Restaurants, Down $200 Billion Already, Prepare For Election Fallout

COVID-19 , Government Affairs , Industry News ,

Source: QSR Magazine

What impact can operators expect?

Federal and state elections will be critical.

This likely comes as no great revelation, but the restaurant industry remains in flux as the heart of winter and a contentious election fast approaches. Industry sales trended higher in September, but at the slowest pace since the economy began to reopen. According to preliminary data from the U.S. census bureau, “eating and drinking places” registered sales of $55.6 billion on a seasonally adjusted basis in September.

The month trended up 2.1 percent, or $1.1 billion, from August’s mark of $54.5 billion. As the National Restaurant Association pointed out, this would typically represent a robust result in normal days. Yet these are clearly far from normal conditions.

To illustrate: The gain was only about half of the industry’s output in July and August—both in dollar volume and percentage terms. Overall, eating and drinking place sales in September, even with expansion, remained nearly $10 billion below pre-COVID-19 levels in January and February. Broadly, the restaurant field is 15 percent under where it was.

Yet while restaurant sales growth slowed in September, overall consumer spending ticked up. A 1.9 percent increase in total retail sales signaled the strongest monthly gain since June. Is this good news? The Association believes it suggests many consumers shifted spending away from restaurants to other categories.

In August, a 4.3 percent hike in eating and drinking place sales served as the strongest growth among major categories tracked by the Census Bureau. Accelerate to September and 2.1 percent was well below sales gains at clothing stores (11 percent), department stores (9.7 percent), sporting goods, hobby, and books stores (5.7 percent), and motor vehicle dealers (4 percent).

“If this trend continues in the months ahead, it likely means that the restaurant industry’s recovery will be even more drawn out,” the Association said.

What this also perhaps hints is the economy’s general opening spread demand and dollars.

The Association said seasonally adjusted figures offer a directional look at spending trends, month-to-month. But they don’t exactly provide a complete picture of the sales loses experienced by restaurants during the pandemic.

For this, the Census Bureau’s unadjusted data set might be a better place to start, since it represents actual dollars flowing through the door, the Association noted.

In total between March and September, eating and drinking place sales slid nearly $162 billion from expected levels (based on unadjusted data). Tack on a dramatic reduction in spending at non-restaurant foodservice operations in the lodging, arts/entertainment/recreations, education, and retail sectors, and the Association estimates total shortfall in restaurant and foodservice sales beyond $200 billion during the last seven months.

Association CEO Tom Bené recently addressed COVID’s affect with organization board members. Some points he shared:

Restaurants have sustained more than $185 billion in lost sales from the onset of COVID (estimates are holding on $240 billion forfeited by year’s end).

More than eight million industry employees were without jobs at the height of the pandemic.

About 100,000 restaurants have either permanently closed or are closed for the long-term. The true figure won’t emerge until government statistics are released down the line. Until then, it’s a mixed bucket of forecasts.

Here’s a chart from the Association:

Let’s talk about the election

The Association’s Restaurant Law recently held a webinar to discuss potential impacts on the industry from this year’s ever-present election.

Beyond the presidential election, Emily Loeb, partner at Jenner & Block, Washington, D.C., explained other elections at the federal and state levels could affect restaurants just as much, or more, than the one for the White House.

She said races in Alabama, Arizona, Colorado, Maine, North Carolina, Montana, South Carolina, and Iowa were especially close and vial to a Democratic upset in the Senate.

Today’s split is 53 Republicans and 47 Democrats. If Joe Biden wins, the Association said, Senate Republicans could lose no more than a net of two seats and remain in control of the Senate. If President Donald Trump is reelected, they could lose no more than a net of three seats to remain in control.

In the House, races for 28 seats are currently competitive. But no matter who wins, the Association said, Democrats are likely to retain position, with Nancy Pelosi as Speaker of the House.

State contests are worth paying attention to because winners will redraw legislative districts based on this year’s Census count. Up for election are governorships in 11 states, attorneys general in 10 states, and 86 state chambers—22 of which are expected to be closely fought out.

One of the biggest shifts to potential affect restaurants as well as social issues is the appointment and likely confirmation of judge Amy Coney Barret to the Supreme Court before November 3, the Association said.

On the pandemic slant

While very much still in the air, Congress’ latest pandemic relief includes bipartisan legislation in the House and Senate for $120 billion in grants to restaurants. The bill promises a second round of forgivable Payroll Protection Loans, employee retention tax credits, a “healthy workplace” tax credit for increased COVID-related business costs, and other measures.

“While negotiations may be currently stalled, it’s critical for restaurant operators to stay engaged and keep pressing so there’s a breakthrough by the end of the calendar year,” Aaron Frazier, the Association’s director of healthcare and tax policy, said.

Gabriel Gillett, partner, Jenner & Block, Chicago, added, after the election, restaurants should expect increased federal oversight and investigation of where money spent for the CARES Act actually went.

In one example shared by the Association, while the SBA has just begun its forgiveness process for PPP loans, the Justice Department has already begun fraud prosecutions against parties who received loans illegally.

He said regulators will next look to issues surrounding workplace health and safety, employment and labor, and privacy.

From an overarching perch election wins that give Democrats either the White House or a majority of federal or state levels will result in more regulation (just look at Fair Workweek laws).

Here’s a breakdown of what could be affected, from the Association:

Health & Safety

  • Potential new Occupational Safety and Health Administration rules on PPE, responding to infected persons, hazards to employees, etc.
  • Legislation on vaccine enforcement and discrimination
  • Action on business liability or legal protections for businesses that take measures to comply with CDC and other guidance
  • Legislation responding to outcomes of employee, customer, and nuisance claims

Labor & Employment

  • Ongoing litigation, legislative changes and ballot initiative on California’s AB5 Worker Classification Law (in effect since Jan. 1, 2020, it requires companies that hire independent contractors, i.e., gig workers, to reclassify them as employees, with a few exceptions)
  • Potential federal and/or additional state worker classification proposals and legislation
  • Expansion of paid leave laws
  • Benefits for part-time and temporary employees
  • Minimum wage initiatives
  • Increased oversight of employers

Privacy

  • Level of federal investigation/enforcement may change
  • Potential introduction and scope of federal data privacy law; impact at state level

Other Issues

  • Issues more directly related to opening/remaining open during pandemic
  • Business interruption insurance or similar backstop
  • Food waste regulations
  • Prop 65 expansion beyond California (it requires the state to maintain and update a list of chemicals known to the state to cause cancer or reproductive toxicity)
  • Natural gas bans

Read the article at QSR Magazine.