Half of All Restaurants are Permanently Closed; How Restaurants can Survive

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Photo by Belinda Fewings on Unsplash

Despite government aid and recent economic reopenings restaurant closures have been steadily rising throughout the pandemic. The initial economic shutdown in March permanently closed roughly 5% of all restaurants in the U.S. Restaurants that had very little cash on hand and had significant ingredient shortages were the first to fall in the pandemic with federal aid still weeks away.

Since then, federal aid and a drastic shift in the industry to simplify and cut costs significantly slowed down permanent closures but slow business and lack of clear communication with federal and local governments led many restaurants to close despite best efforts.

Initially, the National Restaurant Association estimated up to 15% of all restaurants could permanently close while Barclay’s estimated just 10%. Neither organization could have predicted how long nor how extensive the pandemic would affect the industry.

Yelp Data

According to Yelp, 15,742 businesses listed on Yelp closed forever in just the past month. Yelp’s most recent economic average report states that 132,580 businesses listed on the Yelp review site remain temporarily closed due to the coronavirus pandemic.

The data shows that overall temporary closures are down but that permanent closures are up.

“Overall, permanent closures have steadily increased since the peak of the pandemic with minor spikes in March, followed by May and June,” Yelp’s report states.

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When you look at those two top categories [retail and restaurants], we’re potentially never going to see some of these businesses again, Justin Norman, Yelp’s vice president of data science, told the Wall Street Journal.

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Even the titans of the industry, chain restaurants like McDonald’s, Dunkin’ and Starbucks are permanently closing over 1,500 locations combined due to the pandemic.

Most chains rely on independent franchisees that do not have the same financial resources as the parent companies. While McDonald’s the company will likely ride out the economic downturn just fine, owners of specific locations may not be so lucky. Large chains are doing everything they can do support their franchisees but significantly lower revenue and increase costs associated with health and safety guidelines may simply make some locations unviable from a business and safety perspective.

How to Survive the Pandemic

Yelp’s data also suggests that takeout and delivery will be popular even after the pandemic ends.

Businesses need to invest in technology now to pave the way for survival and future growth.

With online and mobile ordering increasing over 400% over the course of the pandemic, it has quickly become the primary way for diners to interact with restaurants in a safe way.

Joining third-party delivery platforms like Uber Eats, Doordash and Grubhub is an easy solution as a short term band-aid for a struggling business but with fees and commissions that can take away up to 30% to 40% of each order, it is unsustainable in the long run. The issue has become so prevalent that local governments are passing legislation that limits commissions collected by third-party platforms.

Unfortunately, companies are not honoring those limits unless individual restaurants specifically request commissions to be brought down. In many instances, restaurants are flat out denied lower commission fees despite local laws or are given the runaround and refuse to answer restaurants altogether.

Many services offer restaurants cheaper alternatives to using third-party platforms by enabling restaurants to have their own online ordering systems. These services often have reasonable flat monthly rates with unlimited use rather than commissions per order with complete control over communications between restaurants and customers. Many restaurants have had orders be canceled even after the food has been made just because customers couldn’t respond to the app in time resulting in frustration to both the restaurant and customer.

Restaurants also need to reevaluate the entire menu. Shortages and fewer customers may mean many menu items are no longer profitable. Many restaurants have streamlined their menus to only include popular or profitable items. That may mean temporarily discontinuing specialty menu items but survival comes first.

Communication is a must for any local restaurant to survive. Most small restaurants rely on community support for business but with the pandemic cutting off most communications, social media has stepped in to fill the void. Even a simple Facebook or Instagram page is enough to provide regular updates like menu changes and updated hours to your fans. Social media can also be a useful tool for marketing promotions or special offers to drive up business.

If possible, businesses should apply for federal aid. The deadline to apply for PPP (Paycheck Protection Program) loans is August 8th but there are other options for low-interest non-forgivable loans. The SBA (Small Business Administration) has small business loans for businesses that do not qualify for PPP loans and other third-party lenders may be able to help with loans as well.

While less popular and more difficult to obtain, grants and local relief funds are a good way to secure some money that often comes with no string attached or obligation for repayment. Some restaurants have turned to online crowdfunding such as GoFundMe pages for online donations.

The pandemic may get worse before it gets better, but it will get better. The important thing is for businesses to survive any way they can with all the tools at their disposal. It may seem bleak, but this too shall pass.

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