It’s been less than three months since the National Restaurant Association updated Congress on the sector’s troubled state. And since, an additional 10,000 restaurants have closed across the country, the Association said Monday.
As of today, 17 percent of restaurants—more than 110,000—are closed permanently or long-term. The vast majority of those permanently shuttered were well-established businesses and fixtures in the community, the Association said. On average, they were in business for 16 years, and 16 percent were open for at least 30 years.
The narrative COVID-19 erased restaurants already on the brink doesn’t do the real-time dynamic justice. While true in a bevy of cases, and the backbone to some pandemic-triggered bankruptcies, it illustrates only a fraction of the impact.
"What these findings make clear is that more than 500,000 restaurants of every business type—franchise, chain, and independent—are in an economic free fall," Sean Kennedy, executive vice president for Public Affairs at the Association, said in a letter to Congressional leadership. "And for every month that passes without a solution from Congress, thousands more restaurants will close their doors for good."
The Association released findings from its latest study, which polled 6,000 operators and 250 supply chain businesses from November 17–20. Broadly, it showed continued business deterioration across the sector.
Eighty-seven percent of full-service restaurants reported an average 36 percent drop in sales revenue. For an industry with an average profit margin of 5–6 percent, this is a ticking closure time bomb. Eighty-three percent of full-service operators told the Association they expect sales to worsen over the next three months as winter tightens its grip and outdoor dining suffers. Seventy-five percent said they expect sales to decrease from current levels, and only 6 percent believe they’ll go up before March.
Thirty-seven percent added it’s unlikely they’ll still be in business six months from now without additional federal relief. Thirty-six percent said they’re considering temporarily closing until the COVID storm passes.
Although sales are significantly lower for most independent and franchise owners, costs have not fallen by a proportional level, the study noted. Fifty-nine percent of restaurants said total labor costs (as a percentage of sales) are higher than they were pre-pandemic. Just 21 percent said they were lower. Eighty-eight percent noted their restaurant’s profit margin was lower than it was pre-outbreak.
This is something that’s surfaced in the past few months. Back in September, a Coca-Cola study showed operators invested an average of $7,400 to adapt to the so-called “new normal,” things like PPE and enhanced protocols (training, cleaning, Plexiglas, etc.)
Domino’s said in October it spent roughly $11 million through hiring, bonuses, sick-pay policies, and sanitary supplies—just in one quarter.
Nearly 70 percent of those same restaurant owners (66 percent) in Coca-Cola’s data said it would take at least six months to recoup expenses. And that was under the impression capacity would lift to the 55 percent number owners said they needed in order to remain profitable.
But instead, as cases hike to record highs, markets continue to step back. California, for instance, is discussing an in-person dining ban. Here’s a running list of states reshutting dine-in service.
Fifty-eight percent of chain and independent full-service operators told the Association they expect continued furloughs and layoffs for at least the next three months.
Recent trends support the bleak near- to mid-term outlook the Association observed from the ground. The latest jobs reports from the Bureau of Labor Statistics said the industry lost more than 17,000 jobs in November after six straight months of gains. The food and beverage sector lost roughly 6 million jobs in March and April. Fewer than 6.5 million workers were on payroll in April, which was the lowest level in more than 30 years, according to the Association.
Before new infections and hospitalizations spiked, the industry took small steps toward normal levels. In November, roughly 10.19 million were working at food and drink places. At this time last year, there were 12.1 million restaurant employees.
Yet the November drop triggered alarms for sector organizations, including the Independent Restaurant Coalition. “We have warned Congress for months that winter will bring another wave of closures and layoffs—they’re here,” it said in a statement, “Outdoor dining is a distant memory while indoor dining has been restricted in many states across the country, and—unlike in March—restaurants have already endured 10 months of diminished revenue. We’re out of time and out of funds.”
Although many restaurants recalled employees after initial lockdowns, overall staffing levels remain well below normal, the Association said. Eighty-one percent of operators said their current staff mark was depressed from 2019 numbers. Forty-five percent said they’re currently more than 20 percent below normal. Looking ahead, 49 percent expect to decrease even further in the next three months, with only 5 percent believing they’ll add employees in that timeframe.
Only 48 percent of the restaurant owners who told the Association they permanently closed said they plan to remain in the industry in any form in the months or years ahead. “Our nation is losing a generation of industry talent, knowledge and entrepreneurial spirit,” the Association said.
"In short, the restaurant industry simply cannot wait for relief any longer," Kennedy added. "We appreciate the efforts of a group of moderate members of the House and Senate to advance a true compromise between the competing proposals from Democratic and Republican leaders. If this moderate plan represents a 'down payment' for a larger relief package in early 2021, it will provide restaurants with immediate relief to hold on through the most dangerous point in our business year."
According to industry tracker Black Box Intelligence, restaurant comp sales declined 10.3 percent in November—the worst result since August, or a 3.8 percentage point drop from October. Traffic fell 16.3 percent.
Every week in November reported worse same-store sales than during any of the preceding eight weeks going back to the beginning of September. The traffic performance was the lowest since the second week in August.
