

The report touched on hiring rates for smaller merchants, as an initial void of lost workers has been filled. Despite a widespread notion of the job market being wide open, the study found that three quarters of the smallest small businesses said they are not hiring.

The study also found that inflation is increasing prices by an average of 21% across industries. Largely due to increased costs from their vendors and skyrocketing cost of raw materials, smaller merchants are beginning to push these costs on customers.

65% of businesses in the survey said they plan to keep prices high for the next six months, while almost 20% said they plan to raise prices further. Combating increasing costs of their own is an issue in and of itself, and over half (53%) expect their business to be impacted by supply chain issues for up to a year.

CEO of Square Says That Hyperinflation is Happening

October 28, 2021
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There seems to be consensus the US is experiencing inflation in 2021, but few people of business intelligence are making a rational argument that we’re in the midst of hyperinflation. Such a scenario, if true, might mean that a cup of coffee could cost $200 by next year.

“It’s happening,” tweeted Jack Dorsey, the CEO of both Square and Twitter. “Hyperinflation is going to change everything.”

Perhaps Dorsey’s bearish view on cash, ironic given that his company operates Cash App, has something to do with his bullish views on cryptocurrency. Fifty eight percent of Square’s total net revenue in the 2nd quarter came from Bitcoin.

“While bitcoin revenue was $2.72 billion in the second quarter of 2021, up approximately 3x year over year, bitcoin gross profit was only $55 million, or approximately 2% of bitcoin revenue,” the company said at the end of Q2.

Square made no mention of inflation in its Q2 earnings, nor in the call with analysts that followed. The company makes more than $1 billion in small business loans per year, a business that would likely be impacted by “hyperinflation.”

A hyperinflationary economy would cause strange situations in low interest rate environments in which borrowers pay back far less than what they borrowed on a value basis. If rates are low and loan payments are fixed, the borrower might as well borrow everything they could from every source available and turn it into something that will keep up with price increases.

Dorsey’s comments weren’t a one-off. He doubled down on his prediction just seven minutes later.

He continued by saying that hyperinflation wasn’t a wish, nor did he think it was positive. He then laughed at Steve Hanke, a well regarded economist at John Hopkins University for condemning his statements.

If Dorsey is right, and we’re all paying $200 for a cup of coffee in 2022, he would actually be one of the first people to see it happening since so many small businesses, including coffee shops, rely on Square as their POS software.

Small Business Funders Are Hiring, But Does Anyone Want the Jobs?

September 28, 2021
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classified adsAs the small business finance market gets back to normalcy, the industry’s latest challenge is filling all of the open positions. Jobs that would once attract hundreds of resumés are now ending up with very few, if any at all.

Even after pursuing LinkedIn, the applicant pool just looks light.

In our research, deBanked found five fintech companies on LinkedIn that have ads that are at-least a week old with three or less applicants.

One company based on Long Island, promoted a $5,000 signing bonus for an underwriting position and only had five applicants. Meanwhile, a self-acclaimed “prestigious” Manhattan lender even has a month-old ad posted that offers a $10,000 per month salary. That job has one active applicant, according to LinkedIn.

Chad Carter, Director of Franchise Success at Lendio, says the hiring process has been difficult, but isn’t impossible to navigate. “Being based in Utah has been somewhat challenging as unemployment is extremely low and the Silicon Slopes area has a lot of tech headhunting,” said Carter. “We’ve hired and are hiring hundreds more people this year so we feel it too. Luckily we have extremely good reviews on Glassdoor, which helps keep applications coming and our culture keeps them here.”

job growthSome companies have gotten creative when it comes to building their staff to counter the lack of applicants in the workforce. “We have seen some open roles have more interest than others,” said James Webster, CEO of ROK Financial. He says his company has been able to expand hiring by offering remote sales positions that opens the applicant pool nationwide.

“We have been hiring and building an outside sales division known internally as the Remote Sales Division,” Webster said.

He claims the number of applicants for remote sales positions have been high, but that doesn’t mean his company is hiring a ton of staff to add to the program. “We are still extremely selective on who we allow onto the platform as they represent ROK in the market,” said Webster.

