New Data Reveals the Devastating Toll the Pandemic Has Had on Restaurants

The coronavirus pandemic has hit small businesses hard, but restaurants have gotten the brunt of it. While there's a new round of PPP funding available to restaurants, that aid will only go so far.

A man in a mask wipes a restaurant table with a cloth.
A man in a mask wipes a restaurant table with a cloth.

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The coronavirus pandemic has been battering small businesses since March 2020. From forced temporary closures and restrictions on operating capacity to the general economic uncertainty that's driven many consumers to cut back on spending, local establishments are hurting for revenue in a very big way. But it's clear that restaurants have taken a particular beating, and in the absence of adequate aid, many more risk closing their doors permanently.

Over 110,000 closed establishments and counting

It's estimated that more than 110,000 food and drink establishments closed their doors last year — either on a temporary basis or for good. And those closures took jobs with them — a good 2.5 million, to be precise.

The pandemic has, thus far, cost the restaurant industry as a whole six years of growth, reports the National Restaurant Association. In 2020, restaurant and foodservice sales totaled $659 billion — $240 billion less than pre-pandemic estimates for the year.

Older establishments said goodbye

Even restaurants that were once regarded as community staples didn't manage to survive the pandemic. Of the restaurants that closed permanently in 2020, the average length of operation was 16 years. Worse yet, the experience has left industry veterans devastated and hopeless, so much so that 72% of those whose restaurants shuttered say it's unlikely they'll open a new eatery in the months or years ahead.

Creativity can only go so far

Many restaurants have shifted gears in an effort to adapt to the pandemic. Some have set up outdoor dining areas to accommodate more guests, all the while investing in heat lamps, igloos, and other equipment that allow them to welcome diners even during the heart of winter. But for most establishments, outdoor dining can't take the place of full-service, full-capacity indoor dining.

Furthermore, while many restaurants have managed to survive by focusing on takeout, delivery, and meal kits, higher-end establishments have had a more difficult time making that pivot. These eateries tend to derive a lot of revenue from alcohol sales and substantial markups, and while customers may be able to get on board with the idea of to-go pasta, they're less likely to order a $45 streak entree and $12 cocktail for takeout.

More PPP loans are coming, but will that be enough?

Last spring, the Paycheck Protection Program (PPP) was introduced, and it served as a lifeline for many small businesses by giving out loans. Companies with 500 employees or fewer were eligible to apply for a loan totaling 2.5 times their monthly payroll costs. Those loans were then forgivable provided that at least 60% of their proceeds were used to cover payroll expenses.

Many small businesses have since exhausted their PPP funds, but the coronavirus relief bill that was signed into law in late December 2020 comes with another round of loans for qualified recipients. Eligibility, however, is stricter this time around.

To qualify for a second PPP loan, businesses must have fewer than 300 employees and must provide proof that they suffered a 25% loss or more in revenue during any individual quarter of 2020. For many restaurants, this won't be a difficult thing to do. But here's the problem — like the first round of PPP loans, this next round is capped at 2.5 times a business's monthly payroll costs. And that's an issue for an industry that's not particularly salary-heavy.

In fact, food service workers are notoriously underpaid, relying heavily on tips. For many restaurants, the bulk of their costs comes in the form of rent, supplies, and overhead, so to have aid measured in terms of payroll expenses does them a major disservice.

Restaurants need a lifeline

With the coronavirus pandemic continuing to rage and the initial phase of vaccine rollouts going slower than anticipated, restaurants need help beyond additional PPP loans to stay afloat. Lawmakers have already introduced the RESTAURANTS Act, which, if passed in the Senate, would provide $120 billion in relief to food establishments to compensate for revenue lost during the pandemic. These grants would not only more accurately address restaurants' financial needs but also give them the peace of mind of knowing that the money won't have to be repaid. PPP loans, by contrast, are only forgivable if 60% of the proceeds are used for payroll costs.

President Biden is already pushing a new $1.9 trillion coronavirus relief package that includes a round of $1,400 stimulus checks. But his proposal doesn't include the RESTAURANTS Act, nor does it specifically include aid earmarked for restaurants. However, it does include plans for $15 billion in grants to help the country's hardest-hit small businesses stay afloat. Whether that amounts to meaningful enough aid for restaurants is yet to be determined.

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