Why Are So Many Restaurants Closing?

Photo by Maderla

A café once filled with lively crowds enjoying good food and good company now sits empty with darkened windows—a sight that has become all too familiar in 2020. There’s no way around it; this year has been incredibly hard for countless industries, but especially for restaurants. In response to COVID-19, restrictions have limited access in most eateries, who have traded packed tables for takeout orders and socially distanced patios—and those are the lucky ones. Dozens of local favorites, from James Beard Award winning bistros to neighborhood diners, have fallen victim to the enormous financial burden of operating in the midst of a pandemic.

While small business loans such as the Paycheck Protection Program have been successful in helping small companies with payroll, utilities, and rent, the restaurant industry has faced unique losses that can’t be recovered from the loans.

“Out of all the industries, restaurants lost their inventory. Retail stores shut, but they didn’t lose all of their clothing or all of their product,” explains Stacy O’Fallon, a certified managerial accountant. “Restaurants could freeze some items, but they have a fresh, perishable product and they lost it all.”

As the owner of Front Burner Accounting, O’Fallon is primed to take on the financial challenges her clients are currently facing. She has provided consulting and financial restructuring services to the restaurant industry for more than 30 years, working primarily with growth-oriented organizations or businesses that are doing well but struggle with their accounting. But even she notes that in this unpredictable time there isn’t one surefire way for restaurants to save their businesses.

“They’re doing everything they can. They’re cutting expenses and being creative when it comes to increasing sales. They’re just trying to stay alive right now,” O’Fallon says. “The restaurants so badly want everything to go back to normal, and the customers so badly want it to go back to normal and support them. It’s just getting there [that is difficult].”

Many of the strategies restaurants have implemented, from adopting a takeout focused business model to operating dining rooms at 50%, require additional expenses such as packaging for to-go orders, delivery fees, training, and sanitizing supplies and equipment. Between these added costs and facing consumer backlash for making necessary changes (like paring down menus to account for reduced inventory and labor and increasing prices to offset third-party delivery fees), restaurants are struggling to both stay afloat financially and keep customers returning.

While many consumers have rallied to support local restaurants, the short-term impact of dining out, ordering delivery, and purchasing gift cards may not be enough to get them out of this period. But still, hope persists. O’Fallon points to two sources that could improve the odds for restaurants: the growth of the ghost kitchen, an off-site kitchen where takeout meals can be prepared and picked up by delivery drivers (which O’Fallon considers “the way forward”), and the RESTAURANTS Act, a proposed $120 billion relief package for independent restaurants and the 11 million people the restaurant industry employs that is part of the larger $2.2 trillion HEROES Act. The House of Representatives passed the bill in early October and it now requires Senate approval.

As for consumer support, O’Fallon notes that (on top of continuing to spend money at restaurants) one of the best things customers can do is show compassion to restauranteurs, chefs, servers, and staff.

“As businesses and individuals, we’re all in this together.”