“All in all, recruiting is harder now than it has been in previous years,” Webster said. “Especially when the culture in the office is such a priority to maintain.” He noted that the roles that are currently difficult to fill are mostly administrative positions, not sales.

A recruiter for a large finance-centric company that wishes to stay anonymous told deBanked that the finance industry in general is having hiring troubles, not just fintech. “There’s tons of turnover all around,” said the recruiter, who claims that they themselves are actively being poached by other companies due to the lack of people wanting to work.

“I can only assume that fintech is just as crazy,” the recruiter said.

Earnings Week: PayPal

February 3, 2021
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PayPal held their earnings results for Q4, describing its strongest year in history by chief executive Dan Schulman.

In Q4 alone, PayPal added 16 million net new million active customers and 1.4 million new merchants and raised $6 billion in revenue. That brings the total to 377 million new users for the entire year.

After adding cryptocurrency to the platform, Schulman said that users that bought virtual assets log in twice as frequently as they did before.

“We have seen an exceptional response to pour crypto launch,” Schulmann said. “The crypto volume traded on our platform greatly exceeded our projections.”

The payments by-now-pay-later product added raised $750 million in the last quarter.

The Pain in America’s Food Supply Chain

January 29, 2021
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closed cafeIt was last November, Mark Mavilia says, when he and three friends in Washington, D.C. rendezvoused for dinner at Ghibellina’s, an Italian gastropub in Logan Circle “specializing in Neapolitan-inspired pizzas and craft cocktails,” says the online restaurant guide “Popville.”

Hold the pizza! Mavilia, who is art director at the Association of American Medical Colleges, couldn’t wait to tuck into the pasta-bolognese, his favorite dish. “In my opinion,” he says, “it’s the best in the city.”

Or rather was the best. When the foursome assembled outside the restaurant, they were disappointed to find Ghibellina’s had closed. “They had shut down for good,” Mavilia says, adding: “It was not boarded up. Just a note on the door thanking patrons for their support. I will surely miss the bolognese.”

The Ghibellina brand was later consolidated into a sister restaurant called Via in Ivy City.

Mavilia’s experience in Washington is typical of a nationwide phenomenon. Tens of thousands of restaurants and bars and eateries of every kind have closed their doors as the Covid-19 pandemic has ravaged the country and Americans have sharply limited their social interactions. As U.S. fatalities surpassed 410,000 in January, the economic damage to the restaurant and bar businesses has been staggering.

washington dc“Washingtonian” magazine keeps a running tab of restaurants that have closed their doors in and around the nation’s capital owing to the pandemic. In December, its tally listed 75 casualties in The District alone, including such icons as the Post Pub and Montmartre, Momofuku and Tosca, plus many more in the Maryland and Northern Virginia suburbs.

The area around the White House dominated by the influential K Street law firms and lobbyists, and the World Bank and International Monetary Fund has been nearly barren. With few people trickling into the central city, says Madeleine Watkins, owner of 202strong, a fitness club featuring personal trainers, her business is getting battered. Receipts are off by 80% over last year and she sees the effects all around her.

“There are definitely a lot of restaurants closed, but I’m hoping and praying that lot of it is temporary,” she says. “We need people to come downtown for Washington to be a vibrant and bustling city with coffee shops, restaurants, and sandwich shops.”

One hopeful sign: Tosca, a white-tablecloth restaurant near Metro Center which boasts an enthusiastic, upscale audience and earns 4.8 stars from customer reviews, promises to re-open in the spring. “This was my go-to Italian restaurant near my office,” declares Deborah Meshulam, a partner at multinational law firm DLA Piper and a former lead trial counsel at the Securities & Exchange Commission. “I loved their grilled Branzino and pretty much anything else they made.”

The Minneapolis Star-Tribune recently counted 94 restaurants that had closed down permanently in the Twin Cities. “Saying goodbye to a beloved watering hole, a neighborhood café or a four-star restaurant is never easy,” reporter Sharyn Jackson wrote in late December. “But in 2020, the pain kept coming as the pandemic brutalized the Twin Cities hospitality industry.”

“WE EVEN SAT WITH THE OWNER’S CHILDREN ONE NIGHT”

Among the notable casualties, were Bachelor Farmer, Muddy Waters, and Fig+Farro.

