Why the Current Restaurant Industry Can’t Survive the Pandemic?

Photo by Sergi Brylev on Unsplash

By Henry Wang, Messy Details Contributor

With COVID-19 still going on, businesses across the country are being affected by it every day. More and more businesses are permanently closed due to being unable to withstand the damages caused by the pandemic. Without a doubt that the restaurant industry has been hardest hit by COVID-19. 

Due to the closing of restaurants to limit the spread of COVID-19 in many cities, restaurants have seen 40% of their doors closed and approximately 8 million workers laid off according to estimates. The devastation in the restaurant industry is almost unseen in any other industry, and people began wondering just what makes them different from other industries. 

The Restaurant Industry Against COVID-19

The restaurant industry has always been a little different from other industries as it’s made up of 70% independent owners making the industry more fragmented compared to others. When COVID-19 hit the states and restaurants were forced to close causing their revenue to become zero overnight, the fragmented nature of the industry made it harder for them to band together and lobby for government support. 

Restaurant owners were also forced to fire most of their employees due to no longer having enough revenue to keep them employed. Operating a restaurant is labor-intensive by nature, on average, 30% of a restaurant’s revenue may be spent just on employing workers. An example of the devastating unemployment caused by the pandemic where Thomas Keller owner of the restaurant group which includes the French Laundry in Napa Valley and Per Se, has laid off  1,200 staff across his 13 restaurants, with only 18 employees left at his restaurants. 

Like labor, the cost of ingredients and supplies a restaurant needs may also reach around 30% of the restaurant’s revenue which means the failure of the restaurant industry will also leave a big hit to its suppliers. The closure of restaurants across the states due to COVID-19 will leave a ripple effect onto industries like farmers, fishermen, forager, ranchers, manufacturers, and other producers that supply restaurants. 

Another point that makes restaurants different from other small businesses is its cash reserve. According to The JPMorgan Chase Institute's "Cash is King: Flows, Balances, and Buffer Days”, restaurants have the smallest cash reserve hovering around 16 days of cash buffer reserve. Because the revenue that restaurants gain daily is usually used to pay previous purchases of supplies and as well as rent, wages, and other expenses, depending on how well their business goes, a restaurant won’t have much reserve cash. Without enough cash reserves, being unable to operate for several months may mean the end to most restaurants. 

Frustrations from Government Aid

As the restaurant industry was left in this terrible state, support from the government also seems difficult. Many of the government aid programs aimed towards small businesses like the US CARES Act and its Paycheck Protection Program (PPP) fail to address the needs that are unique to the restaurant industry. 

Restaurants lack the necessary funds to use on other expenses even with government support as most of it is required to be used on payrolls. Because of the risk of loans not being forgiven under these circumstances, many restaurants chose not to take them as it can result in the permanent closure of their restaurant. 

Trouble Adapting

After COVID-19 restrictions began to loosen up around May and June, many restaurants began reopening but things are still far from normal. For one, there are still restrictions to dine in which caused many restaurants to opt for just “takeout, delivery, and outdoor dining options”, however, although many restaurants were able to adapt to these changes during reopening, many also find it difficult to shift into this new style. 

Annie Shi, co-founder of King in New York City, chose not to shift to takeout and delivery only. According to her, “not every menu item in our restaurant is designed to be delivery-friendly. And, delivery is not that profitable given that apps like Uber Eats take 30 percent of your revenue in fees.” Amanda Cohen, a James Beard-nominated chef and owner of Dirt Candy in New York City made the same decision as she explains that because “We didn’t do delivery beforehand,... I didn’t think we were going to do a good job of it in the middle of a pandemic”. 

How the Industry can come back

With the pandemic still going on, even with the many safety regulations, most people don’t feel confident about coming back to restaurants. In a “consumer polls, conducted in May by The Washington Post, researchers at the University of Maryland, and Morning Consult” it was “revealed that only 26 percent of Americans believe restaurants should reopen, and merely 18 percent felt comfortable returning to restaurants to eat.” Another “consumer survey undertaken by Datassential also in May, 75 percent of consumers said safety was more important than visiting their favorite restaurant and 64 percent said they will definitely avoid eating out.” 

From these results, it’s obvious that people aren’t too fond of coming back to restaurants which is why the key to recovering from this set back will be restoring their confidence in restaurants. In order to restore the customer’s confidence, it’s important to create an environment that makes them feel comfortable about getting their food from there. 

Making sure both the employees and customers are wearing masks when necessary, being attentive about the sanitation and cleanliness of the restaurant, regulating the flow of customers, and using single-use menus are all steps you can make to create a safe environment. On top of all of this, it is also important to be aware of visual cues that will signal a safe environment to customers. Visual cues will help customers regain confidence as it signals a safe and comfortable environment. As simply keeping a restaurant clean may not provide many visual clues or evidence for the customers to see, having some kind of design that makes the environment visually clean will be a big step stepping forward. 

Moving a Step Forward

Having to experience similar challenges during this pandemic, many restauranteurs banded together in order to reach officials to tell them about the unique aspects of their industry and why it’s hard for them to survive during the pandemic. One of these groups, ”the Food and Beverage group of the White House Great American Economic Revival” which consist of 200 members that represent across 17 industries have in fact been meeting with the White House including the President and Cabinet members to describe the impact the pandemic has had on the restaurant industry. Through the efforts of lobbying in Washington, they were able to make a difference as the Paycheck Protection Program legislation was changed and approved by the White House. 

COVID-19 has bought a lot of harm to the restaurant industry but it has also led to new opportunities as people are now thinking of getting into the industry due to cheap assets lying around and investing in some worthwhile businesses that need a little funding to survive this crisis. New technologies will also be created due to the focus on restaurants and safe food handling leading to “no-touch technology for ordering, paying, restrooms, and even entry and exit from restaurants, and cleaning and sanitizing protocols and products.”

Final Thoughts

Although the restaurant industry has seen better days, the industry is far from over and will come back from this. Before COVID-19 started, the restaurant was one of the biggest industries out there and for good reasons too. Restaurants and outdoor eating are a definitive part of American culture and that isn’t going away anytime soon. As more and more people are getting tired of home-cooking, people will eventually be unable to resist the charm of outdoor eating and the industry will make a comeback stronger than ever before. 

Read more about this in-depth from Harvard Business School.