As 2021 got started, two important events began changing the outlook for the nation’s battered restaurant industry. People started getting vaccines and receiving a new round of $600 government relief checks. Data from the same period shows same-store sales increasing at many chain restaurants, according to the data insight company Black Box Intelligence. That matches a study from the New York Times, which found low-income families began increasing their spending once the checks were mailed. With more Americans getting vaccinated and more relief funds coming to restaurant owners – and their patrons – many restaurateurs are seeing the proverbial light at the end of the tunnel.
“Before, we knew the other side was out there but we couldn’t see it. But now, I finally have a sense of optimism,” said Bob Luz, president and CEO of the Massachusetts Restaurant Association. “But it’s still a long and dangerous swim.”
The stats are startling. The battered U.S. restaurant industry ended 2020 with more than 110,000 establishments hanging up a closed sign – either temporarily or permanently – and two-and-a-half million jobs lost. More than eight million restaurant employees were laid off or furloughed, and the industry lost $240 billion in sales between March and December.
Hudson Riehle, of the National Restaurant Association, told CNBC, “2020 was certainly the worst year for the restaurant industry in its history.”
Dunkin’ franchisees have seen the reality. Operators without drive-thrus, and those who typically relied on a busy morning-commute to pace their business, have seen comps fall dramatically.
“Definitely help is needed,” former Dunkin’ CEO Nigel Travis told Yahoo Finance in December. “[Restaurants] have fought a very good fight to keep going. How much longer can they keep going, though?”
There is hope that President Joe Biden’s COVID-19 relief package, including some $28.6 billion in targeted restaurant relief, will have a major positive impact on restoring the industry. Restaurant owners are hoping to cover eligible expenses such as payroll, benefits, mortgage, rent, utilities, and other costs, as well as some expenses necessitated by the pandemic itself, like building outdoor seating and purchasing protective equipment.
While Luz and other industry lobbyists pushed aggressively for the initial Restaurant Act, a $120 billion restaurant relief plan that died in the Senate last year, the pandemic relief bill passed in December included a second round of Paycheck Protection Program (PPP) loans, along with those stimulus checks. Eligible restaurants and small businesses are accessing $284.5 billion in available PPP loans, which can be fully forgiven if proceeds are used for allowable expenses.
“What we got in the second bite of the apple – the second stimulus act – was that we were treated far more favorably than other industries in the U.S. Congress recognized that our industry was hit the hardest by pandemic, and that we were sadly at the top of a list that no one wants to be on: number one in lost sales, revenues and jobs,” said Luz.
But others point out that PPP loans have many shortfalls, including the fact that restaurants need to have their fixed overhead costs forgiven, primarily lease payments, instead of payroll. “The owner operator should be incentivized to staff their location based on demand, not on loan forgiveness qualification metrics,” said Danny Massare of Small Axe Consulting, a Washington state small business management consultant. “When conditions begin to return to normal, there is a location for the business to attempt to rebuild its infrastructure and regain its foothold in serving the community. The PPP loans were designed to favor maintaining an FTE (full-time equivalent) figure comparable to pre-COVID operations. With limited, and in some cases halted, operations permitted by government mandate, that’s unrealistic. Businesses have more debt for what seems like a simple misunderstanding from the federal government regarding their primary needs.”
Even as the federal government debates how to support the COVID-battered restaurant industry, states passed a flurry of aid packages for restaurant owners and other small businesses. Some states still have federal aid dollars left to spend, although it’s uncertain exactly how much; many states have decided to parcel out the money in stages to respond to evolving needs. The governors of Minnesota, Oregon and Washington freed up millions of dollars in federal aid to help businesses and workers.
States—which, unlike the federal government, must balance their budgets—have mostly reached their limitations and have no more to spend. In Colorado, Gov. Jared Polis announced a plan to convene the legislature to discuss spending $200 million of excess tax revenue on assistance for small businesses and others. But critics say while more funding will help, the funding is only for a few months. In New Mexico, the legislature is looking at spending $300 million in federal aid on grants to small businesses and other expenditures.
