Things Could Get Much Worse for Restaurants

New York City restaurants received devastating news last week: Indoor dining, on the verge of returning following a nearly four-month hiatus, will remain on pause indefinitely. This was not a surprise; other states have rolled back openings amid a COVID-19 surge that continues to infect over 40,000 new people every day. But the indoor ban, while vital from a public health perspective, confirms that restaurants will have to operate without their principal revenue source for the foreseeable future. Without federal assistance, this restriction could contribute to more permanent closures and push the city’s battered hospitality staffers into poverty.

In short, the indoor shutdown, combined with new quarantine rules and other developments, suggests that things could get much, much worse for the New York restaurant community.

The good news is the White House said on Tuesday that it was seeking another Congressional stimulus. Thing is, knowing what battered restaurants need — rent forgiveness, revenue replacement, and enhanced unemployment — requires leaders who understand how bad things are. It’s not clear they do. President Donald Trump called last week’s jobs report spectacular, even though the economy showed one of the highest levels of unemployment since the Great Depression. And despite the fact that food service joblessness remains at over 24 percent, Secretary of Labor Eugene Scalia said that weekly $600 pandemic checks, set to expire within weeks, are no longer needed.

New York’s own unemployment rate was nearly 20 percent by the end of May, with over 66 percent of food and beverage workers out of work. My good colleague Hillary Dixler Canavan argued at the beginning of the pandemic that restaurants would be screwed — she actually used a stronger word — without some sort of federal bailout. Four months later, local and national restaurants still don’t have the help they need, and the people who run them are more vulnerable than ever. Here’s why.

Indoor dining could be a long way off

Social-distancing violations are one very legitimate reason why officials have been rolling back indoor dining across the country. Here’s another reason: Last week, 239 scientists sent a letter to the World Health Organization asking the body to recognize airborne transmission of COVID-19, suggesting, as the New York Times put it, that the virus “lingers in the air indoors, infecting those nearby.” The letter specifically cited a case of restaurant transmission where patrons infected others sitting at nearby tables. If a consensus continues to grow around airborne spread, the return of indoor dining could depend on expensive renovations like advanced air filtration and on a high tolerance for risk among both staffers and diners.

Quarantine orders and theater closures will further dampen restaurant spending

Restaurants that heavily depend on travelers, particularly in hotels, will continue to suffer as Gov. Andrew Cuomo’s quarantine order stifles business or leisure trips. People coming from 19 states, including Texas, Florida, and California, are required to quarantine — without leaving one’s room or residence at all — for two weeks when visiting New York.

Establishments that rely on sports fans — near Madison Square Garden, Barclays Center, Yankee Stadium, or quite frankly any stadium nationwide — will fare poorly as well since there aren’t any sports. Pre- and post-theater dining, another linchpin of local restaurants, will remain nonexistent as Broadway delays plans to reopen until at least January. To drive home how monumental that is, consider this: Some eating and drinking establishments on the 46th Street restaurant row, arguably the heart of Theater District dining, are still shuttered even though Mayor Bill de Blasio ordered the street closed to car traffic for outdoor dining.

Outdoor dining isn’t a panacea for the industry

Alfresco eating will unquestionably help with revenue shortfalls for certain venues, at least until open street dining ends in September. Still, it’s not clear whether New York has figured out a way to help bring back the type of high-end dining that’s such a big part of the city’s restaurant economy. It might seem trite to suggest that 10-course tastings, or shorter power meals, don’t translate too well to boisterous curbside dining, but it’s worth noting that the venues furnishing these meals provide some of the industry’s most reliably middle-class careers, with many wait captains and sushi chefs earning over $100,000 per year.

Then again, even if fancy spots did open up, many of their regular patrons might not be geographically predisposed to dining out; they’ll instead continue working from home in the suburbs or in their cushy apartments through 2020. Of course, these so-called destination venues also attract everyday gourmands. The question for those patrons is whether they’ll tolerate long rides on subways or airplanes to dine out.

Restaurants will have to dig themselves out of a rent hole

Eighty percent of New York restaurants did not pay their full rent in June, according to a recent Hospitality Alliance survey. That number will surely improve for July, now that outdoor dining has been up and running for a few weeks, but the results also highlight the precarious financial situation of these venues. Most restaurants will still need to figure out how to pay off multiple months of back rent while operating at reduced capacity. On that note: 73 percent of landlords did not waive rent, per the same survey, while 60 percent of that group refused deferments.

PPP aid was only designed to be temporary

The $660 billion Paycheck Protection Program, the federal government’s chief lifeline to restaurants and other small businesses, was supposed to be temporary. The program allowed borrowers to receive forgivable loans, capped at 2.5 times a venue’s monthly payroll. The policy, in other words, wasn’t intended for shutdowns lasting five months or longer. What restaurants need is a true revenue replacement program, like the bipartisan restaurant stabilization bills set to be presented in Congress later this month, or an expanded and overhauled paycheck program.

Hospitality employment will suffer even more amid the virus surge

Trump touted hospitality jobs as among the biggest growth sectors in the June employment report, but the gains were only relative. Eating and drinking establishments still suffer from some of the country’s highest jobless rates, currently at 24.1 percent. And while that figure is down from May’s more ghastly 32.3 percent, there’s good reason to believe things could get worse again.

Data collection for the June jobs report ended too early to reflect the viral surges that have caused officials around the country to reimpose closing. Here’s what’s clear in the meantime: Millions of hospitality workers remain jobless, with more and more being laid off or furloughed as infections spread. And more broadly, the nonpartisan Congressional Budget Office reaffirmed last week that nationwide unemployment will remain in the double digits through 2020, at a rate worse than during any single month of the Great Recession.

The uncertainty of pandemic aid means uncertainty for restaurant spending

Sit-down restaurant spending — or fancy takeout — is discretionary spending. A $49 filet au poivre is the type of thing most consumers can forgo without seriously impacting their quality of life. That helps explains why scores of restaurants shuttered during the Great Recession.

But here’s an interesting quirk: New data released in late June from the national Bureau of Economic Analysis shows that consumer spending was actually up 8.2 percent in May. That bump would’ve been impossible without stimulus checks or enhanced jobless benefits, especially as unemployment rates remain at historic highs. Taking away those benefits would savage the consumer economy and hit restaurants hard. That’s especially true in New York, where 25 percent of renters reportedly haven’t yet paid June rent, according to one industry group.

Equally frightening for restaurants are the results of a Bloomberg News survey. According to that poll, nearly a third of U.S. adults said they plan to cook at home even more than they do currently once stay-at-home orders are lifted. Unless those people suddenly grow second stomachs, that means they’ll all eat out less.