The State of Restaurants Post-Lockdown
The COVID-19 pandemic has been particularly brutal to the restaurant industry. During the nation-wide lockdown in April of 2020, non-essential businesses could not operate with indoor dining, and it was not until Summer 2020 that outdoor dining was allowed.
Payments of rent for restaurant space faltered heavily given the precipitous drop in business, and even through the end of 2021 restaurants are still struggling to cover their lease obligations. A recent survey of more than 2,800 small businesses by Alignable Small Business Network found that 51% of restaurants could not pay their September rent, up 6% from August and 11% since July. To make matters worse, the restaurant industry is still dealing with a staffing shortage. According to Fitch Ratings and the Bureau of Labor Statistics, in June 2021, the Food Service and Drinking industry employed 94% of the total number employed pre-lockdown, compared to total nonfarm payrolls which employed 97% of the total pre-lockdown.
Data suggests that the ramifications of the coronavirus on restaurant spending are not completely behind us. However, it can be confirmed that the restaurant industry is no longer in a tailspin. The National Restaurant Industry Association noted in its mid-year update that growth in food and beverage sales are up 19.7% since 2020, though this improvement is to be expected due to the lockdown last year.
Unfortunately, consumer preferences as of recent have been found to negatively affect dining and experience spending specifically due to the spread of the Delta-variant COVID surge. A study conducted by the Federal Reserve Bank of Cleveland found negative correlation between the surge in state-by-state COVID hospitalizations in the four-week period from late July to late August 2021 and service experience (including dining) spending during that time. No correlation was found between hospitalizations and retail spending during the same time frame. This contrasts with spending during the original unmutated coronavirus surge from late summer last year, when all spending was found to decrease as state-by-state hospitalizations went up.
It is uncertain what methods restaurants will employ to ease customer apprehension amid the Delta surge. The most obvious response is requiring proof of vaccination before entering restaurants as mandated in major cities such as New York, San Francisco, and New Orleans, though the District of Columbia is not likely to follow suit anytime soon as Mayor Bowser has been non-committal about a proof of vaccination requirement for patronizing businesses.
The future of food and beverage sales and the subsequent ability of establishments to make rental payments will continue to be decided by pandemic-related trends. As the Delta variant surges, profits will falter. If demand grows for a return to indoor dining post-surge, sales will improve.
As it relates to rental payments, the absence of dining restrictions in most locales relinquishes the option for restaurants to claim an “impossibility or impracticality of performance” in court during legal disputes with landlords. According to the Foodservice Consultants Society International, a landmark legal decision recently occurred in New Jersey where a state superior court judge denied a landlord’s motion challenging a local restaurant that had filed suit for an eviction as a result of stopped rent payments during the pandemic lockdown. The restaurant argued that non-payment of rent should be excused due to New Jersey’s executive orders forbidding indoor dining, which prevented the tenant from fulfilling the terms of the lease at the time. This decision could set a precedent that COVID-related dining regulations prevent businesses from carrying out their agreed upon lease terms. However, as strict 2020 executive orders are no longer in place, restaurants likely won’t be able to claim grievances relating to non-rent payments that are outside of the lockdown timeframe.