Throughout the pandemic, governors have been critical of the federal government’s response and have stepped in to help businesses – particularly mom-and-pop shops – hardest hit by the pandemic. “The failure of Washington to provide additional stimulus relief for our small businesses, struggling families, and to the states for economic recovery is having a devastating impact,” Maryland Gov. Larry Hogan, said last fall. Hogan used $250 million from Maryland’s rainy-day fund to help businesses. In Ohio, Gov. Mike DeWine announced plans to spend some $420 million on small business grants. In Massachusetts, Gov. Charlie Baker announced a $668 million program to provide financial assistance to small businesses impacted by the COVID-19 pandemic.
What else have states done to support restaurants and small businesses? State economic task forces have been formed to protect the state’s economy, and all states have taken steps to define how businesses can reopen with industry-by-industry regulations. Since all states have been granted a federal disaster declaration, their small businesses are eligible for SBA (Small Business Administration) EIDL (Economic Injury Disaster Loans). Nine different states, including Illinois, Maryland, Massachusetts, and Pennsylvania, have also created no-interest or low-interest state loans for businesses. California’s small business disaster relief loan has offered $50 million in funds to provide loans to businesses up to 750 employees; Florida is using a $50 million fund to provide short-term loans of up to $50,000 for businesses with fewer than 100 employees. In addition to loans, states have offered small business grants for small businesses impacted by COVID-19. Idaho is providing $300 million in cash grants of up to $10,000. These are directly deposited into bank accounts for eligible businesses. In Iowa, a small business relief fund is providing grants of $5,000-$25,000 for small businesses.
States have also partnered with charitable foundations and community banks and credit unions. Other initiatives include helping companies procure personal protective equipment (PPE), helping identify manufacturers and distributors of critical health care supplies, easing small business regulations, deferring sales tax, and allowing extensions for business tax filings and late payment penalty waivers.
The pandemic has forced restaurants to rely on take-out and home delivery more than ever. By now, everyone is aware that third party delivery companies such as GrubHub and DoorDash charge a service fee of 15-30 percent. Many restaurateurs have been crushed by fees that eat away at their razor thin margin. Municipal governments have stepped in to help. Legislatures in New York City, Chicago, Portland, San Francisco and Seattle passed caps on third-party delivery company fees.
On the local level, officials have been loosening restrictions to allow outdoor dining so restaurateurs can capture lost business. From Seattle to Chicago to New York City, patrons dined al fresco on sidewalks, streets, alleyways, parking lots, and plazas, thanks to relaxed zoning rules and a quicker turnaround on issuing permits. In San Francisco, for example, Mayor London Breed introduced a Shared Spaces Program in an attempt to help restaurants rebound, which she called, “A creative solution that will give our businesses more space to operate safely, and shift some of our street and sidewalk space to protect the economic and physical health of our entire community.”
But Robin DiPietro, director of the International Institute for Foodservice Research and Education at the College of Hospitality, Restaurant and Tourism at the University of South Carolina, said that so much more can be done to help restaurants. DiPietro called current relief programs short-term band-aids and suggested innovative and more permanent solutions like:
- Waiving property taxes for at least two years, so property owners reduce rents without losing money.
- Eliminating business licensing fees for alcohol permits and local city permits.
- Providing a two-year hiatus on income tax collections.
- Eliminating the 2021 corporate tax for qualifying entities that can demonstrate a substantial loss due to the pandemic.
- Establishing a hospitality industry sales tax holiday, to encourage people to dine out more.
- Discontinuing health inspection fees from local health departments while increasing the number of visits to allow customers to feel safe and secure.
A year into the beginning of pandemic-related dining restrictions, the restaurant industry remains hopeful—not just for additional recovery funds, but also for a return to normalcy. “By April 1, large parts of the population will have shots in their arm, and hopefully our industry will be in the forefront,” said Luz of the Massachusetts Restaurant Association. “By June, tourism will hit its stride and people will have a huge desire to get out of the house, and go to museums, hotels, restaurants, and celebrate life. Business travel, conventions and meals will pop up again. We feel optimistic for the first time in the last 11 months.”