With no relief package appearing on the horizon to combat the financial hit brought on by the COVID-19 pandemic, the mom-and-pop restaurants that bring flavor to neighborhoods nationwide risk being replaced in life after the pandemic.
Their replacement: another cookie cutter Taco Bell or McDonald’s (MCD).
“We have to have a bailout [of the restaurant industry],” said celebrity chef and owner of restaurant Blue Dragon Ming Tsai on Yahoo Finance’s The First Trade. “I don’t know if the government understands the severity of this problem. We may be left with just chain restaurants and fast-food restaurants if the government doesn’t react.”
Back in early April at the height of COVID-19 related state lockdowns that sent shockwaves through the restaurant industry, Tsai told Yahoo Finance that 50% of the country’s restaurants would not reopen because of the effects from the pandemic. The downturn for restaurants since then has been significant, underscoring their grim outlook. Adjusted retail sales at food service and drinking places crashed to $29.9 billion in April from $45.7 billion in March, according to data from the Census Bureau.
A brief period of optimism in May and June for restaurants emerged as states reopened and people returned to outside bars and tables. Sales at restaurants bounced to $38.6 billion in May, per the latest from the Census Bureau. Employment at food service and drinking places rose by 1.5 million jobs in both in May and June, according to the Bureau of Labor Statistics.
But with COVID-19 infection counts back on the rise in some populous states and governors clamping down again on crowded bars at restaurants, Tsai’s original original prediction seems accurate.
For his part, Tsai isn’t sure how much longer he could personally keep paying his 30 Blue Dragon employees if there isn’t a strong government assistance program. Oddly, the restaurant industry (and retailers, hotels, etc.) didn’t receive the same targeted relief under the $2 trillion CARES Act as the nation’s airlines. Restaurant owners were forced to scramble to secure PPP loans, which didn’t address things such as the plunge in sales and high fixed costs like rent.
“It’s not just about saving us chefs and restauranteurs, it’s the domino effect. It’s every business tied into the restaurant business, which is all the farmers and fishermen and everyone that supplies linen and the washers and the garbage and recycling. If restaurants don’t come back, it’s trillions of dollars we’re talking about. Not just the revenue we are losing, but the tax revenue the state is losing. It could be a travesty,” Tsai added.
Even adding a Taco Bell or McDonald’s in a former space occupied by a local restaurant isn’t such a sure thing amid the financial pressures now appearing on chain franchisees. Pizza Hut’s largest franchisee NPC International recently filed for Chapter 11 bankruptcy, crippled by $1 billion in debt and costs associated with the pandemic. NPC also operates hundreds of Wendy’s locations.