PROVIDENCE, R.I. (WPRI) – Restaurant reservations started disappearing the day after Gov. Gina Raimondo declared a state of emergency on March 9.
Within a week, seated customers fell 53% compared to a year earlier before vanishing entirely after Raimondo ordered a shutdown of all dine-in food services on March 18, according to data compiled by the reservation service OpenTable.
Now, as Raimondo eyes May 8 as a possible date when the Rhode Island economy could start to reopen, restaurant owners are concerned their establishments will not be part of the immediate plan – which could result in many closing permanently.
“At the three-month mark to at least six months, we will lose probably 50% of restaurants,” Pot au Feu owner Bob Burke told Target 12. “If it takes a year to get a vaccine, I think we’re looking at 75% of the restaurant industry is no longer going to be in business.”
The public health crisis has pummeled the state’s small-business community, but restaurants – already operating on razor-thin profit margins – typically don’t have much cash tucked away to withstand an extended period without revenue.
And the next 10 days could be devastating, as sales taxes were due April 20, real estate taxes are due Friday, unemployment taxes are due at the end of the month and rent is due May 1.
“We’re in the 10 day death zone for the restaurant industry right now,” Burke said. “We’ve been holding, we’ve been treading water. But the next 10 days is going to cause a massive shakeout and there will be a lot of restaurants that look back to May 1 as the time they could no longer continue.”
‘Six feet apart‘
Raimondo has tried to soften the blow, allowing restaurants to sell meals for takeout and delivery, along with beer and wine to-go. And the federal government has passed relief bills to help keep businesses afloat while they are ordered to remain closed.
The governor recently tasked a team to come up with regulations surrounding how to start reopening the economy after May 8, but she admits parts of life – like dining at a restaurant – could remain different for many months to come.
“We do know that there’s going to have to be some version of social distancing for the next year or until we have a [vaccine] or therapy,” Raimondo said during a daily briefing on Tuesday.
Addressing owners, she said, “Start to think about ways you can change the layout of your shop or your restaurant – maybe you’re going to have to take tables out. The rule of thumb of people being six feet apart is still a good one.”
The state is currently drafting the regulations, but any rule requiring a six-foot minimum between patrons could make it nearly impossible to operate a financially viable restaurant, according to Federal Hill Commerce Association executive director Rick Simone.
After hearing the governor’s comments, Simone put the idea to the test, resetting tables six feet apart in the dining room at Constantino’s Venda Bar & Ristorante in Federal Hill, an iconic Providence neighborhood known for its cuisine.
“Venda Bar lost 70% of their seating,” said Simon, who represents more than 50 license holders in and around Federal Hill.
Simone said restaurant owners are typically resilient people because the industry is in many ways unforgivably challenging and produces little profit. With that in mind, he initially estimated roughly 15% of restaurants would never reopen after last month’s shutdown order.
“Nobody is an automatic quitter in this industry,” he said.
But his estimate has since grown to 20% to 35% as the pandemic has progressed, which could continue to climb based on some of the regulations currently under consideration.
Based on rough estimates, a 70% reduction in seating could result in a 70% cut in revenue, which Simone said isn’t feasible for restaurants with fixed overhead costs, such as mortgages and rent, insurance, taxes and equipment leases.
And while earning at least some revenue may seem like a good idea on the surface, Simone said many owners are prepared to stay closed even if offered the opportunity to reopen with restrictions, as many are wary of incurring new costs and rehiring employees only to shutter again a few months later.
“If they stay closed, they aren’t incurring any new costs they really can’t take on,” Simone explained.
‘Communication is a disaster, too’
David Dadekian, president of Eat Drink RI, is working with many others to try and help the industry maintain during the crisis.
He said restaurants will likely need some type of long-term federal assistance to survive, especially if they are forced to reopen with restrictions.
“If they can’t open to their full capacity, there has to be some way to fill that capacity monetarily with some type of funding, and I don’t mean a loan,” Dadekian said.
The federal Payment Protection Program – designed to help businesses cover salaries, along with some fixed costs such as rent and utilities – has proven helpful for many small businesses, but problematic for restaurant owners.
Congress approved the $350 billion program last month as part of the CARES Act, offering businesses with fewer than 500 employees forgivable loans. But certain requirements must be met, including spending upward of 75% on payroll by the end of June.
“As things are going right now, it doesn’t look like that’s going to happen,” Dadekian said. “With half a dining room, I’m not sure restaurants could open before June 30 with 80% to 90% of their staff.”
The staffing dynamic is further complicated by the fact that many people who have been laid off are currently receiving generous unemployment benefits — including a temporary weekly boost of $600 added by Congress — making the total payment more than the amount many made waiting tables.
While the extra $600 expires at the end of July, returning to work before that could make little sense financially, especially if there isn’t great job security in an industry with so much uncertainty. (Officials have said workers who are offered their jobs back under a PPP loan will no longer qualify for unemployment.)
Another option, the U.S. Small Business Administration disaster loan program, came into play almost immediately following the shutdown of dine-in services last month and has proven more popular among restaurant owners.
The loan – while carrying a higher interest rate – has no restrictions, meaning businesses can spend them on whatever makes the most sense to keep afloat and feel OK about sending employees to collect more lucrative benefits at the unemployment line.
But the SBA disaster loan program has likewise come with its own challenges, as businesses have complained of widespread problems, including a long delay in the release of funds and a general lack of communication during the application process.
“I get it – it’s unprecedented times, it’s a mad disaster,” Dadekian said. “But the communication is a disaster, too.”
Regaining customers’ trust
Perhaps the most complicated challenge facing the industry moving forward, however, will be to regain the trust of consumers, who for weeks have been ordered to stay home and avoid gatherings.
There is currently no evidence to suggest COVID-19 spreads through food, according to the U.S. Centers for Disease Control and Prevention. But restaurants were among the first businesses ordered closed last month in part because they are where large groups of people often congregate.
To cut down on transmission of the disease, state leaders have mandated Rhode Islanders wear cloth masks when outside of their homes, which could continue as the economy reopens. Such a requirement could make dining out a problem.
“You can go to a factory, to an office, out to a theater, even to a stadium wearing a mask,” Burke said. “But you can’t eat in a restaurant with a mask on.”
To further complicate the matter, Raimondo on Wednesday said reopening the economy could look different depending on age, as the disease appears to disproportionately kill older people. The targeted public safety approach could keep more Rhode Islanders safe, but also prevent them from going out to eat for much longer than other segments of the population.
“It’s a big question and people’s comfort levels are going to vary widely,” Dadekian said. “Let’s be honest, some of the higher-end places downtown and on the East Side have an older clientele. How are they going to feel about going out?”
Raimondo said she expects to make more definitive announcements as soon as next week about what reopening the economy will look like in Rhode Island, but has warned she will be doing so with an eye toward avoiding another sharp surge in coronavirus cases.
Simone and Dadekian said they are not blind to the public health challenge, but underscored that each decision made in the coming weeks could make or break many restaurants.
“It’s going to depend on what we call ‘open’ and what it looks like,” Dadekian said. “Many people don’t think they will ever open again.”