One of the saddest business stories that came out of the 2020 pandemic was the impact that mandated shutdowns had on the restaurant industry. News reports across the country covered frustrated business owners who were forced to comply with restrictions that limited their ability to serve their customers indoors or even at all. By summertime, reports began appearing of more than 16,000 restaurants closing nationwide, a number that ballooned to as many as 110,000 by the end of the year.
Did 110,000 restaurants fail in 2020? Perhaps. But hold on.
The fact is that restaurants fail at a higher rate than most small businesses. That’s why, according to industry reports, 60 percent of restaurants don’t make it past their first year, and 80 percent go out of business within five years. Currently, there are about 660,000 restaurants operating in this country. So, if 80 percent of them go out of business in five years, that would be a rate of about 105,000 restaurants shutting their doors every year.
In a recent speech, President Biden said that more than 400,000 small businesses overall have closed this past year. But hold on again.
According to the Small Business Administration (SBA), there are about 30.2 million small businesses in the U.S., of which 5.9 million actually have employees. The SBA reports that anywhere from 7 to 9 percent of those 5.9 million employer firms go out of business every year. Breaking it down, that comes to as many as 531,000 failed firms annually.
In other words, lots of small businesses – especially restaurants – close every year, regardless of global pandemics.
Yes, it's been a very difficult year for the restaurant industry. But you know what? The ones that remain are going to be just fine. In fact, many will probably emerge in better shape than before. That's because, despite the rules from governments that required those businesses to curtail their operations, those same governments actually stepped up to provide a lot of assistance. And smart restaurant owners took advantage.
What kind of help did the industry receive?
For starters, the Paycheck Protection Program launched a second round late in 2020 that not only specifically targeted the restaurant industry but also changed its loan calculation to make more funds available for them. The new rules also expanded the definition of forgivable expenses to include costs such as food contracts and investments in all those outdoor dining setups that provided more protection both for workers and customers. Hundreds of thousands of restaurants nationwide took advantage of these added benefits.
Besides the much-needed Paycheck Protection Program, many smart restaurant owners also took (and continue to take) advantage of the other generous federal pandemic benefit programs, such as the Employee Retention Tax Credit (which offers significant refundable credits on payroll taxes for eligible businesses that retain their employees) and the Economic Injury Disaster long program offered by the Small Business Administration. Restaurant owners in low to moderate income areas also snapped up targeted grants from the SBA. Or they made use of grant programs provided by delivery services such as Grubhub, DoorDash and Uber Eats or states like California and Illinois.
Across the country, cities and states issued rules that suspended rental payments and launched rental assistance programs that impacted countless smaller restaurants. For example, and thanks to the federal stimulus, my hometown of Philadelphia has offered as much as $100 million in aid to small businesses in the city – the majority of them restaurants – that included substantial assistance to help pay for rent. Other cities and states such as California and Oregon have done the same. Getting this kind of governmental help to pay for what is for many restaurant owners their biggest fixed overhead cost has been a crucial factor in their survival.
Besides that assistance, many cities – like Philadelphia as well as Dallas and Boston – have eased permit restrictions and allowed their restaurants to build makeshift eateries on the sidewalks and streets outside their establishments. Equipped with heaters and air ducts, those tables have been filled throughout the winter with intrepid diners desperate for a night away from Netflix. New York City has already announced its intentions to allow restaurants to continue with their outdoor dining, and a number of cities are considering the same. Which means that once the pandemic is behind us, many of these establishments will have found their capacity increased by 50 or even 100 percent, a huge revenue opportunity in the years to come.
But the biggest source of aid is yet to come. With the American Rescue Plan Act, the federal government has now stepped up to provide a massive grant program to restaurants called the Restaurant Revitalization Fund. This $29 billion grant fund, which is not yet accepting applications, will literally reimburse restaurateurs for the loss in revenues they experienced in 2020 compared to 2019. That's going to be a big check once the program is up and running.
When walking around downtown Philadelphia during the fall and winter, I worried for the future of all the restaurants around me. Many of them were shut, even boarded up. But now, as the weather warms, cases subside and vaccines increase, I'm noticing that those same small businesses – dormant for many months – are slowly coming back to life. Those owners were smart enough to have hoarded cash, negotiated suspended deals with suppliers and grabbed all the funding available for them. And many of them who pivoted to online sales, deliveries, curbside pickup and new, specialized offerings have discovered new revenue streams that will benefit them going forward.
I’m not arguing that this past year wasn’t a historic catastrophe for many in the restaurant industry. But the industry has survived, and with all the funding available, the smartest owners of these businesses are putting themselves in a position to benefit from the pent-up demand and savings from the past 12 months.
So, let’s not feel bad for these people. Let’s eat.
Gene Marks is founder of The Marks Group, a small-business consulting firm. He frequently appears on CNBC, Fox Business and MSNBC.