Extra debt caused by rent payments finds restaurants in dire straits

Canada’s restaurant industry is bracing for tough times ahead, says a top official with Restaurants Canada, and a full recovery to pre-COVID sales levels may not be in the cards for a long time.

“It’s pretty dire out there,” said Mark von Schellwitz, the organization’s vice-president for Western Canada.

It’s safe to say that the Canadian restaurant industry will never be the same, certainly not in the short term, he added.

“I don’t have a crystal ball but I do think the whole COVID-19 (pandemic) certainly will have long-term impacts on the restaurant industry and restaurateurs, and how they do business.”

Before the COVID-19 pandemic, the restaurant and food service industry was Canada’s third-largest employer, providing jobs to nearly 1.28 million people across the country, von Schellwitz said.

The Canadian industry, which had sales of roughly $89 billion in 2018, began feeling the impacts of COVID-19 about three months ago, he added.

In a February 2020 survey of restaurant owners, nearly 50 percent of respondents said sales were down compared to the same period a year earlier.

By early March, more than 78 percent were reporting lower revenues and by late March and early April, nearly every restaurant in the country was coping with lower income and reduced cash flows.

About 10 percent of the country’s restaurants had closed their doors permanently by mid-March, 48 percent were temporarily shuttered and another 38 percent were closed to on-site diners but were offering take-out or delivery service.

Industry wide, estimated sales were down by approximately 80 percent in April and May.

Based on survey data, Restaurants Canada said one in every two independently owned restaurants in the country would be unable to survive for three months without rent relief or financial assistance.

“The biggest concern of our members was definitely the extra indebtedness … because of rent,” said von Schellwitz.

Widespread closures are not only bad news for restaurant owners, he added. It has also been devastating for employees.

Across Western Canada, the restaurant and food service industry employed almost 425,000 people before the COVID-19 pandemic.

Over the past two to three months, close to two-thirds of that workforce was laid off.

“We’re obviously saying to government that you have to help ensure that as many of our businesses as possible can survive this so that these people have jobs to come back to.”

Restaurant closures are also having a ripple effect on other industries including local food suppliers, brewers and distillers.

“All of our downstream suppliers are also feeling the impact of this.”

Although some Canadian provinces are introducing plans to reopen the economy, the prospects for restaurant industry are uncertain.

Allowing restaurants to open at half capacity, for example, will allow restaurants to generate some income, but margins in the industry were tight under normal circumstances.

Some operators have already indicated that they will not reopen until they are allowed to operate at full capacity.

Re-opening at half capacity will not generate enough cash flow to pay operating expenses, said von Schellwitz. The numbers just don’t add up.

“First of all, we appreciate the governments’ (efforts),” he said.

“The earlier we get some type of on-premise dining, the better. And we’ve certainly shared with all the premiers our thoughts on what should go into those re-opening plans as well as a draft best-practices template that we can add on to provincial regulations.”

“The bottom line, though, is that opening up in these new circumstances is going to require additional working capital. It’s going to require additional training, the purchase of personal protective equipment (PPE), and just putting in all of these new physical distancing, and personal hygiene and cleaning procedures is going to be key to that.”

Attitudes within the industry vary from business to business, von Schellwitz said.

Licensed restaurants that typically do a significant portion of their business on weekends may not see a return to 50 percent of normal revenues, even if they are allowed to open at half capacity.

“Depending on who you talk to, some (restaurateurs) are very optimistic that there’s going to be pent up demand … but others are kind of concerned that with all the social distancing that’s required, it may a while to rebuild that consumer confidence and get them out again.

“Certainly, I think we already knew that there were a lot of restaurants that were already leveraged before this that aren’t going to re-open,” he continued.

“There is certainly going to be, at least initially, a smaller number of restaurants that are open. However, we’re a pretty resilient industry that’s accustomed to sort of recreating our brands and our business models.

“We’re very much an industry that prides itself on being able to innovate and restructure, regardless of what’s thrown at us, so we’re hoping that we can get back to some sort of effective business model.”

As the industry evolves in the post-pandemic environment, it is likely that take-out and delivery will account for a larger portion of restaurant revenues than ever before.

“People will probably be more reliant on take-out and delivery business in the future,” von Schellwitz said.

“I don’t think that’s going to go way now that the model is out there and people are using it more.”

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