Everybody knows that restaurants are struggling right now due to the COVID-19 crisis. Some have seen decreased revenue from being “carryout only” for about two months and some have decided to close permanently.
Restaurants are a big part of American life. According to an industry study, 56 percent of people dine in, get carryout or delivery from a restaurant two to three times a week. About six percent say they eat out every single day.
At the beginning of 2020, there were more than 1 million restaurant locations nationwide and it was projected that they would bring in more than $900 billion in sales for the year.
Restaurants employ 15.6 million people a year and make up a huge part of our national economy.
Fortunately when the crisis hit, most governors allowed carryout at restaurants. While that’s not enough for a business to survive, a complete shutdown would have been catastrophic.
If every restaurant in the country completely closed for one week, it would mean $4.5 billion in lost earnings and 135,178 jobs lost. For three months, that would mean $58.7 billion in lost earnings and 1.7 million jobs lost.
So what did restaurants do during the shutdown? Some adapted. They changed their menus. Cut staff. Cooked food for hospital workers. Adjusted their hours. Signed up for delivery platforms. Anything they could do.
Those first few weeks, some restaurants were overwhelmed with calls for carryout. Pizza Hut and Domino’s could not hire drivers fast enough.
Some restaurants did not see a surge. Breakfast places and high-end steakhouses did not receive as many calls. And it was proven that customers were only willing to drive so far to pick up their order. They might love traveling from Hamilton County for a date night in downtown Indianapolis but they weren’t going to drive 30 or 45 minutes to pick up food.
For those restaurants that did see a carryout surge, are they making good money?
It depends.
Tip percentages are statistically lower with carryout, which harms servers. And while the governor allowed alcohol for carryout, some saw strong sales and others did not. If alcohol sales weren’t strong, it can make or break a restaurant. The average restaurant with beer/wine licenses or a liquor license reports anywhere from 25 to 35 percent of its revenue from alcohol sales. That’s an average which means a sports bar could see 50 or 60 percent of its sales from alcohol. A reduction in alcohol sales can be tough too because it’s one of the items with the best margins. A bottle of wine at a restaurant can be marked up 200 to 500 percent.
Some restaurants turned to delivery platforms like DoorDash, GrubHub and UberEats to boost sales during this time. Those companies are growing and can help a restaurant reach new customers, but most people don’t realize that these sites typically take 15 to 25 percent of all revenue the restaurant makes and that doesn’t include the delivery charge the consumer pays. When you consider small profit margins in restaurants (the goal is 20 percent but studies show on average restaurants often have 3 to 8 percent profit margins), taking 15 to 25 percent of revenue can be tough. Some restaurants respond by making their prices higher on these services to offset the platform costs. As a result, when you add delivery charges, driver tip and higher prices up, the consumer might be paying 50 percent more for an item compared to if they were to call the restaurant and pick it up themselves. A $10 burger could cost you $15.
In Hamilton County, restaurants were allowed to reopen on Monday, May 11 to 50 percent capacity and a whole lot of rules. Some decided to stay closed or carryout only to see how it works first. For those that are open now, it’s still tough. Consumer confidence will need to be rebuilt and many people still don’t feel safe going out to eat. On top of that, many people have lost income during this crisis. Some were out of work and some had to close their businesses temporarily. As a result, when people have less money, they tend to go out to eat less often.
If there is a recession, that will be tough for everyone, including restaurants. During the 2008 Recession, restaurants lost more than 110,000 jobs.
And that means fewer small businesses. Most restaurants are small and 90 percent have fewer than 50 employees and 70 percent of all restaurants have only one location.
A 2019 study by the U.S. Bureau of Labor Statistics found that businesses with fewer than 500 employees are the largest driving factor for both job growth and job loss, making up 80 percent of new jobs.
As you can see, restaurants – small restaurants especially – are key to our nationwide economic growth. Let’s hope they can survive this storm.