WASHINGTON (SBG) — As the United States begins to emerge from the shadow of COVID-19, one of the industries hardest hit by the pandemic has encountered new obstacles that threaten the survival of thousands of businesses, and experts say federal assistance might be necessary to save them.
Restaurants and bars were among the first businesses forced to shut down last spring as states raced to contain the coronavirus, and they have been among the last to be allowed to resume normal operations. Many pivoted to take out and delivery to make up revenue, but others were shuttered permanently.
Fifteen months later, restrictions on business activity and restaurant capacity across most of the country have been relaxed. Coronavirus infection rates are down and both vaccinated and unvaccinated Americans are increasingly eager to return to dining and other recreational activities, but restaurateurs say their recovery is far from complete.
“I think that’s the biggest misconception about reopening, especially among consumers,” said Jonathan Deutsch, a professor of food and hospitality management at Drexel University. “They expect it to be a light switch... and the reality is, it’s really more of an on-ramp, and one many are struggling with.”
According to a survey released last week by the Alignable Research Center, 39% of U.S. restaurants were unable to afford rent payments this month. That figure represents an improvement over May, when nearly half of restaurants could not pay rent, but it still signals an industry struggling to dig out of the fallout from COVID-19.
“We are by no means out of the woods yet,” said Robert St. John, chef and owner of the New South Restaurant Group in Hattiesburg, Mississippi. “There are employment issues. The customers are still leery.”
Despite the lifting of restrictions, St. John—who had to close one of his restaurants, a cocktail bar, and a doughnut shop due to the pandemic—said restaurant owners are still facing “the worst time” in the history of the industry. The large crowds and long lines customers see at many establishments obscure a far more complicated picture.
“The recovery is coming, but it’s really important that we pull back the curtain a little bit and look at what’s behind those lines for brunch,” said Erika Polmar, executive director of the Independent Restaurant Coalition.
According to the National Restaurant Association, the industry has lost $290 million in sales since March 2020, 90,000 restaurants have been forced to close, and almost 1.5 million jobs lost at the start of the pandemic have not returned. Eating and drinking places gained about 186,000 jobs in May, but restaurant hiring is still below February 2020 levels in all but four states.
“What we’re seeing now is the full-service restaurants are really starting to come back, but there’s still several constraints that exist in their operating models,” said Alex Susskind, director of the Cornell Institute of Food and Beverage Management.
Data released Friday by the Bureau of Economic Analysis showed consumer spending on foodservice and accommodations has nearly rebounded, with spending in May 2021 falling 3% short of where it was in February 2020. Although concerns about inflation are rising, the nation’s overall economic outlook is strong, with gross domestic product increasing at an annual rate of 6.4% in the first quarter of the year.
Consumer demand for dining out might no longer be an issue, but hiring enough chefs, waiters, and support staff to serve them is. Many people who worked restaurant jobs before the pandemic have moved to other industries, some still have child care or health concerns keeping them from returning, and critics say enhanced federal unemployment benefits are allowing some to make more money staying home.
The Alignable survey found 71% of restaurant owners back ending enhanced unemployment benefits—as dozens of states have already done—believing it would help end a pervasive labor shortage. Many survey respondents reported having to pay workers as much as twice their pre-pandemic wages, if they were able to find workers at all.
Some restaurants have had to cut operating hours or scale back service due to understaffing. Others have faced anger from customers over slower service and higher prices as receipts lag behind normal levels.
"Guests need to be patient with restaurants ramping up,” Deutsch said. “Just because things have technically reopened doesn't mean your favorite restaurants will act and look exactly like they did two years ago.”
Staffing is not the only challenge that has developed as restaurants attempt to find their footing in the post-COVID economy. Prices for some food items and ingredients have skyrocketed in recent months amid supply chain issues.
“You’re dealing with poultry prices that are 30% higher. You can’t even get crabmeat right now...,” St. John said. “There are so many ancillary challenges that have come up that are going to continue to happen probably for the next year or more.”
