Operators are unsatisfied with Paycheck Protection Program. But that's just the beginning.
A dark cloud continues to hang over the independent restaurant industry as a recent survey revealed 80 percent of operators aren’t certain their business will survive the COVID-19 pandemic.
The survey, which included more than 1,400 participants, was released by the James Beard Foundation and the Independent Restaurant Coalition.
The data showed that as of April 13, restaurateurs have laid off 91 percent of hourly employees and almost 70 percent of salaried workers. That’s up from 78 percent and 58 percent in March, respectively.
Operators see the biggest cash challenges as rent (39 percent), payroll (34 percent), and taxes (9 percent). Additionally, 51 percent of respondents said they’ve taken on at least $50,000 in new debt.
Forty-one percent of owners see the slow return of customers as the biggest challenge to reopening, followed by paying vendors (35 percent), rehiring staff (16 percent), and retraining staff (3 percent).
More than 38 percent reported they have closed temporarily or potentially permanently and over 77 percent of respondents reported at least a 50 percent reduction in sales.
“We have been decimated by coronavirus. Last week on this call, I felt optimistic, right now, you guys have to understand, this is a dire situation that we’re in,” said Tom Colicchio, owner of Crafted Hospitality in New York and cofounder of the Independent Restaurant Coalition. “Most restaurateurs and chefs that I talk to, they don’t believe they’ll survive this. And if they do get open for a month or two at a time, they’ll probably close after that. We are looking at something that will completely gut the entire industry that employs 11 million people.”
The Coalition—representing more than 500,00 independent locations that provide $1 trillion to the economy—said the $349 billion Paycheck Protection Program does not help the restaurant industry.
The program provides forgivable loans to small businesses to assist with payroll, rent, and utilities for eight weeks, but it ran out of money Thursday. According to the survey, 80 percent of respondents applied for a loan.
The main argument pushed by the Coalition is that it doesn’t make financial sense to hire back employees for two months when their restaurants may not open during that time. They believe after the loan dries up, the employees will be laid off again.
To fix this issue, the group wants to move the origin date of the loan to the first day that restaurants can open and extend the maximum loan amount to three months after restaurants are allowed to reopen and operate at full capacity.
“Independent restaurants should have been gaining confidence that they would survive this crisis, not becoming more anxious, which is what we’re seeing from this data,” said Claire Reichenbach, CEO of the James Beard Foundation. “The fact that restaurant owners are now more fearful of losing their livelihood than before PPP [Paycheck Protection Program] opened, shows just how futile the program has been.”
According to Naomi Pomeroy, operator of Beast in Portland, Oregon, and cofounder of the Coalition, about 60 percent of the jobs lost in March were from the restaurant and bars. The drop nearly erased all the growth in the restaurant business from the past two years.
She noted that the effect on the independent restaurant industry goes beyond the 11 million employees. There’s also the millions that are indirectly connected like farmers, fishermen, winemakers, distributors, and producers.
“So many people are going to be directly impacted by this that the damage to our economy overall is at the greatest risk by not having the PPP apply to restaurants,” said Pomeroy, who applied for an SBA loan but hasn’t heard back. “ … We are a very tight-margin industry where we’re relying completely on cash flow. And most of the people that I know are not going to be able to open their restaurants again.”
While small, mom and pop restaurants struggle to gain funds, larger chains like Potbelly and Ruth’s Hospitality Group have announced reception of SBA loans. The forgivable funds are for companies with 500 employees or fewer, but the money is location-based, not overall, meaning larger chains can receive funds on an individual basis.
The survey said more than 71 percent of respondents had a profit margin under 10 percent in the last year, meaning appropriate aid will be a make or break situation for a majority of independent restaurants.
“Big chains have big lawyers and big accounting firms and they have the infrastructure and also political prowess to use this to their advantage more so than the independent restaurants,” said Kwame Onwuachi, owner of Kith and Kin in Washington, D.C. and co-founder of the Coalition.
There are ongoing discussions in Washington about replenishing the Paycheck Protection Program, but Republicans and Democrats have clashed on how to proceed. Republicans want to pass an additional $250 billion, while Democratic lawmakers are pushing a $500 billion plan that provides $250 billion to the program ($125 million for women, minorities, and veterans) and the remainder amount to hospitals, state and local governments, and food assistance programs.
Meanwhile, the federal government has formed an economic advisory council across several industries to steer the nation toward reopening the economy. A part of that list are several big chain CEOs and national operators.
The Coalition said the list lacks diversity and proper representation. Pomeroy said the list, which includes McDonald’s, Starbucks, Wolfgang Puck, and Thomas Keller, basically says that “Here in America, we have chain restaurants or white tablecloth restaurants that are unaffordable to the general population.”
Onwuachi wasn’t satisfied with the list either.
“It does not represent the restaurant industry unfortunately,” Onwuachi said. “And it’s not even in tune with people that work in restaurants because most of the people on that list aren’t in restaurants on a day-to-day basis. In order to have that part of what restaurants actually represent, it needs to be way more diverse. There needs to be at least one woman on that list. It’s embarrassing.”
The main message for the Coalition is the independent restaurant industry needs saving, and the Paycheck Protection Program won’t help as it’s currently structured.
Colicchio said if the intention of the program was to get people back to their jobs, it’s not working.
“The James Beard survey shows what many of us already know: restaurants that have not already permanently closed are on the precipice of going under,” Colicchio said. “… If Congress can give special treatment to industries that employ far less Americans, they can level the playing field for a business that directly employs over 11 million Americans and contributes nearly $1 trillion to the GDP. Saving independent restaurants will be crucial to getting the U.S. economy back on track.”