Angharad Bhardwaj, communications manager at medical technology company GenesisCare and a lifeling Minnesotan, told deBanked of her sorrow at learning that Fig+Farro had closed. “My husband and I were there for their opening, and I am so sad to see it close,” she says. “This was one of our favorite restaurants, just steps away from our condo in Uptown. We spent our first Valentine’s Day there. It was fresh vegan food. We even sat with the owner’s children one night. The little boy was helping his parents with the restaurant, taking orders.”

In Denver, online entertainment publication “Do303” recently highlighted closures of 15 area restaurants it called “the great ones that kept our hearts and bellies full for years.” Notable among the cohort was El Chapultepec, 12@Madison, and Biju’s Little Curry Shop. Michelle Parker, a Denverite who has a short commute to suburban Westminster where she is the City Clerk, says: “The feeling around town is that this has been a big loss to neighborhoods and to the food scene, which was just coming into its own as the pandemic hit.”

closed for businessNationwide, more than 110,000 restaurants, bars and food-service establishments have closed their doors, reports the National Restaurant Association, the premier Washington-based trade group representing the food-service industry. The membership includes not only restaurants, pubs and cafes but non-commercial restaurant services, cafeterias, institutions like college cafeterias, and even food services at military installations.

The food-service industry is the nation’s second largest private employer and accounts for $2.1 trillion in economic activity, reports Vanessa Sink, director of media relations at the trade group. On average, when a restaurant closes, fewer than 50 people find themselves unemployed, but it adds up. As many as eight million food-service workers – waiters and bartenders, hosts and hostesses, cashiers, general managers and dishwashers, parking valets and cooks and chefs — were out of a job at the height of the pandemic in early 2020.

Curtis Dubay, senior economist at the U.S. Chamber of Commerce in Washington, D.C., notes that a whole array of food-service jobs are interwoven into the fabric of the U.S. economy. “Anything that involves large gatherings – transportation, travel and tourism, athletic events, the theater, the hospitality industry,” he says. “In places like The Hyatt in Orlando, food-service workers are involved in setting up a ballroom for conventions and small meetings. It’s a big part of the economy.”

2.1 MILLION FOOD SERVICE JOBS VAPORIZED

Since the spring, many of the lost jobs came back as restaurants were able to add take-out and delivery services. Many states and localities allowed restaurants to re-open with outdoor-seating, limited occupancy, customer-spacing, and Plexiglas booths. Through the end of November, 2020, 75% of the lost jobs were recovered but 2.1 million food-service jobs had still vaporized.

As more and more people prepare their own meals at home, the switch from dining-in to curbside and takeout services has met with limited success. For take-out people are more likely to order fast-food from Chick-fil-A or Pizza Hut and Domino’s rather than something fancy. “Who wants to spend $60 for a meal you have to eat out of a cardboard container,” one Minneapolis woman complained to deBanked.

fast-food

Restaurant closures, meanwhile, are having devastating consequences across a broad swath of society. “When a restaurant closes or has to cut back, it not only impacts the economy of the local community, it also affects the culture of the community,” says Sarah Crozier, communications director at Main Street Alliance, a 30,000-member, small-business advocacy group headquartered in Washington, D.C. “Local, independent places are where we create our memories as cities and towns. From losing the cries of “Keep Austin Weird” to stripping away the innovative recipes coming out of Raleigh, N.C., it deeply scars the culture and feeling of a place when we have only chain restaurants to fall back on.”

Adds Sink: “Restaurants are the cornerstone of communities. You often find that neighborhoods and local economies have built up around a restaurant. Restaurants provide jobs, they pay rent and contribute to the tax base. Other businesses will grow up around them. People will go to a restaurant – and then they’ll go next-door to shop.”

“PEOPLE DON’T WANT TO GO DOWNTOWN TO MAIN STREET ANYMORE”

Food-service establishments are also long-term tenants. The “vast majority” of the closures, Sink asserts, have involved restaurants that had been in business for more than 16 years. Roughly one in six had been in operation for 30 years or more.

