The Post COVID-19 Restaurant Recovery May Take a While

Restaurateurs had every reason to believe that 2020 would be a great year. After all, in 2019, the US experienced the highest restaurant spending ever and projected a further increase to $899 billion in sales in 2020.¹ In addition, consumer spending on food away from home (FAFH) had surpassed food eaten at home (FAH) in 2010 and continued to increase through 2019.²

However, since the COVID-19 pandemic struck in March 2020, restaurants and foodservice businesses have been suffering greatly during the lockdown, social distancing, and reopening phases. The National Restaurant Association’s Restaurant Performance Index shows that restaurant foot traffic and sales fell to a record low, even lower than during the financial crisis of 2008.³

Impact on South Carolina Restaurants and Restaurant Suppliers

There are nearly 9,700 restaurants in South Carolina,⁴ many of which were closed or partially closed for in-house dining from March 18 to May 11, 2020. These businesses lost almost two full months in sales and must now operate at a reduced capacity (social distancing guidelines) until further notice.

South Carolina agricultural businesses that supply restaurants have been hit hard as well, with some more damaged than others. Three of the most affected types of businesses are specialty crop producers, commercial fishermen, and aquaculture operations. Strategies for these separate groups will be examined in upcoming supplemental articles.

This article focuses on full-service restaurants, as they are the primary buyers of local agricultural products in South Carolina. Fast food and fast-casual restaurants are typically national restaurant chains and do not usually buy local products from farmers or food hubs.

When Will Full-Service Restaurants Recover?

There will be a recovery, but the question is, how long will it take, and how complete will the recovery be? Factors that will help the restaurant recovery include the reopening of the US economy, the reentry of employees to previous or new jobs, the possibility of a vaccine, and the spending of recently disbursed economic impact payments. Factors that will slow the recovery include a reduction in restaurants and restaurant seating capacity, restaurant workers not returning to their jobs, a slow tourism recovery, and a long-term reduction in consumer restaurant spending due to the general economic shocks caused by the COVID-19 recession.

Reduction in Restaurants and Restaurant Seating Capacity

Some restaurants may never reopen. As of April 10, the National Restaurant Association announced that 3% of restaurants had already closed their doors for good, and that number was expected to increase to 11% by the end of April.⁵ Many restaurants that remain open will have a tough time recovering. Reducing dining room capacity by 50% works great for social distancing, but it paints a net loss scenario for restaurants. Restaurant financial benchmarks show that the average net earnings before interest, depreciation, taxes, and amortization (EBITDA) averages 5%-6.8%.⁶ These very slim profit margins are highly dependent on the basic math of “tables times checks” (the number of tables multiplied by the average bill). Reducing the number of tables by 50% will be disastrous for most full-service restaurants, and entrepreneurs have already voiced this fact.⁷

Restaurant Workers Not Returning to Their Jobs

Technomic 2020 Food Service Impact Monitor has been surveying the foodservice industry when the COVID-19 restaurant and foodservice closures began in early March. Their most recent survey during the week of May 17, asked restaurant owners about how many of their employees came back to work after being furloughed. Over half (59%) of the restaurants surveyed reported all employees came back to work.⁸ For the other 41%, the top three reasons they are having trouble rehiring their prior employees include (1) employees expressing fear of getting sick (53%), (2) employees earning more money on unemployment (42%), and/or (3) employees getting a job elsewhere (29%).

Fear of getting sick and/or getting other jobs reflect repercussions of the COVID-19 pandemic on peoples’ careers. The reason for making more money while collecting unemployment is an unintended consequence of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. An additional $600 a week was added to unemployment benefits, and as of April 22, forty-four states have started paying this benefit.⁹ This extra $600 a week is not scheduled to end until July 31, 2020, unless extended by Congress.

Slow Tourism Recovery

Tourism is an important part of South Carolina’s economy and is approximately 10% of the state’s gross domestic product.¹⁰ This includes all tourism, not just restaurants. However, many restaurants depend on both locals and tourists to consistently fill their tables, and tourists do fill tables, eating almost twice the number of restaurant meals per week.¹¹

Tourism is expected to recover slowly, with hotel occupancy rates for 2020 projected to be at an all-time low of 50.6%. That is even lower than in 2009 after the 2008 financial crisis (54.5%).¹² This will affect restaurant traffic in tourist areas of South Carolina. On a positive note, Myrtle Beach is ranked 9^th for destinations that travelers are planning to visit, once they feel comfortable traveling after COVID-19.¹³

Economic Shocks to Household Restaurant Spending

How will this current recession affect household restaurant spending into the future? One way to estimate this is to look at what happened during the last financial crisis, the “Great Recession,” between 2007 and 2010. A special report from the US Department of Agriculture outlines some key findings that may help shed light on this¹⁴:

• Household spending on food away from home declined by 18% during the Great Recession and did not recover to pre-recession (2005) levels until 2016.
• Changes in food away from home varied the most by household income. The middle-income bracket changed their eating habits the most and had not reached pre-recession levels at the end of the study in 2016.
• The study broke down food away from home spending into fast food, full-service restaurants, and other food away from home. The full-service restaurant segment took the longest to recover, and this was almost entirely due to the middle-income household spending decline.
• The full-service restaurant recovery from the Great Recession mirrored the recovery in employment. As unemployment dropped, full-service restaurant business increased.

