International Impact of COVID-19 on the Restaurant Industry

BY SRIHARSHA SIKHAKOLLU

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The COVID-19 pandemic has disrupted global economic activity and led to drastic changes in both demand and supply aspects of multiple economies. According to a survey of more than 5,800 small businesses which are part of Alignable, “a network of 4.6 million small businesses” which was conducted by PNAS, the pandemic had caused “massive dislocation among small businesses” just a few weeks into the pandemic. Across the survey respondents, “43% of businesses had temporarily closed” and nearly all of them were due to COVID-19. This goes to show the severe consequences of the pandemic. Many small business owners had enough cash to only last for a few weeks. Businesses that required the physical presence of customers such as restaurants, movie theaters, shopping malls were affected the most and transitioning into a fully online business, with severe supply chain disruption, made it challenging for such businesses to survive. F&B places lost $130 billion in sales in 2020 alone with more than 2.1 million people losing their jobs. As seen earlier, on the surface, the restaurant industry has faced tremendous losses. However, to get a deeper understanding of the effect of the pandemic on the restaurant industry, we can take a look at the policies, restrictions and other differentiating factors that affected the restaurant industry. 

 

US

   As the coronavirus raged on in the United States for the last couple of months, several restaurants were forced to close down. In a letter addressed to Nancy Pelosi, Mitch McConnell, Kevin McCarthy and Chuck Schumer (2), the National Restaurant Association stated that 87% of full-service restaurants “reported an average 36% drop in sales and that 10,000 restaurants have closed across the nation” in just 3 months. Additionally, Sean Kennedy, executive vice president for Public Affairs, stated that there are “more than 500,000 restaurants of every business type” that are in an economic free fall”. The letter exemplified the urgency for this matter and that “for every month that passes without a solution”, thousands more restaurants will be impacted. 

   As the above chart illustrates, the restaurant industry has been hit incredibly hard during the pandemic, “losing $130 billion in sales between March and October [of 2020] as a result of mandated closures and capacity limits.” Towards the end of the year, the industry lost 2.1 million jobs compared to a pre-pandemic situation. In fact, according to an article by McKinsey, the food-service industry “may take four-years to recover from the COVID-19 pandemic”. Why is this so? Firstly, consumer spending has been impacted significantly. Until early 2020, consumer spending had been fairly stable, “growing at around 4% over the previous 5 years” (3). The sales in the food-service industry had been split between retail such as grocery stores & supermarkets and food-service businesses such as restaurants. Then came March, and with it, COVID-19 which brought along multiple lockdown policies, safe distancing measures, and quarantine orders that “dramatically reversed the trend of consumer spending on food” (As seen in the infographic below) (3). Federal arrangements were made, front and centre, as the duration and extent of “lockdowns” varied from state to state (4).

   Other than social distancing measures, socio-economic measures were also necessary to mitigate the consequences of COVID-19 on countries, businesses and individuals. Where employment protection is concerned, the United States lacked appropriate policy instruments to ensure that workers could remain on payrolls in the middle of the economic shutdown (4). Instead, Congress created a $660 billion temporary emergency program known as the Paycheck Protection Program (PPP). This program was directed towards small businesses such as small restaurants, small food service franchises and was administered by the Small Business Administration. “While the funding for the program was arguably adequate, its structure yielded perverse results” (4). Firstly, the funding for PPP ran out almost immediately. Secondly, the PPP, a loan program, was contingent on the fact that the small businesses used 75% of the funding for payroll over a 2 month period. Soon later, Congress brought the threshold down to 60% which allowed businesses “to push off rehiring workers” and meant that a lesser amount of money had to be spent on actually paying employees. The program turned into a ‘small business protection’ instead of ‘paycheck protection’. As the article suggested, “had the program given funds directly to workers”, the money would have been more beneficial and could have helped hundreds of thousands of workers of small restaurants across the country. 

   Furthermore, food-service producers in the United States themselves faced disruptions and implications from the pandemic. Manual packing, and other labor intensive work have faced incremental challenges because of physical-distancing precautions hence making the entire production process either inefficient or impossible to do. 

 

India

   In a country of a billion people, the impact of the coronavirus was severe. The Indian government imposed a nationwide lockdown from March 25th 2020 to May 31st 2020. One area where the effect of the lockdown was seen was in the online food delivery sector. Food delivery to homes was expected to increase in demand during the lockdown period however; according to a survey conducted by Rakuten in June 2020 (5), most Indian households ordered less food and instead, relied on their home cooking skills. News outlets reported that the two main companies in the food delivery sector in India, had to lay off workers in order to cut costs. 