In addition to support of a compromise stimulus proposal, the Association provided a plan for how a proposed second draw from the Paycheck Protection Program could be strengthened to reflect the unique business model of the restaurant industry, as well as a guideline to other important measures in the proposal that would help restaurants bridge the gap to a vaccine.
Among the suggestions is that the revenue loss threshold must not be higher than 25 percent and PPP borrowers could deduct ordinary and necessary expenses. Also, loans under $150,000 should be eligible for streamlined forgiveness; the CAREs Act waiver of affiliation rules should be retained; 501(c) (6) nonprofit organizations be allowed to participate; new eligible expenses for PPP and cleaning; the removal of fiscal caps on PPP loans for a “single corporate group;” the elimination of the SBA’s “related party rent” loan forgiveness restriction; and to keep the structure established by the PPP Flexibility Act, which would allow borrowers to have 24 weeks to spend the funds so they could maximize the loan amount. Additionally, forgiveness where restaurants do not enable rehiring and the 60/40 ration for payroll versus non-payroll expenses and a five-year loan term on unforgiven portions.
The $908 billion stimulus proposal making rounds recently does not include direct aid for restaurants, or the $120 billion RESTAURANTS Act industry leaders have called for, and which was included in the September $2.2 trillion House Democrat proposal. To the Association’s point, another round of the PPP wouldn’t arrive without its concerns. An August report from the U.S. Small Business Administration showed the “Accommodation and Food Services” sector received just 8.1 percent of PPP dollars. This as restaurants and bars contributed to nearly a quarter of all jobs lost during COVID—more than any other industry. Unemployment in “Leisure and Hospitality” is 134 percent higher than the national average.
“Today, some banks have indicated they would not participate in a new round of PPP, excluding even more businesses,” the Independent Restaurant Coalition said. “The lucky few restaurants that did receive funding in the spring were often forced to pay consultants and lawyers to help navigate cumbersome rules to both utilize funds and stay within forgiveness parameters. And those with loans may now be temporarily closed again, and have to build back perishable inventory from scratch and without generating revenue.
And it did little to slow closures, as roughly one in six restaurants closed since the first round (the 100,000 figure the Association shared previously) and 2.3 million people dropped off payroll. In the second quarter alone, restaurants forfeited nearly $220 billion in revenue, the Association said.
The recent survey said consumer spending in restaurants remained well below normal levels in October. Seventy-nine percent of restaurant operators said their total dollar sales volume was lower, year-over-year. Overall, sales fell 29 percent on average.
In the letter to Congressional leaders, Kennedy said, “You have each mentioned restaurants as an example of a business that needs unique attention from Congress, and we appreciate your leadership on behalf of our owners and employees. The National Restaurant Association has advocated for our Blueprint for Restaurant Revival, a comprehensive plan to support both restaurants and the communities we serve. The House and Senate each have a version of the RESTAURANTS Act introduced with bipartisan support. While we applaud the sponsors’ efforts, we are able to only endorse the Senate version, which ensures that all restaurant segments that are suffering can receive federal support, not just one. We continue to urge the immediate passage of this critical bill.”
The RESTAURANTS Act would establish a $120 billion Restaurant Revitalization Fund run through the U.S. Treasury. Independent restaurants, bars, cafés, caterers, distilleries and others would be eligible for grant amounts based on the difference between their revenues in 2019 and 2020. Grants could be used for eligible payments that include rent, mortgages, debt incurred during the pandemic, supplies, payroll, PPE, and more. The Independent Restaurant Coalition said the Act could reduce unemployment by up to 2.4 percent and contribute more than $270 billion to GDP.
“In short, the restaurant industry simply cannot wait for relief any longer,” Kennedy said. Efforts in Washington to find the perfect’ solution are laudable, but the lack of progress in the meantime has led too many operators to give up on the government and close down for good. Since our last update to you, less than three months ago, an additional 10,000 restaurants have closed nationwide.”
Lawmakers Sunday discussed a proposed COVID-19 relief bill (the compromise Kennedy referred to) that would provide roughly $300 in extra federal weekly unemployment benefits. It does not, currently, include another round of $1,200 direct payments to Americans,
Talks are ongoing as President-elect Biden’s inauguration is scheduled for Wednesday, January 20.
On Monday, more than 22,000 independent restaurants, workers, and allies from all 50 states joined the Independent Restaurant Coalition to send a letter to Congress as well to demand passage of the RESTAURANTS Act.
“The situation is getting worse,” the letter state. “The virus is surging, winter weather has made outdoor dining impossible, and restaurants are permanently closing as a result. Just like in April, paying for a few weeks of payroll now, when the virus is at its worst and we cannot generate revenue, will not help us keep our doors open until a vaccine is widely available. This is particularly true as city and state officials across the country issue new curfews and dining restrictions that make it impossible to earn enough revenue to maintain full employment.”
Senator Patty Murray (D-WA) became the 50th senator to support the bill last week. It’s now co-sponsored by 215 House members and 50 Senators.
“Laying off employees just before Thanksgiving has been one of the most gut-wrenching experiences of our lives, and without restaurant-specific relief from Congress many will likely never return to work. Governors and Mayors simply don't have the resources to do what Congress can do for restaurant workers,” the Independent Restaurant Coalition added.