100,000 Restaurant Closures Expected in 2020

    New data from the National Restaurant Association says 40 percent of operators aren't sure they'll make it six more months.

    Finance | September 2020 | Danny Klein
    Empty chairs outside a restaurant.
    Unsplash/Mika Baumeister
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    As challenging as the past six, COVID-saddled months have been for restaurants, operators don’t expect a near-term reprieve. A majority are still struggling and don’t believe their standing will improve over the next six months, according to a survey released Monday by the National Restaurant Association.

    It found nearly one in six restaurants, representing close to 100,000 units, are closed either permanently or long-term. Close to 3 million employees are still out of work. And the Association’s previous target of $240 billion in sales lost by year’s end doesn’t appear to be an overshoot.

    “For an industry built on service and hospitality, the last six months have challenged the core understanding of our business,” Tom Bené, president and CEO of the National Restaurant Association, said in a statement. “Our survival for this comes down to the creativity and entrepreneurship of owners, operators, and employees. Across the board, from independent owners to multi-unit franchise operators, restaurants are losing money every month, and they continue to struggle to serve their communities and support their employees.”

    Here were some other headline points:

    The Association said consumer spending in restaurants remained well below normal levels in August. Overall, they were down 34 percent on average.

    Per Black Box Intelligence, comp sales for chain restaurants declined 12.3 percent in August as traffic fell 17.7 percent. As it has from the outset, this remains a divergent conversation. Namely, quick-service brands continue to weather the disruption better than full-serves, and sit-down chains are recovering faster than independents.

    For instance, in a recent Revenue Management Solutions’ data pull, traffic slid 10–15 percent, year-over-year at counter-service venues. Sales were flat to 5 percent. On the full-service side, the transactions figure was negative 30–35 percent.

    The Association said the foodservice industry forfeited $165 billion in revenue March through July.

    To the aforementioned closures point, the Association’s 100,000 estimate is a 2020 total prediction, when the dust settles. However, likewise to other reports, which have varied wildly from source to source in recent months, the true scope won’t be known until government statistics are released in the months ahead

    In early July, Yelp tapped the closure number at 26,160—an increase of 2,179 from June 15. Of those, 15,770 were permanent, or 60 percent. Yelp’s data is relatively concrete given operators turn the switch off on the platform. But it’s also likely well under the actual mark since restaurants aren’t required to do so. They can either choose to wait it out or just walk away, or not be active in the first place.

    Financial services company Rabobank tapped 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 coming year.

    Speaking to another COVID concern, 60 percent of operators in the Association’s survey said their restaurant’s total operational costs (as a percent of sales) were higher than they were prior to the pandemic’s onset. Coupled with significantly depressed revenues, it’s turning out to be a sinking proposition for some.

    In a recent study of 400-plus operators conducted by Coca-Cola, restaurant owners said they’ve invested, on average, $7,400 to adapt to the “new normal,” things like PPE and enhanced protocols (training, cleaning, Plexiglas, etc.)

    And 66 percent guessed it would take at least six months to recoup that $7,400.

    So even with lower labor levels, a lot of restaurants are finding the COVID operational climate costlier than before. The Association discovered current staffing levels are only 71 percent of what they would typically be in the absence of coronavirus.

    Coca-Cola hit on this as well, with 86 percent of restaurants saying they had to make staff reductions in light of COVID.

    Looking ahead—and one of the more troubling points of the Association’s study—40 percent of operators think it’s unlikely their restaurant will still be in business six months from now if there are no additional relief packages from the federal government.

    “This survey reminds us that independent owners and small franchisees don’t have time on their side,” Sean Kennedy, executive vice president of Public Affairs for the Association, said in a statement. “The ongoing disruptions and uncertainty make it impossible for these owners to plan for next week, much less next year.”

    “Congress is about to leave Washington for the elections—we need them to focus on the short- term, basic solutions that have secured bipartisan support and passed one or both chambers,” he added. “We urge immediate passage of these while we work with lawmakers on the comprehensive elements of our ‘Blueprint for Restaurant Revival.’

    A previous consumer study from the Association said 89 percent of adults were concerned businesses in their community, like restaurants, would not survive the economic fallout of COVID. More than half of those same people (56 percent) said they were aware of a local restaurant that permanently closed.

    Additionally, 88 percent of respondents tapped restaurants as an important part of their communities, and 78 percent agreed going out to their favorite spots was one of the things they missed most.

    It’s a dynamic the Association believes many officials are missing. “The foodservice industry was the nation’s second-largest private-sector employer and pumped more than $2 trillion into the economy right up until our sudden shutdown,” Kennedy said. “Making an investment in an industry that consumers love and that powers the economy is a good business and economic move for Congress as they search for the biggest bang for their recovery buck.”

