Economic Data Arrives for the Food Service Industry

Written by Aaron Wise
Wednesday, April 29, 2020 at 12:23pm CDT

The Bureau of Economic Analysis released data today showing the true state of the economy for restaurant owners. Gross Domestic Product for the first three months of 2020 contracted at an annualized rate of -4.8%. For the food service industry, this means that the U.S. economy officially entered recession today, ending over a decade of continuous economic expansion. Consumption of services including delivery couriers dropped -10.2% as a category.

Economists widely predict the second quarter data will show the deepest levels of recession since the 1930s. The Congressional Budget Office estimates that economic activity will collapse to a -40% annualized rate during the second (current) quarter. The Office estimates an average unemployment rate of 14% this quarter. Next quarter, it anticipates an even greater unemployment rate of 16%.

Restaurants have seen an unprecedented sales decline, due to the COVID-19 pandemic and associated lockdowns. According to New York City’s budget, the city’s restaurants have lost substantially all revenue. “By late March, spending at restaurants fell by over 90% below the prior year.” Most NYC restaurants had closed entirely by March 18th. Similar trends are continuing across other cities, as the global pandemic takes its toll nationwide.

At the start of the year, restaurants employed 10 million employees plus approximately 5 million of associated personnel, couriers and contractors. According to the President of the National Restaurant Association, over seven million restaurant industry workers have lost their jobs. “The industry will lose $80 billion in sales by the end of April,” according to the latest estimates.

Embracing Survival Mode

Whether the restaurant is a family business or an artistic gastropub founded on molecular gastronomy, trying something new is always better than complaining about an inability to continue with past activities. While most dine-in establishments cannot operate in the current environment due to factors beyond the owner’s control, there are new opportunities.

Michelin-starred restaurants now offer takeout. Some owners are building online ordering systems to salvage profit margins. Chains like McDonald’s have reduced their menu items and shortened store hours. Starbucks franchisees have closed to foot traffic, servicing drive-thru only. Macaroni Grill locations have suspended 1/3 of menu items.

Independent restaurant owners are testing new initiatives with agility. For instance, dressing down dining rooms in order to supply meal kits or grocery staples has become an option to sustain revenue. During difficult circumstances, these make-shift grocery marts have renewed sales in a burgeoning trend. Customers are looking to purchase essential ingredients in less crowded shopping areas, especially items that are out of stock at grocery stores.

Finally, traditional sit-down restaurants are preparing for full dining room reopenings that began as early as Monday in Georgia. Texas restaurants are allowed to reopen Friday. Ohio and Tennessee anticipate reopening within two weeks, and several other states are nearing resolutions to lift restrictions. “A reopening will not and should not look the same for all sectors,” said Miami Commissioner Esteban Bovo. Like officials in many states, he announced today that he is creating “a tailored blueprint to reignite our economy.”

Photo by Matt Seymour on Unsplash