Backlit downtown restaurants with inviting awnings, valet parking and limousines idling out front are giving way to boarded-up buildings, many battened down with battleship-gray steel shutters. “I’ve been talking to mayors about empty storefronts and the effects of business failures,” says Karen Mills, former administrator at the U.S. Small Business Administration and a senior fellow at Harvard Business School, says. “It’s significant. It devastates the whole community and brings down the whole environment. People don’t want to go downtown to Main Street anymore.”

Many cities and towns have invested heavily to revitalize their inner cities and urban areas around restaurants and bars to add sparkle to the nightlife and draw visitors and tourists. The economic development strategies often commingle trendy restaurants and nightclubs, shops and boutiques with spruced up warehouses or old buildings converted into artists’ studios, lofts and apartments.

baltimore inner harborSome cities feature sports arenas and stadiums as a major draw, and the food offerings go beyond hotdogs, peanuts and Cracker Jack. St. Louis’s “Ballpark Village” promises, according to its website, a “buzzing, sports-themed district close to Busch Stadium with restaurants, bars and nightlife venues”; Baltimore’s Inner Harbor, which is walking distance to Oriole Park at Camden Yards, features a science center, aquarium and historic warships moored at the dock, as well as a complex of bars, eateries and music venues in a repurposed electric-power station known as “Power Plant Live!”

Beyond Main Street, restaurant closures are part of the collateral damage in suburbia as pandemic-wary people work and shop from home. “As I go around from town-to-town on Long Island and shoot out to the malls, I can see business closings everywhere,” says Ray Keating, chief economist at the Small Business & Entrepreneurship Council, a Washington-based trade group claiming 100,000 members. “When one business shutters, it affects other businesses. There’s a ripple effect.”

Adds Sink of the restaurant association: “Restaurants are often located with the anchor store inside malls. You never find any kind of mall without some sort of food court.”

When a restaurant closes its doors, it has a knock-on effect as well, sending shockwaves coursing up and down the supply chain. Prior to the pandemic, Sink reports, the industry generated $2.5 trillion in economic activity and supported 21 million jobs. Cutbacks in food service hurts “everything from butchers and farmers and distillers to the Cisco and Aramark food companies that depend on restaurants.

“It will reach farther back into the economy,” she adds, causing economic pain to such disparate businesses as cleaning companies, local plumbers, handymen, and maintenance workers. Even “technology companies that provide systems (for restaurants) to run a credit card or make reservations or keep track of service orders” are affected.

MAINE RESTAURANTS FORCED TO DO OUTDOOR DINING IN WINTER

Andrew Volk, owner of the Portland Hunt & Alpine Club, a restaurant and bar with the reputation for offering possibly the tastiest cocktails in Maine, says that keeping his business going hasn’t been easy. The establishment was forced into lockdown in March and “stayed dark until Memorial Day,” he says, when it got the green light from the state to sell food and cocktails to go. On July 4, the restaurant went to outdoor seating, which it maintained until New Year’s Eve, adding heaters and umbrellas in the autumn to fend off Maine’s frigid temperatures.

Volk reckons that his restaurant’s sales were off by roughly 55 percent in 2020 over the previous year. Fully 95% of revenues go to pay expenses, including rent and utilities and employees’ wages. And the rest of the money scarcely lands in the cash register before it’s passed on to his vendors.

But as he has cut back operations, all of his vendors are feeling the pinch as well. There are no longer twice-weekly deliveries from the local package store from which, by state law, Volk is required to purchase hard liquor. His beer purchases –- craft beer prepared by Rising Tide Brewery and Oxbow Brewery, both of Portland, as well as Miller, Budweiser and Narraganset, the popular Rhode Island-made brew – are no longer so robust. Volk has also reduced his procurement of French and South African wines from importers.

tractor farmPurchases of farm-to-table produce from Stonecipher Farms, Dandelion Springs, and Snell Farms, which came to a halt last March, remain diminished. The daily deliveries from Baldor Specialty Foods, a New York-based food supplier of, among myriad foodstuffs, out-of-season vegetables and citrus fruit, are less frequent.

Volk is still offering fresh cooked fish for take-out, including cod, trout, halibut, hake and shrimp (but not cold-water Maine lobster). Even so, he’s ordering less seafood from Browne Trading Market. He has also cut back on specialty soft cheeses he buys from several local dairy farms, including Larkin’s Gorge and Fuzzy Udder.

