Why Restaurants Need Federal Aid, and Sooner than Later

    Some operators aren't sure business will ever return to normal.

    Finance | March 2, 2021 | Danny Klein
    Tables and chairs outside a restaurant.
    Unsplash/Fabien Maurin
    Just 18 percent of operators expect sales in February and March to run higher than January.

    CDC Director Dr. Rochelle Walensky said last week the country’s recent decline in COVID-19 cases could be flattening. If so, it would suggest a potentially concerning turn as highly transmissible variants enter the equation.

    So while cases, deaths, and hospital admissions have come down since January, recent figures hint at a level off. And a level off from a high mark. Per CNBC, as of last week and based on Johns Hopkins University data, the nation reported a daily average of about 73,376 new cases in the past week, a slight uptick compared to the prior period. The U.S. reported nearly 250,000 cases per day in early January.

    The recent movement might signal transmissible coronavirus variants becoming more widespread.

    White House Chief Medical Advisor Dr. Anthony Fauci said a potential takeaway, if this continues, is that the U.S. isn’t quite ready to relax restrictions. Walensky said outright states shouldn’t begin to lift lockdowns. It’s the possible combo of variants reversing 2020’s downward infection trajectory, and figures still being high. A plateau at 70,000 cases, for instance, is an improvement, but still a “precarious position,” Fauci said.

    From a high-level, however, what this confirms is what restaurants have grappled with for close to a year now. Unyielding uncertainty. Rules, restrictions, and regulations that don’t offer a timeline or any consistency. A narrative that shifts by geography, media outlet, and official and non-official perception.

    The National Restaurant Association on Tuesday released new data reflecting the sector’s continued challenges. In tandem, it sent a letter to Congressional leadership highlighting how these results demonstrate continued vulnerability for the nation’s second-largest private sector employer. And why prompt passage of the $25 billion Restaurant Revitalization Fund, included in the American Rescue Plan, isn’t just warranted for operators, but needed on the community level throughout America.

    “Help for restaurants is help for employees and communities, and a signal that our country is one step closer to turning a corner,” Sean Kennedy, executive vice president of Public Affairs for the National Restaurant Association, said in a statement.

    From the Association’s data, it’s clear restaurants are bracing for further disruption. Thirty-two percent of operators said they think it will be seven to 12 months before business conditions return to normal for their restaurant. In that case, COVID-19 would hang a two-year cloud on the industry.

    Twenty-nine percent said they believe it will be even longer, more than a year. An additional 10 percent said business conditions would never return to normal for their restaurant.

    Looking near-term, just 18 percent of operators expect sales in February and March to run higher than January. Forty-one percent believe they will actually decline, while 41 percent expect much of the same.

    If no additional relief packages arrive from the federal government, 14 percent of operators said they would “probably” or “definitely” be closed within three months.

    In one of the more telling and wide-ranging figures, 77 percent of operators said total dollar sales volume in January was lower than January 2020. While the sector has recovered in many places, especially among quick-serves—many of which are actually seeing higher sales levels—the conversation continues to be relative for thousands of restaurants. Namely, independents and sit-down chains

    From November 2020 to January 2021, nearly 450,000 restaurants jobs were lost, representing about 10 percent of the total jobs recovered during the first six months after spring shutdowns.

    Eighty percent of operators in the Association's study said current staffing levels are lower than normal, sans COVID-19.

    While many industries have moved into a recovery phase, the restaurant industry ended last year in a “double-dip recession,” and with 2.5 million fewer jobs. Between March 2020 and January 2021, restaurant and foodservice sales were $225 billion down from expected projections.

    Twenty-nine percent of operators told the Association they’ve laid off or furloughed employees in December or January. Full-service restaurants (39 percent) were more prevalent than limited-service ones (20 percent).

    Only 14 percent of operators plan to have higher staffing levels in February and March compared to January. Twelve percent think levels will fall. Seventy-four percent expect no change.

    As of February 1, the Association estimated at least 17 percent of all eating and drinking places, or more than 110,000 establishments, were completely closed and not open for business in any capacity. These are stores shuttered either temporarily or permanently. The end-all fallout won’t be clear for some time, as “many restaurant operators are waiting to see if or when it makes sense to reopen,” the Association said.

    Among those who classified their restaurant’s reopening status as “temporarily closed with plans to reopen,” 67 percent said they were closed due to indoor dining restrictions. Forty-two percent credited “uncertainty about future lockdowns or restrictions.”

    Fifty percent of these operators said they’re closed because they do not have enough customers to justify reopening. Twenty-six percent are waiting on a new relief package from the federal government. Twenty-two percent believe it’s too soon from a public health perspective. And lastly, 19 percent don’t have enough employees to adequately staff the restaurant.

    The Association’s letter Tuesday was its sixth update sent to Congressional leadership. And the industry still waits for direct aid.

