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10,000 More Restaurants Are Expected to Close Before the End of the Year

Dec 12, 2020 by Maurie Backman
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It's been a tough year for the restaurant industry. Roughly 17% of U.S. restaurants have already permanently closed their doors in the wake of the coronavirus pandemic -- 110,000 in total. And if the industry isn't thrown a lifeline, the problem will get worse. In fact, the National Restaurant Association projects that 10,000 more restaurants will permanently shut down before 2020 comes to an end. And that's bad news on multiple levels.

Challenges abound

Restaurants have been struggling since the pandemic erupted in March, when many were forced to halt in-person service and shift to delivery and takeout only. For casual restaurants, that wasn't necessarily a dreadful shift. But higher-end eateries don't tend to fare well with a takeout and delivery model. These businesses make money by offering patrons a unique dining experience -- great food, outstanding service, and pleasing ambiance. Many also rely heavily on liquor sales to boost their bottom line. But most diners aren't willing to order a $45 streak entree to go, nor are they keen on buying $15 cocktails to take home and sip in their dining rooms, and so high-end restaurants have really struggled to adapt to a different model.

Of course, many restaurants have, since March, been allowed to offer limited indoor dining or outdoor service. But welcoming guests indoors at 25% capacity isn't enough for many of these establishments to stay afloat, and with winter approaching, outdoor dining will become a precarious prospect in many parts of the country. And while some restaurants are investing in tents, heat lamps, and other equipment in the hopes of continuing outdoor dining through the cold weather months, surging coronavirus cases could shut down dining altogether, making those investments risky.

Restaurants need help

In March, the CARES Act allowed for an initial round of forgivable Paycheck Protection Program (PPP) loans, the purpose of which was to give struggling small businesses a cash infusion to save jobs and prevent widespread closures. But seeing as how restaurants don't tend to be very payroll-heavy, that aid only went so far. Furthermore, many businesses that received those loans earlier in the year have since exhausted those funds, and without another round of government aid, they risk permanent closures.

In addition to the 10,000 restaurants that are projected to close within the next three weeks, 37% of existing dining establishments say it's unlikely that they'll be open in six months' time. Given that 87% of full-service restaurants have experienced an average revenue drop of 36% during the pandemic, that's not shocking.

But restaurant closures don't just hurt the people who own them and work for them -- they also hurt communities. When businesses shutter, home and property values start to decline, so real estate investors stand to lose out big time if dining establishments can't hang on. And let's not forget that countless commercial landlords rely on restaurants to pay rent. If those businesses continue to close down for good, landlords will soon have a vacancy crisis on their hands.

What's the solution? Other than a readily available vaccine, government aid could help. But another round of PPP loans may not cut it, especially if the rules involved are as restrictive as they were the last time around.

In addition to mom and pop restaurants, large restaurant chains are struggling as well, and several have already filed for bankruptcy this year. If lawmakers don't step in to stop the bleeding, the repercussions could be utterly devastating.

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