economy Markets

Imagine This: 25% Of America’s Restaurants May Disappear Forever

For many of these establishments, it's already too late.

A recurring theme in research and commentary dedicated to conceptualizing the post-COVID economy is the notion that consumption habits will never truly return to “normal”.

Those habits were changing anyway thanks to the widespread adoption of e-commerce, and many believe the pandemic was a death knell for brick and mortar retail, which already had one foot in the grave and the other on a banana peel.

For the restaurant industry, the outlook is a bit more nuanced. Patrons have a sentimental attachment to the establishments they frequent. This is particularly true for local bars and family-owned restaurants seen as community “fixtures”. This emotional bond goes well beyond good food and generous pours. Bartenders double as psychologists and the waitstaff often befriends regular diners. In many cases, owners and chefs make the rounds each night, glad-handing with regulars and newcomers alike.


This isn’t confined to family- or owner-operated businesses. Patrons have favorite bartenders at chain restaurants just as they do at dive bars, for example.

And then there’s the escapism factor. Millions of Americans think of restaurants and bars as places to go for a reprieve when the heavy burden of life becomes too much to bear.

Given the above, it’s unlikely that anything short of a highly contagious, airborne Filoviridae outbreak would stop all people from going to bars and restaurants forever. And, as I’ve been keen to emphasize over the course of the crisis, if there ever is an unchecked pandemic involving the Filoviridae family, we won’t be trading stocks or talking about the economy or doing anything other than trying to stay alive. That is not a contingency that business owners can realistically be expected to plan for.

As we’ve seen in Wisconsin over the past several days, the potent combination of cabin fever, pent up anger over stay-at-home orders, and a longing for drunken human contact, is more than enough to send drinkers back to bars. Simply put, people who have been deprived of their “right” to vent over a beer or a bourbon aren’t necessarily going to be deterred by a respiratory infection with a mortality rate below the double-digits.

A look at OpenTable’s data on seated diners at restaurants on the company’s network shows the first signs of life as lockdowns are lifted in some states and cities.

The most notable upticks are in Tampa, Scottsdale, Houston and Phoenix.

But the problem goes well beyond whether bars and restaurants can attract drinkers and diners again. As nearly every Fed official has warned lately, the COVID-19 lockdowns quickly metamorphosed from a liquidity issue into a solvency crisis for many small businesses.

That means that irrespective of whether customers want to come back, the doors may be closed forever by the time they can.

Indeed, Steve Hafner, CEO of Booking Holdings’ OpenTable and Kayak, told Bloomberg in an interview this week that as many as a quarter of America’s restaurants will not reopen after the crisis.

Let that sink in: According to Hafner, 25% of the country’s restaurants are likely gone – forever. “Restaurants are complicated beasts”, he said, in an interview.

Yes, they are. And Hafner suggested this is complicated by enhanced unemployment benefits for servers who are, in some cases anyway, making as much $1,200 per week not to work. “That’s good pay”, Hafner remarked.

Eventually, the enhanced unemployment benefits will run out, though, even if Democrats manage to secure an extension. At that point, the “pay” for staying home won’t be so “good” anymore. If 25% of the restaurants where these waiters and bartenders used to work are out of business, those jobseekers are going to be out of luck.

That, folks, is when “temporary precarity” becomes structural.

According to a survey of more than 6,500 restaurant operators nationwide conducted by the National Restaurant Association, the industry lost $30 billion in March and at least $50 billion in April. By the end of this year, it will lose nearly a quarter of a trillion.

Job losses in the space during the BLS survey period for April were astronomical.

As far as reopening goes, policies vary widely by state, with some having reopened restaurants and others only with certain restrictions or in certain locales.

Irrespective of the policy, the figures for May 16 versus the same day of the week from the same week in the previous year, betray a devastating hit, underscoring the existential nature of the situation. The following visual is derived from OpenTable’s data and information on states’ policies current as of May 16, as documented by The New York Times.

OpenTable describes the situation best on its website. “As the COVID-19 pandemic keeps people home and some cities, states, and countries limit restaurant operations, our community of nearly 60,000 restaurants faces unprecedented challenges”, a message accompanying the presentation of the data utilized for the charts reads.

“Please support your local restaurants during this turbulent time if you can”, OpenTable asks of the public.

For many of these establishments, it’s already too late.


 

6 comments on “Imagine This: 25% Of America’s Restaurants May Disappear Forever

  1. joesailboat says:

    Bars and restaurants make a sizable percentage of their income from the very people who work that industry. Pelosi pay might create a short term cash economy and people in that industry will talk to one another and see if it gets figured out. Landlords are the big question mark. Velocity of money matters. Time for trickle up or give it up.
    Wake up McConnell.

  2. Emptynester says:

    My better half is in commercial real estate. To sum it up, from Starbucks down to the “mom and pop”- all are demanding a rent reduction or forgiveness. Many tenants moved out and stopped paying. The lender does not care- at best, they are only delaying principal for a few months ( not interest payments).
    The cash collected does not cover the debt service- train wreck in process.

    • Emptynester says:

      Commercial real estate ( all types) WAS an approximate $17T market. Just took a massive permanent impairment to value.

      • joesailboat says:

        A Depression that Republicans think can be contained to a number of regional constituencies. Same as many believed the housing bubble was more or less regional. Not in my backyard mentality. This thing is too vast for many people to see where it might go.

        • Emptynester says:

          Joesailboat- I agree. I am scoping out some stock investment possibilities but as of now, our plan is to wait until 2Q earnings and forecasts for 2020 are announced ( mid to end of August). Will re-evaluate then.

        • Anonymous says:

          I think we might get a W shaped recovery. There is a small opening up then more layoffs.

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