    The House of Representatives passed President Joe Biden’s $1.9 trillion COVID relief bill early Saturday. Included, as part of the Restaurant Revitalization Fund, food and drink entities with 20 locations or fewer can qualify for grants equal to the difference between 2020 and 2019 revenue, up to $10 million per company and $5 million per physical location. The grants may cover such items as payroll, rent and utilities, operational expenses, paid sick leave, food and beverage expenses, maintenance expenses, and more.

    Also, the fund earmarked $5 billion for applicants with revenue of $500,000 or less and $20 billion for “eligible entities of different sizes based on annual gross receipts.” During the first 21 days, the application process will prioritize restaurants owned by women, veterans, and socially and economically disadvantaged individuals.

    “The Restaurant Revitalization Fund represents the culmination of a year’s worth of advocacy and development toward an industry-specific solution,” Kennedy said. “Prompt passage and implementation will provide new relief opportunities for some of the nation’s hardest-hit restaurants and communities.”

    “Demand for relief will far outpace the $25 billion in funding,” he added. “But this is an incredible step forward and we look forward to working with you to see this program launch successfully to rescue countless industry jobs nationwide.”

    The bill is headed to the Senate.

    Kennedy also surfaced the Association’s “concerns with inclusion of the Raise the Wage Act” in its Tuesday letter, adding “which we understand will not be a factor in the Senate version of the bill.”

    The House’s bill includes a minimum wage increase to $15, but it’s widely understood it won’t survive the Senate. Congress is pushing the relief bill through budget reconciliation, which would allow Democrats to pass it with a simple majority, as opposed to needing Republican support. The process comes with stricter rules, such as provisions needing to be directly tied to the budget. The parliamentarian, Elizabeth MacDonough, decided the minimum wage hike didn’t qualify.

    When it goes to the Senate, the minimum age provision would be stripped, and the legislation ultimately returned to the House for final approval. The topic could return, however, in a standalone bill or as part of other legislation.

    In our first pandemic letter to you on March 18, 2020, we called for an array of approaches to sustain our industry and our workforce. You listened, creating critical programs like the Paycheck Protection Program, expanding Economic Injury Disaster Loans, and enhancing the Employee Retention Tax Credit,” Kennedy said in the letter. “These programs have helped restaurants limp through almost 12 months of shutdowns, reopenings, and capacity limitations. But no other industry has lost more jobs and more revenue than the restaurant industry, and we have been consistent in urging a restaurant-specific recovery plan from Congress.”

    Let’s take a deeper look at the survey data, which polled 3,000 restaurant operators nationwide from February 2–10.

    Restaurant operators’ reporting of sales in January 2021 versus January 2020

    All restaurants

    • Percent of operators reporting higher sales in January: 13 percent
    • Percent of operators reporting lower sales in January: 77 percent
    • Average percent change in sales: January 2020 to January 2021: –26 percent

     

    Full-service restaurants

    • Percent of operators reporting higher sales in January: 6 percent
    • Percent of operators reporting lower sales in January: 88 percent
    • Average percent change in sales: January 2020 to January 2021: –35 percent

     

    Independent full-service restaurants

    • Percent of operators reporting higher sales in January: 5 percent
    • Percent of operators reporting lower sales in January: 88 percent
    • Average percent change in sales: January 2020 to January 2021: –36 percent

     

    Franchisee full-service restaurants

    • Percent of operators reporting higher sales in January: 7 percent
    • Percent of operators reporting lower sales in January: 85 percent
    • Average percent change in sales: January 2020 to January 2021: –28 percent

     

    Limited-service restaurants

    • Percent of operators reporting higher sales in January: 21 percent
    • Percent of operators reporting lower sales in January: 65 percent
    • Average percent change in sales: January 2020 to January 2021: –17 percent

     

    Independent limited-service restaurants

    • Percent of operators reporting higher sales in January: 14 percent
    • Percent of operators reporting lower sales in January: 76 percent
    • Average percent change in sales: January 2020 to January 2021: –25 percent

     

    Franchisee limited-service restaurants

    • Percent of operators reporting higher sales in January: 28 percent
    • Percent of operators reporting lower sales in January: 54 percent
    • Average percent change in sales: January 2020 to January 2021: –8 percent

     

    Some other points:

    Given the dynamic at hand, with dine-in capacity cut or limited, off-premises sales have surged across the restaurant landscape. But it hasn’t been enough to make up the difference for many. Among restaurant operators who said their off-premises business increased compared to pre-COVID-19 levels, 65 percent said their higher off-premises sales have made up less than 30 percent of lost on-premises business.

    The ability to offer alcoholic beverages with off-premises orders represents an important source of current revenue, data showed. Among operators who started doing so, 93 percent said they plan to continue offering customers this option if their jurisdiction doesn’t cut the cord after COVID-19 clears.

    Winter has challenged operators, too. Only 40 percent of restaurants said their concept currently offers on-premises outdoor dining in a space such as a patio, deck, or sidewalk. That’s down from 49 percent in November and 67 percent in September.

    Forty-two percent of full-service operators said their restaurant currently offers outdoor dining—a dip from 52 percent in November and 74 percent in September.

    Thirty-seven percent of limited-service operators are offering outdoor service. It was 46 percent in November and 60 percent in September.