Millions of restaurants worldwide on brink of collapse
Mandatory reductions in seating capacity limit potential for recovery
When Chicago restaurant owner Manish Mallick does the math, the outlook isn’t pretty: Sales are 10 per cent of what they were, while costs continue to pile up, from credit card fees and city permits to masks and thermometers.
The owner of ROOH Chicago, an Indian restaurant nominated for the city’s 2019 restaurant of the year by foodie publication Eater, gives himself a couple months at most.
“It’s going to be tough to survive,” Mallick said. “Ultimately, I need people to come and start dining in. And the more time it takes, the worse it gets for us.”
With each week, more data emerges to show how the COVID-19 pandemic is permanently reshaping the restaurant industry. The world is currently on track for a radical overhaul of its food-service landscape: Hundreds have filed for bankruptcy over the past three months, according to consulting firm Aaron Allen & Associates, and the situation is poised to keep worsening.
“Based on our estimates, we believe up to 10 per cent of all restaurants globally will disappear, with 20 per cent or more also going through a restructuring process,” said founder Aaron Allen. “This is a conservative case, in our view.”
Allen estimates there are about 22 million restaurants worldwide, so the projection implies that 2.2 million of them will close. In the U.S., the industry employs 15.6 million workers, according to the National Restaurant Association.
Opentable, which tracks restaurant activity via reservations, estimates the failure rate could be even higher. Even before the global pandemic caused a dramatic and unprecedented shift in consumer behaviour, the restaurant industry was suffering from rising debt and too much competition.
So far, the list of bankruptcies includes Le Pain Quotidien and Garden Fresh Restaurants, the owner of Souplantation and Sweet Tomatoes. Larger chains such as TGI Fridays and Cousins Subs won’t reopen a number of shuttered locations, and franchisees of big chains are also increasingly feeling pressure.
“Weaker businesses are searching for pre-chapter 11 solutions,” said John Gordon, principal at Pacific Management Consulting Group, a restaurant consultancy. “There will be many closings, particularly independents.”
Many states’ move to reopen their economies offer some relief, but mandatory reductions in seating capacity limit the potential for recovery. At the same time, a second surge in COVID-19 cases in states like Texas, Florida, Arizona and California is raising alarms and threatening to undo the small gains the industry has seen in recent weeks.
“Another wave of the pandemic will take the numbers higher without further bailouts,” Allen said.
Restaurateurs and their lobbying groups have complained that U.S. relief programs don’t address restaurants’ real needs as they face financial shortfalls from reopening under occupancy caps and social distancing measures, in addition to their need to cover expenses beyond payroll.
For now, restaurants are trying to find ways to survive, from discounts and curbside pickup to selling groceries. Many have cut staff and trimmed menu items to reduce costs.
Mallick, for example, currently has a skeleton crew of five workers, down from as many as 30 during a busy shift pre-coronavirus. He’s not serving higher-cost dishes such as sea bass and lamb shank and has also stopped printing paper menus.
But his list of more than a dozen monthly expenses still seems to keep growing. “Masks are expensive.”
He’s also buying thermometers for his employees and paying for a weekly virus-eradication cleaning service.
Restaurants’ level of operations vary across the U.S., depending on local virus trends and regulations. Chicago, for example, is currently in phase three of a five-step reopening process, which includes outdoor dining for cafés and restaurants.
Since May 22, North Carolina has allowed restaurants to operate at 50 per cent of seating capacity. But a spike in coronavirus cases around the state in June is forcing establishments to rethink their reopening plans. In the beach town of Wilmington, N.C., James Beardnominated chef Keith Rhodes has delayed reopening his seafood restaurant Catch until this weekend. He had been offering curbside pick up since shelterin-place rules took effect with a smaller menu and lower prices, based on sourcing changes.
“We would sell lobsters for $50 to $100 (U.S.); now I’m offering them for 30 per cent less,” Rhodes said, while noting that a decline in lobster prices has been the catalyst for the drop. Most of the other prices on the menu are 10 per cent to 20 per cent lower.
The curbside business comes to 35 per cent to 40 per cent of Catch’s former sales, a level Rhodes says is “OK at best.” Orders dipped in late May when other dining rooms began reopening. At the same time, he has to contend with fewer tourists as COVID-19 keeps Americans from travelling.
Rhodes’ new Wilmington location — sports bar Tackle Box Kitchen — has had to tweak its operations because of all the changes. Instead of the servers he planned on hiring, customers will order via an app. And plans to accept cash were put on ice: “We’re cashless now.”
“When sports comes back, whenever they come back, we’ll really be rolling,” he added.
In the meantime, big chains and local businesses alike have upended their business model — with some now offering meat by the pound, milk, veggies and even toilet paper. Panera Bread and Tijuana Flats, for example, are selling groceries for the foreseeable future.
So is New York-based chain Just Salad. The chain’s CEO, Nick Kenner, says the company began delivering groceries in Lower Manhattan in April, and has since expanded the service to parts of Brooklyn, upper Manhattan and the Hamptons. He plans to keep the service around even post-pandemic.
Traditional groceries like raw chicken or black beans are lower margin, but the plan is to focus on so-called value-added things like prepared pesto sauce, or even easy-to-prep meal kits delivered in an hour or less.
Pacific Management’s Gordon sees a recovery over time, perhaps late 2021 and 2022.
“On the whole, most quickservice restaurant brands are in fair shape, while some fast casual and casual dining brands are still struggling,” he said. “Fine dining brands need business travel to resume before they see traffic recovery.”
In the meantime, restaurant owners are doing what they can to make ends meet.
North Carolina restaurateur Ashley Christensen is offering several of her greatest hit dishes, like macaroni au gratin, for pickup from her main restaurant in Raleigh, Poole’s Diner, and pizzas from Poole’side Pies.
She has permanently closed her burger joint, Chuck’s. The James Beard-winning chef currently has about 50 employees, down from the 280 who worked at her establishments pre-pandemic.
“It takes about 10 and 15 days to reopen each restaurant in terms of retraining staff, getting things cleaned up, testing and retesting the menu, making sure that food makes sense now,” says Kaitlyn Goalen, Christensen’s wife and executive director of AC Restaurants.