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Restaurant Industry Warns Of "Economic Free Fall" As 110,000 Eateries And Counting Are Permanently Shuttered

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by Tyler Durden
Tuesday, Dec 08, 2020 - 05:45 AM

The National Restaurant Association (NRA) sent a damning letter to Congress today (Dec. 7) addressing the collapse of more than one hundred thousand restaurants across the country this year because of the virus pandemic. In just the last three months, the letter said more than 10,000 eateries have closed, and thousands of others are in "economic freefall." 

The letter goes into detail about the association's most recent nationwide survey, which determines that most restaurants are still experiencing a plunge in sales revenue. Many operators believe more furloughs or layoffs are imminent. As we noted last week, the layoffs have already begun. 

"What these findings make clear is that more than 500,000 restaurants of every business type— franchise, chain, and independent—are in an unprecedented economic decline. And for every month that passes without a solution from Congress, thousands of more restaurants across the country will close their doors for good," Sean Kennedy, executive vice president of public affairs at the association, said in a letter to Congress.

According to the association's survey, 

  • 87% of full-service restaurants (independent, chain, and franchise) report an average 36% drop in sales revenue. For an industry with an average profit margin of 5%-6%, this is simply unsustainable83% of full-service operators expect sales to be even worse over the next three months.

  • Although sales are significantly lower for most independent and franchise owners, their costs have not fallen by a proportional level. 59% of operators say their total labor costs (as a percentage of sales) are higher than they were pre-pandemic. 

  • The future remains bleak. 58% of chain and independent full-service operators expect continued furloughs and layoffs for at least the next three months.

The tsunami of restaurant closures and bankruptcies will continue to rise through 2021 - leading to deep economic scarring and permanent job loss. The association predicts "as of today, 17% of restaurants—more than 110,000 establishments—are completely closed."

The findings come as the industry continues to deal with the devastating impact of the virus pandemic. State and local governments are imposing strict indoor limitations on restaurants or even, in some cases, banning indoor dining

It's not just the virus and draconian public health measures from governments that restaurant operators have to deal with - they also have to contend with Mother Nature. As we've previously noted, citing a Goldman Sachs report, foot traffic to restaurants will start to plunge when the outside temperature drops below 45°F.

The National Restaurant Association hopes that the letter will pressure Congress to act and provide aid to restaurants once the new stimulus package is approved to help them survive under circumstances that are being forced upon them by policymakers who seem to be ignoring the science, and following the politics.

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