Small independently owned restaurants are facing an extinction level event as we move deeper into colder months and the coronavirus spread reaches all-time highs. Without immediate financial aid, over 75% of the state’s 19,504 eating and drinking locations are in danger of closing permanently.
Since the COVID-19 pandemic began in March, 17% of restaurants throughout the country (or about 110,000 establishments) have closed either permanently or long-term and 10,000 restaurants have closed over the last three months alone. As for the 10,000 restaurants that have closed over the past three months, the majority had been well-established in the industry for years, and on average, had been in business for 16 years.
Triad Food & Beverage Coalition conducted a study to measure the impact COVID-19 business restrictions are having on the industry. The organization surveyed 100 operators throughout the region – restaurants (86%), bars (11%), caterers and food trucks (3%).
According to the survey, 52% of all respondents saw a 50% or more drop in sales revenue over the past six months with only 2% reporting flat sales or no impact. About 52% of operators also had to layoff or furlough at least ten (10) employees in the past six months with nearly 100% of operators expecting more staff changes to occur in January.
North Carolina Mayors would like restaurants to receive $120 billion in aid in the next coronavirus stimulus package – especially as cases rise and restaurants are no longer to provide outdoor dining service. Leaders called on the U.S. Senate to immediately take up and pass the RESTAURANTS Act that provides restaurants, bars, and food trucks with industry specific federal aid so we can beat this pandemic and sustain local small businesses.
American voters overwhelmingly approve of significant federal funding for states, cities and towns to overcome the devastating economic effects of the coronavirus on the economy and essential public services. Economists also agree that industry specific aid is a smart investment and project that passing the RESTAURANTS Act would generate a $4.7 billion economic benefit for North Carolina. The Independent Restaurant Coalition has also called on the Senate to urgently pass industry aid to prevent massive layoffs and permanent closures. Food services account for 8.7% of all employment in North Carolina.
Sales and profit margins are critical in an industry where operators are expected to run a successful business in a financially tight environment that can be easily derailed by simple errors. The average restaurant operates a payroll at 28-30% of sales revenue, food cost is often 32-35% - therefore most well run restaurants may hit a 40% gross profit before fixed expenses.
Rent averages 10% of sales and operators must also budget for utilities, insurance, trash pick-up, pest control, and etc. – the goal is to maintain these expenses at 20% of sales. Therefore a typical owner may clear 10% before taxes, but to be honest most only get around 5% because of waste, theft, unexpected maintenance, and a range of other externalities.
So if a restaurant earns $1 million in sales, the owner receives $50,000 before taxes. To be honest - they could make more being the general manager at their local McDonald’s. However most operators will quickly tell you they are not in the business for profit; moreover they enjoy making a difference in their community, hiring neighbors seeking work, and serving people.
Now the same operators who sponsor yearbook ads, host fundraisers, and feed the hungry are the ones in need. More than 64% of operators responding to the survey expressed that lack of capital and cash flow assistance is needed for them to revive their business. Over 20% requested $30,000 or more to rebuild.
Over the past several months, Democrats and Republicans have failed to come to a consensus on what should be included in a relief bill since the last round of relief was passed in April. Republicans are calling for business liability protection, while Democrats have asked for assistance for state and local governments. The White House is demanding a fresh round of direct stimulus payments to all taxpayers.
Operators are not optimistic the federal government will act within time. When asked if “the federal government’s response has been helpful”, over 95% “somewhat disagree”.
Restaurant operators have been told to “pivot” and many have closed temporarily, reduced staff, increased marketing, altered operating hours, and attempted to incorporate curbside pick-up, delivery and online sales. But the pandemic has been ongoing for 10 months and operators have exhausted capital and creativity, not to mention patience.
We now have a vaccine and effective therapeutics providing a light at the end of the tunnel – but realistically it will take until next summer or fall before there is widespread distribution. Congress must act to save restaurants now.
Algenon Cash is a nationally recognized speaker and the managing director of Wharton Gladden & Company, a consulting firm. Reach him at acash@wharto