Other vendors affected include Portland Paper Products, which supplies him with paper goods such as toilet paper and paper towels, cleaning supplies and chemicals for the dishwasher. One bright spot for the paper products supplier: it is meeting Volk’s increased demand for take-out boxes, paper napkins and plastic utensils.

Meanwhile, Volk is not looking as much to Pratt Abbott Cleaners for freshly laundered linens such as tablecloths, napkins, and kitchen shirts. Capone Griding Company in Boston, which sharpens kitchen knives and cutlery, isn’t making as many pickups and deliveries these days.

Ian Jerolmack, owner-operator of 10-acre Stonecipher Farms in Bowdoinham, Maine, is one of Volk’s food suppliers. He has been providing fresh, farm-to-table produce to several dozen restaurants in Portland, plus a couple “up the coast,” he says, since he began tilling the Maine soil a decade ago. Now the grower of organic fruit and vegetables – a garden of delights that includes tomatoes, carrots, beets, onions, cabbage, turnips, squash, sweet potatoes, and fennel – has been feeling the economic hardship along with the restaurants.

farmer getting paid after harvestBy year-end 2020, Jerolmack says, he is down to only 15 restaurants as customers, a two-thirds attrition from his 45 customers prior to the pandemic. “Our farm was sort of unique in that it almost exclusively sold to restaurants,” he says. “They’re all in various degrees of agony,” he adds, “and I don’t know how the dust will settle. It’s been super-bizarre.”

When the restaurants went into lockdown last March, Jerolmack was faced with zero demand for his produce, and his livelihood was in jeopardy. At the same time, he was forced to reckon how much seed to plant. “There’s only one window in which to plant seeds,” he explains.

He had to decide whether to take on fulltime seasonal workers, which is not a simple proposition. In order to plant, tend and harvest his crops, he’d need to hire and house four Mexican workers under the federal government’s H-2A visa program. By law, he says, he was required to guarantee the foreign workers payment of 75% of their wages for eight months of employment. “I felt as if I were drowning,” he says. “It was a heavy weight.”

“I THREW TOGETHER A FARMER’S CHOICE…”

He opted to hire the H-2A workers and forged ahead with the planting, albeit at reduced acreage, consoling himself with the farmer’s ancient adage: “People always need to eat.”

With restaurants closed, his only recourse would be to sell directly to consumers. Yet Jerolmack had no online presence and was pretty much frozen out of the local farmers markets. So he turned to local restaurants and arranged to sell produce to their top customers. “I threw together a ‘farmer’s choice,’” he says, “a mixed bag of chard, carrots, onions, and beets – or whatever vegetables were in season and charged $25 a bag.”

Right away, he was able to sign up 175 customers paying $100 apiece for four weeks of produce, enough of a cushion for him to sell his “storage crops” and stay in business. Individual customers were grateful to buy the fresh organic food and avoid grocery stores, he says, the arrangement worked out for the restaurants. “They got increased foot traffic and helped their takeout business. Everybody loved it.”

By being creatively entrepreneurial and employing several direct-to-consumer sales strategies, he was able to chalk up revenues of $300,000 in 2020. That’s a hefty, 35% drop compared with the $440,000 in 2019 gross receipts. But Jerolmack says he kept five fulltime workers employed, he’s got a new consumer trade, and he’s getting ready for the 2021 planting season.

Thomas McQuillan, vice-president for strategy, culture and sustainability at wholesale food distributor Baldor, says that in a given year his Bronx-based company – with major operations centers in Boston and Washington, D.C. – delivers high-quality food to 10,000 restaurants from Portland, Me. to Richmond, Va. The wholesaler also supplies food in bulk to corporate dining rooms and cafeterias, hotels, institutions like hospitals and schools, and sports stadiums.

Baldor buys its produce from 1,000 regional farms, both big and small, and trucks in out-of-season produce from the West Coast. A visit to the company’s website discloses a vast cornucopia of edibles and victuals for sale. A few clicks discloses a gastronomic wonderland of fruits and vegetables, organics and cold cuts, meat and poultry and seafood, specialty and grocery items, dairy and cheese, bakery and pastry, and wine.

