Six months into COVID-19 and the outlook remains dark for independent restaurants. A new survey from the James Beard Foundation released Thursday, in collaboration with the Independent Restaurant Coalition, suggests only 66 percent of independent bars and restaurants believe they can survive through October.
In May, close to 75 percent of independent restaurants reported taking on new debt obligations north of $50,000. More alarming, 12 percent tagged the number at $500,000 and above.
The 50 percent seating capacity mandated in several states and localities won’t be enough to stave off mass closures, operators said. Rather, they need nearly 60 percent, on average, to keep going.
“The restaurant industry is being hit by a multitude of forces,” Clare Reichenbach, CEO of the James Beard Foundation, said in a statement. “Inconsistent information about COVID-19 health and safety protocols and a lack of sufficient financial support are endangering the entire industry, but especially small, independent operators.”
The capacity question weighs heaviest. Reichenbach said independents, even when able to overcome financial burdens of reopening, from PPE investments to past-due rents, and other costly new protocols, are afraid they won’t see enough customers at their tables to support operations.
“On top of that, states have been reclosing restaurants and bars at the direction of the federal government, leaving unexpecting restaurateurs in a lurch,” Reichenbach added. “It’s no wonder that owner confidence is waning five months into this pandemic with no relief in sight.”
In May, despite 92 percent of respondents having received PPP loans, bar and restaurant owners expressed only 60 percent confidence they could outlast the crisis.
Nearly 40 percent indicated consumer fears about COVID-19 transmission among their top three concerns about reopening. Close to 36 percent chose unpredictable state guidelines for operating.
Also in May, 69 percent of restaurants named rent and payroll as their biggest, most immediate cash challenge. By July, 52 percent said relief for new PPE expenses, rent, mortgage, payroll, staff benefits, and vendors expenses, was their top priority.
Looking ahead, restaurants cited the health and safety of employees and customers as their No. 1 issue in July. Meanwhile, customer behavior continues to represent a growing concern—27 percent of respondents listed it among their top three worries.
Owners cited not wearing masks (82 percent), failure to social distance in common areas (71 percent), potential conflict over safety with customers (71 percent), and staff mistreatment (65 percent) as lead concerns with today’s restaurant guest.
“The results of this survey simply confirm what we’ve been fearing: the longer this pandemic goes on, the more of these cultural and economic bastions we are going to lose forever,” Andrew Zimmern, a founding member of the Independent Restaurant Coalition, said in a statement. “Someday, in the future, we are all going to be able to safely take off our masks and get together again. If Congress doesn’t act now, we will lose the very places where we would celebrate that day.”
More than four in five restaurants said they were looking for information on financial relief in order to reopen, and three in five said they needed additional funding for fixed costs and payroll to fully reopen and stay open.
The study polled 2,107 bar, nightlife, and restaurant owners from May 19–29 and July 14–28.
“It’s hard to be hopeful for an industry when you’re losing confidence,” added Nina Compton, IRC leadership team member and owner of Bywater American Bistro and Compère Lapin in New Orleans. “I am hopeful for this industry. But we’re barely holding on here—and hope alone doesn’t pay our bills. But knowing our restaurants will have the resources we need to stay closed until this pandemic ends is invaluable. It would reassure our workers and keep them paid. It would help us maintain business relationships with our suppliers. Congress needs to give us real hope by passing the RESTAURANTS Act.”
The Act Compton referenced calls for the establishment of a $120 billion grant program run by the U.S. Treasury that small restaurants, bars, food trucks, caterers, and other similar establishments can use to cover various operating costs, including payroll, rent, mortgages, supplies, and PPE. Grant amounts are determined by comparing revenue from 2019 to revenue in 2020, and funds do not need to be repaid.
American Express, The Coca-Cola Company, Delta Air Lines, Hyatt Hotels, Resy, Sysco, and US Foods have expressed support.
The Act was originally introduced in June by Sens. Roger Wicker (R-MS) and Kyrsten Sinema (D-AZ), alongside Reps. Earl Blumenauer (D-OR 3) and Brian Fitzpatrick (R-PA 1), and now has over 165 cosponsors in Congress with more legislators expected to formally sign. Last week, the bill gained 33 more House cosponsors and five additional Senate cosponsors, including Sens. John Cornyn (R-TX) and Amy Klobuchar (D-MN) and Reps. Kendra Horn (D-OK 5) and Francis Rooney (R-FL 19).
Last Monday, the IRC released a new TV ad with support from Morgan Freeman and DoorDash calling on Congress to pass the Act. It’s airing in several markets across the country.
The James Beard study reflects other recent reports from the independent restaurant trenches. The NYC Hospitality Alliance August 3 released data from 500 owners of restaurants, bars, and nightlife establishments across the Big Apple. It found 83 percent of businesses could not pay full rent in July and 37 percent reported paying no rent at all.
The operators said 71 percent of landlords would not waive portions of rent due to COVID-19; 61 percent would not defer rent payments; and 90 percent would not formally renegotiate leases.
Indoor dining remains paused in NYC, with no timetable in sight. “Restaurants and nightlife venues are essential to the economic and social fabric of our city, but they are struggling to survive and absent immediate and sweeping relief so many will be forced to close permanently,” Andrew Rigie, executive director of the NYC Hospitality Alliance, said in a statement.