   The Indian government’s policy response to mitigate the effects of COVID was to launch a fiscal stimulus of 20 trillion rupees (6). Additionally, “the Reserve Bank of India enacted decisive expansionary monetary policy”. The National Rural Employment Guarantee Scheme and supply of subsidized food grains have acted as effective measures to keep unemployment down and ensure social stability hence benefiting those in the restaurant sector who either had a reduction in pay or were unemployed due to lockdown measures. Thirty-six million people sought work in May 2020. This went up to 40 million in June 2020. 

   As the COVID-19 pandemic devastates service industries around the world, dining-out culture has taken a particularly bad hit from lockdown regimes. Throughout the country, hotels and restaurants have gone into hibernation, hit by a triple whammy of lockdowns, food supply interruptions and wary customers. The NRAI said it expects its members to lose up to $10.5 billion in 2020, with more than 2 million people facing the loss of their jobs and one in four restaurants unlikely to reopen. Takings at formal restaurants have plummeted 90% since the lockdown began on March 25, according to CRISIL Research, a leading independent research organization, in part because India's lockdown was one of the strictest in the world (7).

 

Singapore

   Singapore announced its first case of COVID-19 on 23 January 2020, a few days before Chinese New Year festivities, a time that is usually marked with shared meals with family and friends, and widespread restaurant closures for holidays. A few days later, restaurants reopened, and quickly thereafter on 7 February 2020, the Ministry of Health raised its disease outbreak response level (“DORSCON”) from Yellow to Orange. The combination of personal health concerns and government advisories immediately resulted in a significant shift in lifestyles and attitudes, such as minimizing social contact, avoiding large scale events and gatherings, and splitting work teams to avoid company-wide quarantines. “On 13 February 2020, the President of the Restaurant Association of Singapore (RAS) reported that the livelihoods of some 200,000 people in the F&B industry were at risk” (8). In the immediate aftermath of the first COVID-19 case in Singapore being announced, restaurant bookings dropped 22% week-on-week (WoW) as initial panic erupted. This only got worse when DORSCON Orange was announced, with a further 17% decline WoW (Panic Phase I). The week of 23 March 2020 saw reservation numbers worsening after safe distancing was made mandatory. The measures limited dining parties to 10 persons, while bars and entertainment venues were ordered to close for over a month.

   While COVID-19 has undeniably affected restaurants across the board, the exact implications vary. Chinese restaurants have experienced the largest dip in reservations thus far and have since not yet been able to recover as well as cuisines such as Japanese or American. “This could be due to the communal nature of these restaurants, the impact on hot pot restaurants in particular and that Chinese establishments with larger capacities tend to rely on tourist traffic. (8)” On the flip side, cafes and similar spots saw an increase in reservations, with diners utilizing these spaces as temporary work stations after issued employer mandates to work remotely. 

Singapore’s lockdown measures can be broken down into 3 main steps: Phase 1, Phase 2, Phase 3 with Phase 1 being having the most restrictions and Phase 3 having the least. During Phase 1 (start to mid 2020), restaurants definitely faced the most impact as most businesses were closed and only essential services such as grocery stores were open. As Singapore transitioned into Phase 3, the restaurant industry had opened up completely with dine-in being an option. 

 

UK

   After almost three months of lockdown due to the pandemic, restaurants in the UK were allowed to re-open on July 4th, 2020, if they followed strict guidelines to prevent a second wave of virus. On July 11th,  the number of seated diners in UK restaurants dropped down to 45%. As of April 2021, the Year-on-year decline of customers in restaurants in the UK, compared to the pre-COVID era, was 36.14% (9).  As seen earlier, consumer spending on the food services industry has changed dramatically. Prior to COVID-19, the average UK household spent £27.40 per week, 5% of total expenditure, on food and drink away from the home (Office for National Statistics, ONS, 2020a). “Evidence from consumer expenditure data shows that UK restaurant spending by households in April and May 2020 was 30% of its total in the same months of 2019” (9).

   During lockdown, the number of hours worked by restaurant employees were down 65% from 2019, “compared with a 24% decrease for all other workers” which exemplifies how hard the restaurant industry has been hit. Despite the lifting of lockdown restrictions, hours for restaurant employees in July remained 52% lower than 2019 hours, compared with 12% lower for all other industries (Figure).

   Furthermore, according to Guardian, UK restaurants and casual dining firms recorded almost 30,000 job losses in 2020 as the COVID-19 pandemic drove a 163% jump in redundancies.

   To address such issues, the government has implemented multiple measures that could help the employment status of many individuals in the UK. Firstly the Job Retention Scheme (JRS). The JRS has been introduced to help employers who cannot maintain their current workforce because their operations are affected by the COVID-19 outbreak. Employers can apply for a grant towards the employment costs of eligible individuals who are temporarily not working, or working reduced part time hours, due to the outbreak. Secondly, the Apprentice Scheme, that helps a younger aged population seek employment, gives any firm that hires a new apprentice, aged 16-24, £2,000. Moreover, the government also implemented numerous stimulus packages. While most of them targeted large businesses or businesses that were getting up to 45 million in revenue, there was one scheme known as the Bounce Back Loan Scheme for small businesses such as restaurants which provided such businesses with loans worth up to 25% of their annual turnover.

