As we’ve been tracking for months, independent restaurants have been closing by the hundreds, and neither old, well-established concepts nor celebrity-owned restaurants are immune to the problem.
Exactly how many restaurants are expected to close has varied greatly. The Wall Street Journal, using data from the financial-services firm Stephens, said 10% of restaurants could close.
The Independent Restaurant Coalition had a far different perspective, reporting last month that 85% of independent restaurants could close by the end of the year.
We expect the real number to be somewhere in the middle, albeit closer to the Stephens estimate. It will be highly dependent on the direction of the virus, and of the economy, and on whatever further federal stimulus comes out of Congress.
Either way, it’s a remarkably devastating situation for independent restaurants, and one that would have been impossible to imagine just a few months ago—even after federal stimulus payments to consumers that spurred spending, and Paycheck Protection Program loans that got millions of Americans back to work.
To understand the potential impact to independent restaurants, it helps to look at both sales and employment data.
Total industry sales, according to federal data, are 26% lower than they were a year ago. But the biggest problems are likely weighted toward non-chains.
That can be seen in more specific sector-based sales numbers. Independents are concentrated in full-service and fast-casual style restaurants. Yet the most improvement has come in fast food, where quick-service restaurants’ sales have fully recovered as of last week, according to the software firm Crunchtime.
On the other hand, full-service dining sales were just 55.5% of year-ago levels. With many states having slowed or even reversed reopenings, that figure has roughly stagnated over the past five weeks. (That said, fast-casual sales were 89% of year-ago levels, a post-pandemic high.)
That all suggests independent restaurant sales remain far off of their pre-COVID levels. And the same is true for employment.
While the industry has gained nearly 3 million jobs over the past two months, it is still 25% below where it was back in February.
To be sure, a lot of employers have cut workforces even as they’ve continued to operate. Still, that suggests there are a lot fewer restaurants now than there was just a few months ago. And more restaurants continue to close, according to the review site Yelp.
The rate of closures will continue as long as sales remain stagnated, which means that the 10% figure is likely conservative given the current sales trajectory. Numerous independent restaurants tell us they are struggling to make ends meet even with federal stimulus loans, and could close.
And many landlords could force the issue with rent, which could lead to more closures down the line.
One big concern is that sales start slowing again. That could well happen if the $600 in extra weekly unemployment benefits is allowed to expire without a substantial replacement.
Those benefits clearly provided a backstop for the industry to generate at least some sales even with historically high levels of unemployment. The funds were weighted toward lower-income consumers, and they spent it.
Of course, continued stimulus and some movement on the virus changes all of this and keeps more independent restaurants afloat through the end of the year.
But it’s clear that by the end of the year, there will be a lot fewer independent restaurants. And many of them will be filled by chains.
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