“While complying with the necessary pause, our industry has been uniquely and financially devastated,” he added. “Small businesses urgently need solutions from government leaders at the city, state, and federal level, inclusive of extending the moratorium on evictions, extending the suspension of personal liability guarantees in leases, pausing commercial rent taxes, providing landlords with needed support, and infusing small businesses with enough cash to weather the storm.”
The Alliance said outdoor dining is not generating sufficient revenue to cover rent and other expenses. Like the James Beard study, operators need more seats to justify suddenly higher costs. And this isn’t taking into account future weather concerns.
A breakdown:
In July, your business expects to pay how much of your rent?
- None: 37.4 percent
- Some: 36.6 percent
- All: 17.1 percent
- Not sure: 8.9 percent
From respondents paying some rent, what percentage does your business expect to pay?
- Less than 50 percent: 29.8 percent
- Half: 53 percent
- More than 50 percent: 17.2 percent
Has your landlord waived any of your rent in relation to COVID-19?
- No: 71.4 percent
- Yes: 28.6 percent
If yes, what percentage?
- Less than 50 percent: 26.6 percent
- Half: 42.2 percent
- More than 50 percent: 31.2 percent
Has your landlord deferred any of your rent in relation to COVID-19?
- No: 61.1 percent
- Yes; 38.9 percent
Have you renegotiated your lease in relation to COVID-19?
- No: 62.1 percent
- Yes: 10.2 percent
- In good faith negotiations: 27.7 percent
In late July, Bloomberg reported on a new study from Allen & Associates that projected as many as 231,000 of the nation’s roughly 660,000 eateries could close this year. That’s about one in every three restaurants, and would bring the industry’s growth to a halt for the first time in two decades.
Rabobank estimated as many as 50,000 to 60,000 independent restaurant closures, or 15–20 percent of the entire field. Looking at the bigger picture, it would slice 8–10 percent of all restaurants in the next 12 months.
Yelp reported, as of July 10, there were 26,160 total restaurant shutterings since the arrival of COVID-19, an increase of 2,179 from June 15. Of those closed, 15,770 permanently shut down, or 60 percent.
Last week, the Department of Commerce said restaurants lost more than 34 percent of revenue in 2020’s second quarter.
But the challenge hasn’t been steady. It’s spiked and leveled off and spiked again, which is one critical pain point addressed by James Beard. The mixed messaging and closing-reopening-reclosing-reopening dynamic is where many operators are losing grip.
Since July 1, nearly 100,000 restaurant dining rooms have been shut down a second time by government mandates, according to The National Restaurant Association. The number of restaurants focused to close permanently continues to increase as well, with the industry on track to lose $240 billion in revenue this year and 8 million employees, per the Association.
More than one in 4 workers who have lost their jobs during the pandemic are from the restaurant industry, more than any other sector.
The IRC said neither the proposed HEALS Act or HEROES Act include direct aid for independent bars and restaurants. And there are other issues, too. Namely the HEALS Act wording that small businesses with fewer than 300 employees and that can demonstrate a 50 percent loss in quarterly gross receipts over the previous year to apply for a second PPP loan.
The Association said, at this threshold, more than half of operators (55 percent) would be left out. It also expressed concern that restaurants in recovery mode nationwide could soon be on the hook for thousands in unexpected tax bills.
Because of an Internal Revenue Service decision made weeks after restaurants started accepting PPP loans, normally deductible business expenses are no longer deductible if the business pays the expense with a PPP loan that is subsequently forgiven.
The Association said these tax liabilities are surprising and a “shock to thousands of restaurant operators.”
On Friday, the Department of Labor released its July jobs report, which showed 2.6 million restaurant and bar jobs are still lost from COVID-19. This despite the industry gaining 502,000 jobs in July after increasing by 2.9 million in May and June, according to the Bureau of Labor Statistics.
“Another month has gone by with more people unemployed, more bills piled up, more permanently closed businesses, and no plan from Congress to save our restaurant,” the IRC said in a statement. “One in four of your neighbors, friends, and family unemployed during the pandemic worked in restaurants and bars. We are one of the only industries being asked to limit capacity or remain closed for the indefinite future in many states, yet neither Congress nor the White House has a plan to help us get through this.”
The IRC added that another round of PPP funds wouldn’t solve the concern. As of July 31, food and accommodation services received 8.1 percent of PPP dollars, despite food and drinking places comprising a quarter of the pandemic’s job losses, the IRC said.
“The July employment report shows that PPP isn’t working for restaurants, and another loan program won’t work either,” it said. “PPP was an eight-week solution to an eighteen month problem, and we need additional relief from Congress urgently to ensure there are jobs we can return to next year. Restaurants are already in more debt than ever before, paying back PPP loans, suppliers, or our employees. One in three are expected to permanently close by the end of the year. We need grants to help offset the cost of reopening when it’s safe to do so. We urge Senate and House leadership to join the 181 Republicans and Democrats in Congress who support the RESTAURANTS Act and include this proposal in the next relief package. Over 16 million people’s lives depend on it.”
