Yelp's latest report suggests the sector has been the hardest hit.
Closures are on the rise for restaurants as COVID-19 crosses the half-year mark. Yelp released its latest Economic Impact Report on Wednesday, which, once again, placed restaurants atop its hardest hit sectors. Closures totaled 32,109 as of August 31, with 19,590 of those listed as permanent, or 61 percent.
That’s up from 26,160 and 15,770, respectively, in early July. Yelp said breakfast and brunch restaurants, burger concepts, sandwich joints, dessert places, and Mexican brands faced the highest rate. Meanwhile, foods that translate to off-premises, such as pizza, delis, food trucks, bakeries, and coffee shops, stemmed the tide somewhat.
Bars and nightlife, however—an industry six times smaller than restaurants—continues to endure especially steep closures, with an increasing number of businesses going dark permanently. At the end of August, there were 6,451 total, Yelp said, of which 3,499 were permanently shuttered. The share of permanent closures within bars and nightlife increased by 10 percent since Yelp’s July report, when there were 5,454 total (2,429 permanent).
Yelp’s data draws one of the more accurate portraits available today given it requires deliberate action from the restaurant owner. On each date, starting March 1, Yelp counted U.S. businesses that were open and closed. Closures can be permanent or temporary, and are signaled by the business owner marking the shop as such, including changing hours or through a COVID-19 banner on their Yelp page.
Yelp said closure counts “are likely an estimate of the businesses most impacted, with many others not counted because they remain open with curtailed hours and staffing, or because they have not yet updated their Yelp business pages to reflect closures.” Additionally, the company only identifies closures that have been vetted by its “User Ops” team or updated directly by a business owner. Restaurants can also set automatic reopening dates on Yelp, which are counted as reopenings.
In other terms, it’s more likely the actual closure number is higher for restaurants, not lower. The number of operators who chose to skip the step of marking their venue closed—or are holding out—is probably a wider pool than those who made the effort to switch to “permanently closed” prematurely.
The National Restaurant Association earlier in the week said one in six restaurants, representing close to 100,000 units, are closed either permanently or long-term. It expects the six-figure prediction to stand by year’s end.
The Association also noted foodservice forfeited $165 billion in revenue March through July and is on pace to give up $240 billion in sales this year.
Looking ahead, from a survey of operators, the Association said 40 percent of operators believe it’s unlikely their restaurant will still be in business six months from now barring additional relief packages from the federal government.
One of the major setbacks at hand, and why restaurants continue to push for direct aid from Congress in the form of the RESTAURANTS Act, which added 12 senators to the cosponsor list this week, including Cory Booker, is the added burden of pandemic operations coupled with decreased capacity.
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,” everything from PPE to enhanced protocol, training, cleaning, Plexiglas, and so forth. Yet 66 percent of those same operators guessed it would take at least six months to recoup the investment.
Sixty percent of restaurants in the Association’s survey said their total operational costs (as a percent of sales) were higher than they were prior to the pandemic’s onset.
Per Yelp’s Wednesday report, retail and shopping followed behind restaurants with 30,374 total closures—17,504 permanent. Like bars and nightlife, the share of permanent closures increased by 10 percent since July.
The beauty industry witnessed a 22 percent increase in closures since July, totaling 16,585 closures. Forty-two percent, or 7,002, won’t reopen, which is a 43 percent jump since the last report when Yelp listed 4,897 permanent closures. Similarly, the fitness industry showed a 23 percent hike in closures since July, with 6,024 total (2,616 permanent).
Arguably the biggest difference for restaurants, explaining the 40 percent concern six months down the line, is the reality an essential lifeline is soon going to be pulled by Mother Nature. As the Association explained Monday, outdoor dining will become impractical for many operators across the country, especially in the Northeast and Midwest and other markets typically hampered by weather. Without immediate steps from Congress, “thousands of restaurants may close before you reconvene after the November elections,” the Association said in a letter sent to officials.
It asked for the following changes:
- 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.
“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,” Sean Kennedy, executive vice president of Public Affairs for the Association, wrote in the letter.
To the geographic note, COVID-19’s march across the industry has not been uniform. This is as true by market as it is by segment (quick service faring better than full service, and chains weathering the impact stronger than independents).
Bigger states and metros with higher rents and more stringent local operations for small business throughout the last six months have absorbed a greater toll, Yelp said. So have businesses more closely linked to physical locations that require crowds, such as malls. Smaller cities and solo operations, where operators can conduct business one-on-one or virtually, have proven better positioned.
To put this in some perspective, the NYC Hospitality Alliance reported in August that nearly 40 percent of restaurants didn’t pay any rent in July. Eighty-three percent said they weren’t able to make full rent.
For the states with widespread business closures, the economic struggle has aligned with unemployment rates. Hawaii, California, and Nevada had the highest rate of total closures and permanent closures in Yelp’s report. They’re also the three states with the highest unemployment rates and among the most reliant on tourism. West Virginia and the Dakotas turned in the lowest closure rates.
The affected states also house the hardest-hit metros—Las Vegas, Honolulu, and several in California (San Diego, San Francisco, San Jose, LA, and other). There, roughly 20 businesses per thousand temporarily or permanently closed their doors since March (all sectors, not just restaurants). Pittsburgh, Philadelphia, and Baltimore boasted closure rates below 10 per thousand.
Overall, Yelp’s data showed 132,580 closures across the country in all businesses. As of August 31, 163,735 total shops on Yelp closed since coronavirus arrived in March—a 23 percent increase since July 10. Sixty percent of those are not reopenings (97,966 permanent closures).
Some trends in action
Revenue Management Solutions shared its latest round of data with FSR Wednesday. It showed some stability as customers settle into new habits—sales and traffic trends held relatively firm for most of August and September. Again, however, to the Association’s concern, what happens when winter arrives is anybody’s guess.
Quick-service performance entered its fifth consecutive week of stable traffic in the period ending September 11, trending at negative 10–15 percent, year-over year. Sales remain flat to positive 5 percent. Full-service traffic and sales are running in the negative 30–35 percent range, RMS said.
Additionally, reflecting Yelp’s observation, New England continues to outperform other regions, with traffic at negative 5 to 10 10 percent, and sales at positive 5 to 10 percent, year-over-year. Pacific, South Atlantic, Middle Atlantic, and West South Central are still down with traffic between 5 and 10 percent and year-over-year sales trending between positive 5 and negative 5 percent.
On a side, chicken remains the most popular category RMS tracks, but overall growth slowed. Traffic was flat to negative 5 percent, year-over-year. Sales continue to grow at 18 to 22 percent over last year.
RMS also conducted a consumer survey and found contactless prevalence to be growing. One in three (36 percent) consumers reported using delivery, takeout, and drive thru “more or much more” versus pre-crisis.
Those using delivery “much more” leapt from 19 percent in April to 37 percent in August.
Takeout lifted from 25 to 37 percent in that window.
Drive-thru usage increased from 23 to 36 percent. By comparison, the dine-in segment reported no increase from May to August, despite loosened restrictions.
Fifty percent of non-Baby Boomer generations and 42 percent of Boomers said they were now more comfortable ordering directly from restaurants and third-party apps.
For those who prefer white-label or direct delivery, 63 percent choose restaurants with a loyalty program.
Moreover, when ordering from a third-party site, 43 percent said they might abandon their order if their fees were too high.
Of those, 63 percent said they’d order takeout instead, while 83 percent said they’d order from a different restaurant.