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What will a second shutdown do to restaurants?

A renewed virus and more shutdowns will hurt a lot more restaurants without further assistance, and the damage will be permanent, says RB’s The Bottom Line.
Photograph: Shutterstock
Bottom line

We knew that a second shutdown was possible the moment states began closing off dining rooms back in March.

Pandemics such as the coronavirus, after all, come in waves. Many experts pointed out the Spanish Flu epidemic, which had a second, more serious wave in the fall of 1918. They felt the same would happen to the coronavirus, theorizing that it would take hold again once the weather turned cooler.

We certainly didn’t expect it so soon. California on Monday announced a statewide shutdown and completely closed the state’s bars. Vice President Mike Pence told governors to do what they could to stop the virus. Philadelphia is banning large gatherings through February. Several other communities have either taken steps or are considering it.

The upshot: The economy certainly appears to be careening toward a second shutdown months before it was supposed to happen.

The good news for the industry is they are better prepared for such a thing, as is the customer base.

Restaurants spent the quarantine figuring out curbside service, bolstering their delivery strategies, upgrading mobile apps and stocking up on fancy takeout boxes. They’ve created drive-thrus in their parking lots and rescued their operators.

But they’ve also closed in massive numbers. Small chains and independents have been hardest hit, as Restaurant Business Editor Heather Lalley has continued to track in recent weeks. The stories of closures haven’t improved since her last installment, either: Just this week, iconic New Orleans restaurant K-Paul’s Louisiana Kitchen opted to cease operations after 41 years.

A handful of restaurant chains have filed for bankruptcy protection. Others have closed restaurants. Several other chains are believed to be in danger of such a filing, either to get rid of debt or to close restaurants or both.

Even seemingly healthy concepts, however, have been damaged financially by the shutdown of the past few months.

Another shutdown, or the prospect of a long recovery accentuated by stops and starts, rehiring and re-furloughing staff, would be devastating for much of the industry. It takes a lot to reopen a restaurant, only to have to close it again.

That said, we fully expect some additional assistance, likely in the form of targeted stimulus payments and small business assistance—and perhaps something aimed specifically at the restaurant industry.

Yet the best strategy for general improvement in the restaurant industry is to get the virus under control. While state shutdowns are clearly not going to be as broad-based or significant as the first time, even without them sales at many restaurants appear likely to stagnate or even fall again because consumers are fearful. That puts pressure on state and federal governments, and society itself, to slow the pandemic, lest it devastate the economy.

The virus itself has proven to be unpredictable. Anyone who knows what is going to happen in the coming months is fooling themselves.

Still, our best guess in a second shutdown is a relatively strong fast-food sector as the drive-thru and takeout strategies prove to be a consistent winner—while low prices become more important. Pizza and anything that does a great job with delivery are also likely to thrive in an extended pandemic, just as they have thus far.

After that, it appears to be a struggle, and no concept is in as much danger as the full-service independent restaurant, which even without a renewed coronavirus was slated to see a fifth or so of its locations close.

Sales last week were about 67% of their year-ago level, according to the software company Crunchtime, with fast-food mostly recovered and fast-casual down about 12%. But full-service sales remain about half of what they were last year, and shutdowns would appear to hurt them the most.

As we’ve been saying for months, the industry is not going to be the same once the pandemic ends. The virus has already cost many communities some popular restaurants that have been around for decades. A lot more of them will go away with a second shutdown.

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