OPINIONFinancing

A lot of restaurants are already permanently closed

The National Restaurant Association says 3% of restaurants are closed for good, and 11% could join them within a month, says RB’s The Bottom Line.
closed restaurant
Photograph by Jonathan Maze

the bottom line

Thousands of restaurants have already closed for good because of the coronavirus shutdown.

According to the National Restaurant Association, 3% of operators surveyed said they have permanently closed their restaurants.

A lot more could join them soon: 11% of operators told the trade group that they could permanently close within the next 30 days.

The survey of 4,000 restaurant owners and operators provides a stark picture of the devastation facing the industry as dine-in service is closed to customers: A huge number of them do not expect to make it through to the other side of the shutdown.

“This is a big reset,” Justin Nedelman, CEO of Eureka Restaurant Group, said in an interview. His company has temporarily closed 20 of its 26 locations.

Nationally, restaurant sales were down 47% between March 1 and March 22. That’s a stunning decline for an industry that operates on a weak foundation of thin margins and excessive debt.

If 3% of the nation’s restaurants are already permanently closed, that means 30,000 locations around the country won’t reopen, based on the Association’s figure that there are more than 1 million restaurants in the U.S. If 11% permanently shut down within a month, that would add another 110,000 closures.

“This is uncharted territory,” Hudson Riehle, the Association’s senior vice president of research, said in a statement. “The industry has never experienced anything like this before.”

That means we will have a massive generation of shell restaurants once this is over.

The numbers on Thursday were brought to the attention of President Trump, who predicted the industry would come roaring back with the help of loans that are part of the federal stimulus package making its way through Congress.

But, he noted, they might not have the same owner when they do.

“There are great people that run restaurants,” the president said during a press conference. “They’ll all come back in one way or the other. It might be a different restaurant. We’re making it easy for people. What we’re doing in terms of loans, in terms of salaries. They’ll all come back.”

“It may not be the same restaurant,” he added. “It may not be the same ownership, but they’ll all be back.”

Restaurants are generating only a fraction of the sales they’d received before the shutdown, if they’re open at all: About 44% of restaurants are temporarily closed, according to the Association. All but 2% of the rest have shifted to takeout-only.

Even with rent breaks and delays on loan payments, many operators don’t have the cash to get through a month’s worth of sales that bad. And a certain percentage of the industry was in trouble even before all of this happened.

According to Black Box Intelligence, same-store sales at full-service restaurants are down 74%.

Technomic, a sister company of Restaurant Business, said it expects total restaurant sales to be down 11.4% at minimum this year based on a shutdown that lasts into the middle of May or so. An absolute restaurant sales decline of 11% would be completely unheard of and would likely result in a steep decline in total unit count as a result. How much, of course, will depend on the total assistance provided to the industry and whether operators can make it that long.

But in numerous conversations with operators and executives over the past couple of weeks, few expect anything other than a major shakeout once this is all done. Nedelman wasn’t the only operator to use the term “reset” to describe what’s happening.  

That shakeout has already started.

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