Restaurant Industry Sees 110,000 Closings

ByGeorge Ryan|Dec 9, 2020|Industry News, Local Real Estate, News

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By Linda Moss
CoStar News

December 8, 2020 | 4:14 P.M.

While states reimpose restrictions on restaurants in a surging pandemic, the industry’s U.S. trade group is pleading with Congress for help, citing an estimated 110,000 eateries that have already closed and another half million in what it calls a disastrous “free fall” that threatens to pour more commercial real estate space onto the market.

The National Restaurant Association, based in Washington, D.C., has sent a letter to Congressional leadership sharing new survey findings it says illustrates its industry’s dire straits as the pandemic lingers on. The NRA is asking for support for a moderate compromise proposal as a “down payment” toward a larger relief package early next year.

“What these findings make clear is that more than 500,000 restaurants of every business type — franchise, chain, and independent — are in an economic free fall,” Sean Kennedy, the NRA’s executive vice president for public affairs, said in the letter. “And for every month that passes without a solution from Congress, thousands more restaurants will close their doors for good.”

The trade group’s plea comes as COVID-19 infections are spiking during the virus’s second wave, and states are taking action. California Gov. Gavin Newsom has retightened restrictions on businesses, including restaurants, in the Golden State. In New York, Gov. Andrew Cuomo this week said he may shut down indoor dining again in New York City if COVID-19-related hospitalizations rise further. When restaurants can’t serve patrons it’s more difficult to pay landlords, which in turn can make it harder for those building owners to pay lenders.

In contrast, New Jersey Gov. Phil Murphy said Monday he isn’t planning to prohibit indoor dining in the Garden State at this time.

Citing the financial woes restaurants are facing with restrictions like a 25% capacity limit indoors, Murphy said, “We’ve got no lifeline to throw these folks right now,” referring to the lack of financial assistance available, and therefore “we better be darn sure” there is scientific data to support any new shutdowns.

10,000 Closings in Three Months

Restaurateurs who are offering outdoor seating also fear that the colder weather put a crimp on that business, eating into much-needed revenue.

The association conducted a survey of 6,000 restaurant operators and 250 supply-chain businesses Nov. 17 to 30, and the findings “were stark,” according to the trade group.

“The tide of restaurant closures and bankruptcies continues to rise, sweeping away jobs in some of the most venerated independent and chain restaurants,” the NRA said in a statement.

As of today, 17% of restaurants, more than 110,000 establishments, are closed permanently or long term, according to the survey.

“Since our last update to you, less than three months ago, an additional 10,000 restaurants have closed nationwide,” Kennedy wrote.

In the latest survey, 87% of full-service restaurants — independent, chain and franchise — reported an average 36% drop in sales revenue, and 83% expect sales to be even worse over the next three months.

“For an industry with an average profit margin of 5% to 6%, this is simply unsustainable,” the NRA said.

Sales Drop, Not Costs

Although sales are significantly lower for most independent and franchise owners, their costs have not fallen proportionately, as 59% of operators say their total labor costs, as a percentage of sales, are higher than they were pre-pandemic, according to the survey.

The future doesn’t look good, either, with 58% of chain and independent full-service operators expecting continued furloughs and layoffs for at least the next three months, according to the survey.

The majority of permanently closed restaurants were well-established businesses, and fixtures in their communities, the restaurant trade group said. On average, these restaurants had been in business for 16 years, and 16% had been open for at least 30 years, the survey found.

“In short, the restaurant industry simply cannot wait for relief any longer,” Kennedy said. “We appreciate the efforts of a group of moderate members of the House and Senate to advance a true compromise between the competing proposals from Democratic and Republican leaders. If this moderate plan represents a ‘down payment’ for a larger relief package in early 2021, it will provide restaurants with immediate relief to hold on through the most dangerous point in our business year.”

In addition to support of the compromise proposal, the trade group submitted a plan for how a proposed second draw from the Paycheck Protection Program “could be strengthened to reflect the unique business model of the restaurant industry and highlighted other important measures in the proposal that would support restaurants in the short term.”
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