Cities like New York and Philadelphia have begun to place restrictions on practices restaurants used to stay afloat over the last year, such as expanded outdoor dining and offering cocktails to go. Bills for months of unpaid rent totaling hundreds of thousands of dollars could soon come due for restaurants before their revenues recover enough to pay them, as well.
“Just a couple months of a busy summer season is not going to make up for the 15 months of being really limited in operations,” Polmar said.
The federal government’s efforts to assist flailing restaurants have been welcome, industry groups say, but the funding has fallen far short of their needs. While accommodation and foodservice businesses were among the top recipient of Paycheck Protection Program loans, many lawmakers sought more dedicated assistance for the industry.
The product of those efforts, a $28.6 billion lifeline included in the American Rescue Plan, has been besieged by lawsuits. A bipartisan group of lawmakers is now pushing to replenish that Restaurant Revitalization Fund with an additional $60 billion, which could help sidestep the unresolved legal issues.
When Democrats in Congress approved the Restaurant Revitalization Fund in March, the Small Business Administration was directed to prioritize applications from women, veterans, and members of socially and economically disadvantaged racial and cultural groups. The fund received 362,000 applications seeking a total of $75 billion after it launched on May 3, nearly three times the amount available.
White restaurant owners in several states sued the SBA, alleging discrimination, and federal judges in Texas and Tennessee agreed that the policy was likely unconstitutional. As a result, the SBA revoked approvals for thousands of priority applicants who had already been told they would receive funds, and thousands more are uncertain when or if their requests for relief will be processed.
Nearly all of the initial funding for the program has been exhausted with about 100,000 grants distributed. The National Restaurant Association sent SBA Administrator Isabel Guzman a letter last week urging her to provide more guidance to restaurant owners whose approvals were revoked and to try to find other funds that can be reprogrammed to fulfill those commitments.
“The announcement that their grants will be awarded to others has left them confused, frustrated, and afraid they will have to close their doors for good,” Sean Kennedy, NRA executive vice president for public affairs, wrote.
Industry groups are lobbying aggressively for another round of relief funding. The RRF provides grants to cover lost revenue from 2019 to 2020, and the money can be used for a variety of eligible expenses, including payroll, rent, mortgage, maintenance, supplies, food and beverages, and operational costs.
“It’s vital,” said St. John, who is a founding member of the Independent Restaurant Coalition. “It’s life-or-death for so many people’s businesses.”
Although many components of the American Rescue Plan were politically contentious, the RRF was based on legislation that had bipartisan support. The Restaurant Revitalization Fund Replenishment Act now has more than 130 sponsors in the House and 13 in the Senate, but Congress has many other priorities vying for attention in the coming months.
“While our economy is coming back strong, our foodservice industry is still getting back on its feet – and folks who were counting on this aid when they applied this spring shouldn’t be forced to scale back operations or lay off employees because the aid programs we set up weren’t sufficient,” Rep. Cindy Axne, R-Iowa, one of the sponsors of the new bill, said earlier this week.
Some of the damage done to restaurants by the hardships of the last 15 months will be repaired in time, but other aspects of the industry might be changed forever. Customers will be reluctant to abandon some of the conveniences they have become accustomed to as restaurants scrambled to adapt to pandemic-era safety protocols.
An Open Table survey conducted in February found 31% of diners would not be prepared to resume normal dining habits until at least September 2021. Over two-thirds of respondents wanted restaurants to continue offering wider outdoor seating, takeout and delivery options, and contact-free service even after the pandemic ends.
“The whole idea of a digital interface that really regulates the interaction between the guests and the operators is here to stay,” Susskind said.
For restaurants that do weather the current storm, Polmar expects resiliency will be a top priority going forward. Successful establishments will take the lessons learned from the COVID-19 crisis and ensure they are better prepared to handle future challenges.
“We don’t just go back to normal now that we have a high vaccination rate,” she said. “We’re going to take some time to rebuild.”