Note: This is part one of a three-part series on the state of the restaurant industry in 2021. Check out Part 2 here (on off-premises growth), and Part 3 here (on technology and hospitality).
Restaurants will bounce back. Resiliency is the backbone of this industry, and always has been. So is innovation. And this past year sparked both unlike any period on record, which is not a prisoner-of-the-moment reaction.
The sector ended 2020 with total sales $240 billion below the National Restaurant Association’s pre-pandemic forecast. Although restaurant and foodservice sales are expected to post double-digit growth this year, the Association said, it won’t be nearly enough to make up for the losses.
On Tuesday, the Association released its annual State of the Restaurant Industry Report. Of course, this was nothing like past versions.
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The report measured the impact of COVID-19 on the industry and examined the current state of key restaurant pillars, including technology and off-premises, labor, and menu trends across segments from a survey of 6,000 operators and consumer preferences from 1,000 adults.
The theme: A path to recovery, and a year of transition.
This calendar is starting in a hole for restaurants. There’s no real other way to frame it. More than 8 million eating and drinking place employees were laid off or furloughed during the depth of coronavirus. The sector finished 2020 with nearly 2.5 million jobs below its pre-coronavirus level. To offer perspective, if the economy as a whole suffered the same level of job losses as restaurants, America would be staring down 30 million jobs gone. Restaurants have represented one in four of the 10 million overall jobs forfeited.
By December, the Association said 110,00 eating and drinking places were closed long term or for good. It’s a statistic that’s hovered in recent weeks, and felt somewhat loose and difficult to comprehend. Almost like living with someone for months and not noticing how they’ve changed. But the Association put a face on the figure Tuesday—revealing the majority of permanently closed restaurants are well-established businesses in operation for 16 years. In fact, 16 percent were open for at least three decades.
This is the tangible tragedy of COVID as it pertains to restaurants. The pandemic did not simply sweep brands on the brink off the cliff, like some pundits suggest. It plucked legacy operations and communities fixtures off the map. These restaurants employed an average of 32 people, the Association said; and 17 percent employed at least 50 people before they closed.
Without direct aid, and maybe even with it, COVID will fracture the landscape. It might take years, or longer, to rebalance. Demand for restaurants will flood once dining rooms are deemed safe again, but thousands of small restaurants might not get a shot at it. Instead, restaurants owned by larger businesses with cash reserves and access to credit are poised to take advantage.
This is no small shift. Businesses with fewer than 500 employees account for almost two-thirds of restaurant industry employment compared to 47 percent among businesses as a whole. Much smaller businesses—those with 100 employees or fewer—total more than half of restaurant employment compared to 33 percent among all businesses.
So it bears asking if COVID will take some of the industry’s entrepreneurial spirit along with it. Seventy-two percent of restaurant owners who closed for good said it’s unlikely they’ll open another restaurant concept in the months or years ahead. Only 48 percent think they’ll stay in the industry in some form in the months or years ahead.
The end-game could be a more unequal field with business shifting from small and immigrant-owned restaurants to larger brands. More sizable chain restaurants will also be primed to expand and obtain prime restate left behind from any rationalization, potentially locking in a permanent and inequality-widening change in the sector, according to a recent report from Congressional Joint Economic Committee Democrats.
The situation is not lost on consumers, the Association said. In one survey, 92 percent of adults expressed concern that businesses in their community, including restaurants, may not be able to survive the economic fallout of COVID, and 60 percent were aware of a restaurant in their community that permanently shuttered because of it.
Restaurants faced a bevy of stressors to their bottom line, including the sales shortfall at eating and drinking places, plus a sharp reduction in spending at foodservice operations in sectors such as lodging, arts/entertainment/recreation, education, health care, and retail.
The Association expects 2021 to be a “tale of two halves,” with conditions varying significantly by region. Sales growth across that first swath will continue to be challenged by on-premises capacity restrictions thanks to elevated cases, or a state of “restaurant purgatory,” so to speak. Then as the vaccine rollout widens by mid-year, conditions will inch forward. Local economies will reopen and restrictions ease. The result will almost surely favor restaurants, as studies have projected. Lisa W. Miller & Associates released national research in April asking 1,000 Americans 18 and older what activities provided the most “joy” that were suddenly gone from their routines. No. 1? Dining out, at 81 percent. It also polled what people would “do first” once they could. Again, restaurants topped at 86 percent.
It seems a safe wager restaurants are going to thrive once the gates open.