Final Thoughts

Will it take as long as eleven years for restaurants to recover from the COVID-19 recession as it did after the Great Recession? That is the big unknown, as state economies are just starting to open back up. If the US economy can spring back quickly from the COVID-19 recession, especially employment, then restaurants may recover more quickly. However, social distancing in restaurants would have to end, and that probably means a COVID-19 vaccine is crucial to a full restaurant recovery.

Clemson Extension Agribusiness Program Team Resources

Numerous COVID-19 resources are available on the Clemson Extension Agribusiness Team website.

If you have additional questions, contact information for members of the Clemson Extension Agribusiness Program Team is available on the Agribusiness Team website.

References Cited

1. National Statistics, Restaurant Industry Facts at a Glance. Washington (DC): National Restaurant Association. [accessed 2020 May 27]. https://www.restaurant.org.
2. Saksena M, Okrent A, Anekwe TD, Cho C, Dicken C, Elitzak H, Guthrie J, et al. America’s eating habits: food away from home. Washington (DC); US Department of Agriculture Economic Research Service; September 2018. https://www.ers.usda.gov/publications/pub-details/?pubid=90227.
3. Restaurant Performance Index. Washington (DC): National Restaurant Association. [accessed 2020 May 27] https://restaurant.org/research/economy/rpi.
4. South Carolina Restaurant Industry at a Glance. Washington (DC): National Restaurant Association. Statistics based on US Department of Labor and US Census estimates as of 2018. https://myprofile.restaurant.org/idp/startSSO.ping?PartnerSpId=KenticoMembershipSP.
5. Nieves A. 3% of U.S. restaurants have permanently closed due to COVID-19 pandemic, experts say. ABC News. 2020 Apr 10. https://www.thedenverchannel.com/news/national/coronavirus/3-of-us-restaurants-have-permanently-closed-due-to-covid-19-pandemic-experts-say.
6. Restaurant benchmarks. St. Petersburg (FL): Bloom Intelligence; 2019. http://info.bloomintelligence.com/hubfs/Miscellaneous%20Downloads/Restaurant%20Benchmarks.pdf.
7. McSweeney E, Lyons E. Restaurant and bar owners say social distancing could wipe out their industry. CNN Business. 2020 May 17. https://www.cnn.com/2020/05/17/business/restaurant-coronavirus-business-model/index.html.
8. Technomic 2020 Food Service Impact Monitor. 2020 May 17 [accessed 2020 May 28]. https://technomic.com.
9. Leonhardt M. Here are the states that are already paying the extra $600 in unemployment benefits. 2020 Apr 22 [updated 2020 May 7]. Make It (Money) CNBC. https://www.cnbc.com/2020/04/23/states-paying-the-extra-600-in-unemployment-benefits.html.
10. Williams E. The economic impact of tourism in SC grew again, reaching $22.6 billion last year. Total Gross Domestic Product for SC, St Louis Federal Reserve Bank. The Post and Courier. 2019 Feb 18. https://www.postandcourier.com/business/economic-impact-of-tourism-in-sc-grew-again-reaching-22-6-billion-last-year/article_32269c48-2e31-11e9-816d-771fa7777b39.html.
11. Graft A. Travel and tourism statistics: the ultimate collection. West Valley City (UT): Access Development; 2019 July 1. https://blog.accessdevelopment.com/tourism-and-travel-statistics-the-ultimate-collection.
12. Lutz D. Recovery realities: how the business events industry will move forward after covid-19. Chicago (IL): Professional Convention Management Association; 2020 Mar 30. https://www.pcma.org/covid-19-recovery-realities-how-events-industry-move-forward/.
13. Fox A. Here’s where Americans are looking to travel first, according to Expedia. Des Moines (IA): Meredith Corporation, Travel + Leisure. 2020 May 14. https://www.travelandleisure.com/travel-tips/travel-trends/top-vacation-destinations-america-expedia-searches.
14. Cho C, Jessica T, Michelle S. Food spending of middle-income households hardest hit by the great recession. Washington (DC): US Department of Agriculture, Economic Research Service; 2018 Sept 27. https://www.ers.usda.gov/amber-waves/2018/september/food-spending-of-middle-income-households-hardest-hit-by-the-great-recession/.

Additional Resources

Richards S. Opportunities for specialty crop producers during COVID-19 restaurant recovery. Clemson (SC): Clemson Cooperative Extension, Land-Grant Press by Clemson Extension; 2020. LGP 1067. http://lgpress.clemson.edu/publication/opportunities-for-specialty-crop-producers-during-covid-19-restaurant-recovery/.