There have been a lot of differing points over potential restaurant closures in recent weeks. Mark Siebert, CEO of franchise consulting firm iFranchise Group, said Wednesday in a release, “we will likely see over 100,000 empty shells where restaurants once stood.” He believes the reality will open opportunity for operators to grab prime locations for less, as investment and occupancy costs drop. And it will coincide with an all-time high of displaced restaurant executives, including those will capital to invest, alongside all-time low interest rates. “Once an effective vaccine is found, we anticipate that demand for dining out will quickly return to pre-COVID levels, providing those restaurants that survive a unique opportunity for growth," he said.
The National Restaurant Association last week noted 100,000 restaurants had closed in the two weeks since COVID-19 restrictions picked up again (temporary making up the vast majority). It’s been reluctant so far to peg a permanent figure, only to say it will be in the “tens of thousands.”
According to The NPD Group’s restaurant census, ReCount, the estimated percentage of restaurants allowed to serve dine-in guests declined from 90 to 82 percent this past week. That aligns closely with the Association’s 100,000 estimate, although it’s unclear how many restaurants pivoted back to off-premises or just decided to pause altogether.
Financial services company Rabobank projected 50,000–60,000 eventual permanent closures in the independent restaurant sector alone, or 15–20 percent of the entire group. That prediction would erase 8–10 percent of restaurants in the next 12 months.
To understand the dire independent outlook, the average restaurant (industrywide) appreciates annual revenue of $1 million and operating profit of just 4–5 percent. A 2016 study from JPMorgan Chase showed that restaurants report some of the lowest average cash reserves among small businesses, with only enough on hand to cover 16 days.
That was less than repair and maintenance (18), retailers (19), construction (20), and personal services (21).
Michael S. Kaufman, a senior lecturer of business administration at Harvard’s Business School, wrote in a recent article that restaurants, on average, spend 30 percent of their revenue on labor. They spend roughly the same for cost of goods sold. Independents, however, typically purchase without the ability to hedge or otherwise lock in price. They’re at the mercy of supply-price fluctuations, and thus, face a rather challenging battle in the close-reopen-close-reopen dynamic.
For countless small restaurants, they had only two to three weeks of operating reserves at the onset of COVID-19. This makes pivoting and paying for labor (new and recalled), inventory, back rent, and all the updated protocols, like PPE and plastic partitions, a near impossibility for some.
Consumer trends, demand, more uncertainty
There are a lot of angles to the data. “Eating and drinking places” registered sales of $47.4 billion on a seasonally adjusted basis in June, according to preliminary figures from the U.S. Census Bureau as reported by the Association. It marked the second consecutive monthly sales gain after April registered a low of $30 billion.
June actually showed the highest volume since the beginning of lockdowns in March, but still $18 billion below pre-COVID-19 numbers in January and February.
While this speaks a positive undertone, seasonally adjusted figures don’t quite provide a complete picture of sales losses, the Association said. Rather they offer a directional look at spending trends from month to month.
A better measure might be the Census Bureau’s unadjusted data set, since it represents actual dollars coming in the door.
In total, between March and June, eating and drinking place sales declined more than $116 billion from expected levels, the Association said. Add in the sharp reduction in spending at non-restaurant foodservice operations in the other sectors, like retail and lodging, and the total shortfall in restaurant and foodservice sales likely surpassed $145 billion during the last four months.
The big question today, though, might just circle consumer demand and how case spikes are affecting (or not affecting) purchasing.
Yelp said Wednesday interest has continued to shift since May, but less rapidly than March in April. Interest for alcohol-related experienced increased since June 1 relative to other food activities, with a rise for wineries (51 percent), cideries (39 percent), breweries (24 percent), and distilleries (19 percent). Meanwhile, grocery-related businesses witnessed a slide in their ultra-high, early demand as people elect to spend less time at home. Beer, wine, and spirit stores have fallen 21 percent.