2.2 million restaurants across globe teetering on the brink of collapse
When Chicago restaurant owner Manish Mallick does the math, the outlook isn’t pretty: Sales are 10 percent 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 last 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 percent of all restaurants globally will disappear, with 20 percent 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 behavior, 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 virus cases in states such as 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 new 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 said. He’s also buying thermometers for his employees and paying for a weekly viruseradication cleaning service.
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, for example, is selling groceries for the foreseeable future.