 

Future

   As the ripple of the coronavirus careens around the globe, it has forced mankind to innovate the way we work and live. The pandemic has really made us question the future of our world. The future of education has significantly come into question when we discuss the future of the world. With the majority of educational institutes such as schools, universities and tuition centers shifting to online-based learning, everyone has come about to realize how efficient physically and financially it is. Companies are simply able to conduct business meetings from the comfort of their rooms. The coronavirus pandemic has slowly started to shift the human race towards a digitally-engrossed world (41). In fact, shifting towards a digitally engrossed world would benefit not only education but restaurants as well due to the higher increase in digital users. There will be more customers dependent on an online platform as they wouldn’t be able to be physically present to purchase their daily meals. In today’s world there are businesses already adapting to this new way of living with lockdown measures. For example, a restaurant in Italy known as II Ciak, is using a plexiglass separator to allow people to dine together despite COVID-19 quarantine measures. 

   Despite governments implementing certain measures, the transition into a fully online business is not easy yet is extremely important for restaurant owners to do so in order to survive during the pandemic. This is why Help SOAR plays an important and helpful role to assist restaurant owners with the knowledge and assistance they need to become a successful online restaurant. 

Works Cited

Bartik, Alexander W., et al. “The Impact of Covid-19 on Small Business Outcomes and Expectations.” PNAS, National Academy of Sciences, 28 July 2020, www.pnas.org/content/117/30/17656. 

Kennedy, Sean. “Nat-l-Restaurant-Assoc-Ltr-to-Congress.” National Restaurant Association, WeRRestaurants, 7 Dec. 2020, restaurant.org/downloads/pdfs/advocacy/nat-l-restaurant-assoc-ltr-to-congress-12-7-2020. 

Felix, Ignacio, et al. “US Food Supply Chain: Disruptions and Implications FROM COVID-19.” McKinsey & Company, McKinsey & Company, 15 Oct. 2020, www.mckinsey.com/industries/consumer-packaged-goods/our-insights/us-food-supply-chain-disruptions-and-implications-from-covid-19.

 

Fei Men, Valerie Tarasuk, Food Insecurity amid the COVID-19 Pandemic: Food Charity, Government Assistance, and Employment, Canadian Public Policy, 10.3138/cpp.2021-001, 47, 2, (202-230), (2021).

"To Have A Meaningful Impact". Rakuten Insight, 2021, https://insight.rakuten.com/. Accessed 30 July 2021.

 

Sinha, Maurice. "The Impact Of COVID-19 And The Policy Response In India". Brookings, 2020, https://www.brookings.edu/blog/future-development/2020/07/13/the-impact-of-covid-19-and-the-policy-response-in-india/. Accessed 30 July 2021.

"Crushed By COVID-19, India's Restaurants Consider Radical Changes". Nikkei Asia, 2021, https://asia.nikkei.com/Life-Arts/Life/Crushed-by-COVID-19-India-s-restaurants-consider-radical-changes. Accessed 30 July 2021.

"White Paper: COVID-19'S Impact On Restaurants In Singapore - Chope For Restaurants Blog". Chope For Restaurants Blog, 2020, https://restaurants.chope.co/blog/covid-19-white-paper-restaurants-singapore-coronavirus-impact/. Accessed 30 July 2021.

 

"How Has Coronavirus Affected Pubs, Cafes And Restaurants? - Economics Observatory". Economics Observatory, 2021, https://www.economicsobservatory.com/how-has-coronavirus-affected-pubs-cafes-and-restaurants. Accessed 30 July 2021.

"Infographic: The Pandemic's Toll On The U.S. Restaurant Industry". Statista Infographics, 2021, https://www.statista.com/chart/23765/impact-of-the-covid-19-pandemic-on-the-us-restaurant-industry/. Accessed 2 Aug 2021.

 

Felix, Ignacio, et al. “US Food Supply Chain: Disruptions and Implications FROM COVID-19.” McKinsey & Company, McKinsey & Company, 15 Oct. 2020, www.mckinsey.com/industries/consumer-packaged-goods/our-insights/us-food-supply-chain-disruptions-and-implications-from-covid-19. 

"How COVID-19 Is Impacting Online Food Delivery Platforms - Citigps". Citigps, 2019, https://www.citivelocity.com/citigps/how-covid-19-is-impacting-online-food-delivery-platforms/. Accessed 2 Aug 2021.