New rules aimed at containing the spread of the coronavirus are a public health necessity, but for foodie cities such as New York City and Los Angeles, mandated closures of restaurant dining rooms and bars will extract a heavy economic toll, analysts say.
In Los Angeles and New York City, officials announced the closure of restaurants and bars, with the exception of takeout and delivery. On Monday, the governors of New York, New Jersey and Connecticut issued a sweeping directive with the same limitations, and other states and municipalities also have rolled out bans or limits on food service businesses.
“Those are obviously pretty big restaurant towns,” said Joe Pawlak, managing principal at Technomic, a food service consulting company. The New York City restaurant industry does about $50 billion in sales annually, and Los Angeles does roughly half that, at about $26 billion annually, he said.
“Those are pretty big numbers. You shut down those two markets for any period of time, it’s pretty drastic,” he said. He predicted that New York City's restaurant business could be slashed by more than half, with Los Angeles faring slightly better.
The economic hit will be absorbed by countless other businesses that support the restaurant industry, from linen-cleaning services to equipment maintenance companies to wholesale food suppliers.
These dim projections for sales figures also don’t take into account the economic hit that will be absorbed by countless other businesses that support the restaurant industry, from linen-cleaning services contracted by fine dining restaurants to equipment maintenance companies to wholesale food and equipment suppliers, which already were facing lost business from the closure of colleges and cancellation of sports and entertainment events.
Darren Tristano, CEO of research and consulting firm FoodserviceResults, said he initially projected a 3.3 percent growth rate for the nation’s restaurant industry, but the coronavirus upended those projections. Now, he said, the nation’s restaurants are looking at finishing out the year in the red.
“Even if the closures are only impacted over the next 30 to 60 days, it’s very likely to cause the industry to decline on a nominal basis,” Tristano said. “These are not sales you're going to make up, and it’s very likely we’re going to see even stronger declines. Even after restaurants open back up, consumers are going to stay away because of fear.”
The silver lining is the growth of food takeout and delivery. Overall, there is a growing trend of what the industry terms “off-premise consumption,” according to David Portalatin, food industry adviser at market research firm The NPD Group.
“It’s about $232 billion that’s on-premise and about $218 billion off-premise. All of the growth up to this point had been coming from the off-premise business,” he said. “I would expect as we go into the social distancing behaviors and restaurant closures, you’d likely see both on- and off-premise volumes decline in the near term, but the shift to off-premise will probably accelerate,” he said.
“In China, we saw delivery orders accelerate by about 20 percent,” during the peak of the virus, Portalatin said. “It’s still a very big hit, but that off-premise piece of the business is still very large.”
This is easier in car-centric places such as Los Angeles, which has a higher proportion of restaurants geared towards takeout and delivery that will help mitigate the impact, Pawlek said.
In New York City, though, where walking and public transportation are more the norm, restaurants will have a tougher time meeting at-home dining demand. And takeout orders might not be enough to bridge the gap for independent restaurants, which are largely dependent on commission-based third-party platforms for delivery. China also has more widespread adoption of mobile payments than the U.S., which could be a problem if diners are skittish about handling cash or giving their credit card to a worker.
Even if the virus is contained in fairly short order, it could be fatal to many eateries. “We could see a decline in the overall restaurant industry of between 5 and 10 percent this year,” Tristano said.