US restaurant industry facing “extinction event”

Published on
August 6, 2020

The economic crush of the coronavirus pandemic is continuing to take a serious toll on U.S. restaurants and bars, and many expect they will have to close permanently unless they receive government funding quickly, according to a new survey.

Just 66 percent of operators of independent bars and restaurants across the United States recently surveyed by the James Beard Foundation and the Independent Restaurant Coalition had confidence they could stay operational through October without government help.

While many states have issued 50 percent seating capacity mandates for restaurants – though some have reduced that to 25 percent due to local surges in COVID-19 cases – that amount of business is not enough for most restaurants to earn a profit, the survey found.

In May, 75 percent of independent restaurants reported taking on new debt obligations of more than US 50,000 (EUR 42,000), with over 12 percent reporting obligations more than USD 500,000 (EUR 421,000).

Restaurants need immediate help with passing the RESTAURANTS Act, which would create a USD 120 billion (EUR 101 billion) stabilization fund in the form of grants, Andrew Zimmern, restaurant owner, chef, and a founding member of IRC, said on a phone call discussing the survey results.

“Without the RESTAURANTS Act passing, we are going to see an extinction event coming,” Zimmern said. “The USD 120 billion [EUR 101 billion] we are asking for pales in comparison to the USD 270 billion [EUR 227 billion] to USD 350 billion [EUR 295 billion] that it will cost if we don’t get the RESTAURANTS Act passed and we continue to see restaurants close all over the country.”

Zimmern has been forced to close two of the five restaurants he owns in Minnesota “because we don’t see the light at the end of the tunnel.”

“Restaurants are buried under new debt, face government restrictions, and face COVID-19 with own staff. Even if restaurants are able to open, many cites and states have tied our hands and mandated lower capacities,” Zimmern said.

Adding to the uphill battle faced by U.S. restaurants, more Americans say they are avoiding eating out and foodservice industry sale projections are bleak.

Foodservice industry sales are expected to decline by up to 30 percent in 2020-2021, compared to 2019-2020, according to research firm Mintel.

The full-service restaurant sector will be hardest hit, while limited service restaurants (including fast food and fast casual) will rebound more quickly.

Plus, consumers’ avoidance of dining out has increased back to mid-May levels due to a spike in coronavirus cases in the U.S. South and West, research firm Datassential said in a new report.

Fifty-two percent of Americans surveyed over the past month said they are definitely not dining out, 28 percent said they are nervous to eat out but are still eating out, and 20 percent have no concerns about dining out, Datassential found.

The National Restaurant Association (NRA) is also urging the passage of the RESTAURANTS Act and changes to the Paycheck Protection Portion of the proposed Senate HEALS Act.

The HEALS Act would allow small businesses with fewer than 300 employees and that can demonstrate a 50 percent loss in quarterly gross receipts over the previous year to apply for a second round of PPP loans.

“At this threshold level, 55 percent of restaurants will not be eligible," the NRA said in a letter to Congress.

The association is appealing for a 20 percent threshold, which would make 430,000 restaurant owners eligible for a second loan.

“Such a change would ensure that restaurants with a low gross revenue loss, but still facing bankruptcy, would be eligible,” NRA said.

The NRA is also warning Congress that, without its action, restaurants across the country will soon be on the hook for thousands of dollars in unexpected tax bills.

Because of an Internal Revenue Service decision made weeks after restaurants started accepting their PPP loans, normally deductible business expenses are no longer deductible if the business pays the expense with a PPP loan that is subsequently forgiven, according to the association. 

“These tax liabilities are unexpected and a shock to thousands of restaurant operators,” NRA said.

Photo courtesy of Ron Adar/Shutterstock

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