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1 in 6 Restaurants Expected to Close in 2020

Troubling new data from the National Restaurant Association says 40 percent of operators aren't sure they'll make it six more months.

As challenging as the past six months have been for restaurants, the immediate future of the industry does not look much brighter. A majority of operators are still struggling and don’t believe their standing will improve over the next six months, according to a survey released Monday by the National Restaurant Association.

The report found nearly one in six restaurants — close to 100,000 units — are closed either permanently or long-term. In addition, close to 3 million employees are still out of work. 

“For an industry built on service and hospitality, the last six months have challenged the core understanding of our business,” Tom Bené, president and CEO of the National Restaurant Association, said in a statement. “Our survival for this comes down to the creativity and entrepreneurship of owners, operators, and employees. Across the board, from independent owners to multi-unit franchise operators, restaurants are losing money every month, and they continue to struggle to serve their communities and support their employees.”

The Association said consumer spending in restaurants remained well below normal levels in August, down 34 percent on average. Overall, the Association said the foodservice industry forfeited $165 billion in revenue March through July and now predicts that $240 billion in sales will be lost by year’s end.

Many municipalities have been slow to allow dining rooms to reopen, with New York City postponing reopenings from July until late September. California also postponed dining room reopenings in July following a surge in cases, only to allow select counties to allow limited dining room service in September. Foodservice franchisors will only face additional burdens as outdoor dining becomes less viable in the colder months. Most municipalities continue to restrict dining room capacity as well. While many restaurants have bulked up their off-premise capabilities, it still hasn’t been enough to recoup losses. Sixty percent of operators also said that their operating costs have gone up compared to pre-COVID-19, according to NRA’s survey. 

Despite high unemployment, with roughly 3 million restaurant workers out of a job in May and June, some franchisors also report having trouble hiring staff due to the ongoing threat of the virus and low wage work. Restaurants are functioning at 71% of staffing levels compared to pre-COVID-19, according to the NRA. 

Looking ahead, 40 percent of operators think it’s unlikely their restaurant will still be in business six months from now if there are no additional relief packages from the federal government.

Even many restaurants that received Paycheck Protection Program loans have declared bankruptcy. Now, the National Restaurant Association and the Independent Restaurant Coalition continue to push the federal government for targeted aid that will help bring the industry back from the brink of extinction. 

“Congress is about to leave Washington for the elections — we need them to focus on the short-term, basic solutions that have secured bipartisan support and passed one or both chambers,” said Sean Kennedy, executive vice president of Public Affairs for the Association in the statement. “We urge immediate passage of these while we work with lawmakers on the comprehensive elements of our ‘Blueprint for Restaurant Revival.’”

Last week, California passed three bills into law to help support small businesses, such as excluding PPP loans from gross income for state taxes. While the laws can include restaurants, they aren’t specifically targeting them.

In a letter sent to Congress on Monday, the NRA urged Congress to authorize a second round of PPP loans with more flexibility and payroll outlays and to ensure that expenses paid with these loans are deductible. The NRA also urged Congress to expand the Employee Retention Tax Credit to help restaurants get support after the PPP loan has run out and to provide restaurants with tax credits to help with significant costs restaurants are incurring.

Still, the Association’s 100,000 estimate is a 2020 total prediction — the true scope won’t be known until government statistics are released in the months ahead.