Posted On: October 8, 2020

Will My Favorite Restaurant Survive Covid-19?

In the first six months of COVID-19, one in six restaurants in the U.S. closed either permanently or on a long-term basis, according to the National Restaurant Association.

Many operators (40%) don't expect to survive another six unless something seriously gives.

What are the chances your favorite restaurant will be one of the casualties? Honestly, no one can see the future. But industry experts and various economic measures point to several things that can factor into whether or not a particular business will survive.

Here are 5 questions to ask yourself for the best guess about whether your favorite restaurant will shut down.

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Where Is Your Favorite Restaurant Located?

Recovery of the restaurant industry is literally all over the map.

As of September, only five states have completely recovered in terms of restaurant employment levels: South Dakota, Maine, Indiana, Idaho, and Mississippi. In terms of sales data, some evidence indicates that Utah, Kentucky, North Carolina, and South Carolina have climbed back up to 90% of their normal revenue.

If your favorite restaurant is located in one of those areas, it has better odds of surviving than the rest of the country.

If, on the other hand, you live in one of the states with the lowest restaurant employment recovery (Hawaii, Vermont, New York, Michigan, New Mexico, California, or DC) or the most anemic sales data (Nevada, Texas, Louisiana, New York, or New Jersey), you're probably going to see a lot more restaurant closures in your future.

Is Your Favorite Restaurant a Small or Big Business?

Most industry experts agree that a lot of independently owned restaurants aren't going to survive the restaurant shut down.

The Independent Restaurant Coalition estimates that up to 85% of independent restaurants or small restaurant groups might permanently close before the year is out. Other predictions are less dire – Wolfgang Puck's guess is a 25% restaurant closure, while a lecturer from Cornell's hospitality program says 30-40% of small restaurants will shut down.

Regardless of the number, everyone agrees that small businesses will be the hardest hit. Independent restaurants just don't have the money to wait until better times. Some are living day-to-day in terms of cash flow, making them incredibly vulnerable to closure.

On the other hand, national chains or restaurants that are owned by a large or diversified business entity are under less pressure. They're more likely to have cash reserves, and if not, they can get financial assistance more easily (remember the Paycheck Protection Program scandal?). Big business is also more likely to have innovated already in ways that make the takeout/delivery switch manageable.

What Kind of Cuisine Does Your Favorite Restaurant Offer?

Some types of restaurants are more likely to survive regardless of business size.

Why? Because they were already associated with takeout.

Pizza, Chinese, sushi, Thai, Indian – these all relied on a takeout-or-delivery model pre-COVID. The food holds up to delivery delays and converts well to leftovers. They didn't have to switch business models. In fact, many mom-and-pop stores with this cuisine barely had dine-in service to begin with.

Plus, people associated them with pickup or delivery. It was already built into the routine and served as a kind of comfort food in uncertain times.

Is Your Favorite Restaurant Full-Service?

On the opposite end of the spectrum from pizza and Chinese food, full-service (sit-down) restaurants that sell an "experience" (and/or cuisine that doesn't travel well) are the business model most vulnerable to a restaurant shut down.

Full-service restaurants have higher staffing and infrastructure costs. In some cases, the food is not even the point, so ordering from home is unattractive. Either way, when your business only breaks even at 80-85% capacity, it's literally impossible to survive with coronavirus caps.

Even established national chains can't overcome the economic and logistical challenges – Chuck E. Cheese has been dealt a death blow.

Quick-service and fast-casual restaurants are faring much better. A survey by the National Restaurant Association showed that 43% of full-service operators doubt their ability to survive the next six months, versus one-third of limited-service operators.

Like pizza parlors, limited-service restaurants were primed and ready for takeout/delivery. They have no need to convince customers to think of them differently. But in addition, their business model already required fewer employees and a smaller overhead footprint.

How Well Can Your Favorite Restaurant Adapt?

Even businesses with every strike against them can survive if they're helmed by a bold, forward-thinking leader. Industry experts expect this crunch to spur on efficiency and innovation.

The modern restaurant industry had a lot of business-model holdovers that teetered constantly on the edge of being crippling. Margins have long been razor-thin and labor is deeply underpaid. Some are even hopeful that this will (somehow) force improvements in the industry.

One of the expected changes: increased reliance on technology over labor. That means restaurant employment levels might never return to previous levels, regardless of restaurant closures. On the other hand, many hope that the rarity of restaurant jobs in the future will enable employee development and a fair living wage.

If Your Favorite Restaurant Doesn't Close, Will You Be Able to Afford It?

One of the adaptations that some see as inevitable is one you'll probably regret – higher prices on the menu.

With capacity down and rent staying the same, something has to give. Especially as we head into winter and outdoor seating has to close in a lot of the country. COVID-19 has also brought on additional costs – sanitation safety training, personal protective gear, cleaning supplies, delivery app commissions, and more.

Prices will have to go up. They may never come back down – many restaurant owners say that prices don't reflect production costs. It's unsustainable.

Whether or not your favorite restaurant shuts down, changes are coming for the entire restaurant industry. In the short run, it probably means more chain and fast-food restaurants, to the chagrin of foodies everywhere. In the long run, though, it will be interesting to see what comes next.

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