When the pandemic hit and restaurants went on lockdown, Baldor’s business plummeted by 85%, McQuillan reports, and the company reacted in much the same way as the Maine farmer. “With Covid-19,” says McQuillan, “all industries in the food business were affected. But we knew that the same number of people in our geographic area would be looking for food and we pivoted to a business-to-consumer platform and began shipping directly to people at home.

“We also knew many corporate types were no longer working in offices and, early on in the pandemic, people were fearful of going to grocery stores,” he adds, “and we began deliveries to apartment buildings all over New York. It’s not that different from delivering to a restaurant.”

According to a New York Times story, the company required a $250 minimum for consumer purchases and delivered 6,000 items within a 50-mile radius of New York City. McQuillan told deBanked it pressed its 400-truck fleet of “sprinter vans to tractor trailers” into service for the residential deliveries. The consumer business and limited restaurant re-openings allowed Baldor “to rebound, but nowhere near pre-Covid levels,” he says. By year-end 2020, the company had furloughed 20% of its workforce.

fresh fishFresh fish is for sale on the fishmonger, outdoor seafood market.[/caption]The seafood industry was among the hardest hit by the pandemic’s throttling back the restaurant industry, says Ben Martens, executive director of the Maine Coast Fishermen’s Association. Seafood is much less likely than poultry or meat to be prepared at home or ordered for takeout. Groundfish like flaky cod, haddock, pollack, hake and flounder, he explains, are especially popular dishes in high-end restaurants in New York, Boston and Chicago.

“Seafood is a celebratory food,” Martens says. “It’s a food people embrace when things feel good. It’s covered in butter and people eat it outside when they’re with family and friends.”

Early data, he says, showed a 70% decline in “landings revenue” at the non-profit Portland Fish Exchange Auction, the major marketplace connecting fishermen with wholesalers and processors. Some fishermen and lobstermen have had some success selling directly to consumers by switching over to scallops and other seafood popular with Mainers who, Martens asserts, are somewhat more inclined to prepare seafood at home than people in other states.

But what has really given the industry a boost, he says, has been an anti-hunger program run by his trade association. Seeded with $200,000 from an anonymous donor, and bolstered with $200,000 received through the CARES Act passed by Congress last year, the program purchases seafood at a fair price and funnels it to food pantries. “Maine is the most food-insecure state in the country,” Martens says. “and high quality protein is hard for a lot of people to find.”

The program contributed enough fish portions to contribute to 180,000 meals in 2020, while helping soften economic damage to fishermen. “Now we’re seeing some stabilization with outside restaurant seating,” Martens says.

“A LOT OF OUR RELATIONSHIPS ARE WITH CHEFS AND THEY HAVE FAMILIES”

Sam Cantor, who is vice-president for sales at Gotham Seafood, a New York broker doing an estimated $16 million in sales, according to Buzzfile, sounded glum and subdued in a telephone interview with deBanked. He reports that the company delivers salmon, tuna, lobster, King Crab legs, red snapper and other seafood directly to eateries in Manhattan as well as the tri-state region of New York, Connecticut and New Jersey.

The last year has been a burden. “A ton of places are closed — cafeterias, cafes, hotels,” he says. “People are not going to the Berkshires or the Hamptons, offices are closing. In the beginning of the pandemic when (New York Governor Andrew) Cuomo shut down indoor dining it was brutal. And it’s still a difficult situation.”

Describing layoffs at the company as “significant,” Cantor says it’s also been emotionally draining to see the misfortune that has befallen restaurant workers. “It’s been a hard thing to witness,” he says. “A lot of our relationships are with chefs and they have families.”

Gotham has had some success selling directly to consumers by revamping its website and putting money into advertising on the online platforms Facebook and Instagram, he says, but “we’re not back to 100%.”

Cantor also says he is concerned that the country’s commercial infrastructure is at risk of fracturing. “It’s more than just losing your favorite restaurant or what happens to the individual fisherman and farmer,” he says. “It takes a very intricate supply chain for you to get your favorite fish. There’s a lot of work that goes into it.

“I hope my kids don’t have through something like this,” he went on. “The home delivery has been a shining light. But we want travel and tourism to come back. We want people going back to The Garden to watch the Knicks. I’m hoping there will be a renaissance, and this is just the start of the Roaring Twenties.”