    Another survey observation, in terms of closures: 64 percent of urban residents noted they’ve witnessed permanent closures in their hometowns. It’s 56 percent on the suburban level. For rural residents, the number declines to 44 percent.

    Again, a fractured recovery process that’s influencing future development as well. Chipotle and Starbucks have both hinted at accelerated suburban development (with drive-thru focuses). And from pickup windows to entirely pickup stores (in Starbucks’ case), brands are being forced to rethink urban footprints. Just take a look at this design from Taco Bell.

    Along with the survey release, the Association sent a letter to Congress Monday outlining some recovery steps and to “plead for bipartisan action before you recess for the November elections.”

    Federal support to date has focused on the Paycheck Protection Program, providing eight weeks of assistance for an industry that has been wrecked for six months,” the Association wrote in the letter. “We submitted to Congress a comprehensive ‘Blueprint for Restaurant Revival’ in July, but despite this effort, a larger solution for the industry seems unlikely to be passed this year.

    Restaurants are fast approaching a critical inflection point. Outdoor dining will soon be impractical for countless operators across the country, especially in the Northeast and Midwest. Without immediate steps from Congress, “thousands of restaurants may close before you reconvene after the November elections,” the Association said.

    Here are the short-term, basic solutions with bipartisan support that have already been approved by one chamber of Congress, provided by the Association.

    • Authorize a second round of PPP, with greater flexibility for both operating expenses and payroll outlays.
    • Ensure that expenses paid with PPP loans are deductible from federal taxes.
    • Expand the Employee Retention Tax Credit (ERTC) to help restaurants get support after a PPP loan has run out.
    • Provide restaurants with tax credits to help allay the significant costs restaurants are incurring for equipment, supplies, and training to mitigate employee and customer exposure to COVID-19.

     

    I suspect that each of you have learned of restaurant closures in your community that break your hearts—from revered local independents to popular regional chains to the favorite corner diner,” Kennedy wrote in the letter. “These closures occurred during spring and summer months when people longed to enjoy a meal out. As fall and winter approach, restaurants that are still open will face even greater challenges as customer traffic declines. We simply cannot wait for the perfect solution from Congress—particularly in the final month before you return to your home states. The time for action—in any form—is now.

    The industry—and the Association—are also dealing with a recent CDC Morbidity and Mortality Weekly Report that focused on the transmission of COVID and said bars and restaurants were strongly linked to the positive cases. Here’s the full report.

    The main point was adults who tested positive during the summer were twice as likely to have eaten on-site at a restaurant or drinking establishment within two weeks of being tested compared to those who were COVID negative. Put simply across the 802-person study: “close contact with persons with known COVID-19 or going to locations that offer on-site eating and drinking options were associated with COVID-19 positivity.”

    Steve Mandernach, executive director of The Association of Food and Drug Officials, said in a statement last week the CDC’s conclusions should be considered in light of some inherent weaknesses in the research.

    Such as:

    Research was structured as a generic study looking at common community exposures of those testing positive and not testing positive for COVID-19.

    Study was built looking for common places of exposure and does not gather much of the desired information about those individuals with restaurants and bar exposure including things such as:  did those with or without COVID-19 eat or drink indoor or outdoors, did they go to coffee shops or bars which were a single category in the study. 

    The 10 states where health care centers of the study subjects with had greatly varying restrictions on restaurants during the potential period of potential exposure.

    Overall COVID-19 control measures varied greatly in these communities during the study. 

    The study does not clarify if those with restaurant and bar exposures were in the community more frequently, which may be a potential contributing factor.

    "AFDO continues to refer to research findings that support the fact that the spread of COVID-19 in the community can be limited in the hospitality industry," Mandernach said.

    Restaurants continue to fight this perception battle. Mandernach added sound public health limitations in bars, taverns, and restaurants include limiting alcoholic service to accompany food orders, not allowing hours of operations to extend into late nights, and limiting occupancy levels and table arrangement to hose levels that allow for social distancing.

    Pickup delivery remains very low-risk options to obtain food from our favorite bars, taverns, and restaurants, Mandernach said.

    "In addition to these steps controlled by food service establishments themselves, it is important to continue to reiterate the risks presented by customers who patronized establishments who are not feeling well, exhibit symptoms, have been exposed to COVID-19, or do not take personal responsibility for protecting themselves and others," he added "We believe the hospitality industry has responded and evolved to continue to reduce the risk of transmission of COVID-19 to their customers. We have and continue to encourage retail food establishments and those who support them to refer to AFDO's guidance documents regarding operations and COVID-19. These guidance documents contain key action steps that protect the public safety and an establishment's personnel."