Economist Dr. Singer Breaks Down the Impact of the RESTAURANT Act

Capital building

With a number of states pausing or reversing reopening plans, the need for Congress to pass the RESTAURANT Act to support half a million independent restaurants and millions of workers, directly and indirectly, is greater than ever. 

The Independent Restaurant Coalition (IRC) was "formed to save the local restaurants and bars affected by COVID-19 and the subsequent economic fallout. IRC was founded on the simple belief that there is power to affect legislative change if we unite our voice." Since its founding by some of the biggest names in the industry, they have been a dominant voice urging Congress for assistance. 

Ethan Singer is a Senior Vice President at Compass Lexecon working on competition, international trade, regulatory and public policy matters, including economic impact studies. Following studies that Dr. Singer and colleagues at Compass Lexecon performed related to the CARES Act, the Independent Restaurant Coalition tasked them with quantifying the economic impact of the restaurant stabilization fund. Bar & Restaurant sat down with Dr. Singer to learn more about the findings from the economic report.

The referenced economic report may be reviewed here and the current bill as written is available here or the summary here.

Bar & Restaurant:

Thanks for joining us today, Dr. Singer. Your firm went through this journey line of looking through the data that this stabilization fund could provide. It was around $183 billion in primary benefits and another $65 billion in secondary. How exactly do you recommend to distribute the funds, or are you all mostly focused on the economic impact that this could have?

Ethan Singer: That's a good question. The study was not focused on how the funds are distributed. What our study looks at is the economic impact of these funds and how preserving the restaurant industry and stabilizing independent restaurants is not only about restaurants, but is really about the foundations of the economy.

That's what this study is showing. That by protecting and stabilizing independent restaurants, the stabilization fund is giving the entire economy a foundation from which to recover.  

Independent restaurants employ 11 million workers directly, plus supply chain workers, such as those that are employed in the fisheries industry. Think for example, about something like raw oysters. The average American is not shucking and consuming oysters while being quarantined or working from home. So, there's certain segments of the supply chain for restaurants, where when restaurants close, those vendors are not able to sell their product nearly as much. Seafood is one of those that's been hit particularly hard.

When we look at the effects of a $120 billion stabilization fund for independent restaurants, what we find is that this is fully funded from an economic perspective. It would more than pay for itself in terms of the benefits that would be generated for the US Treasury as well as the broader economy.

Bar & Restaurant: 

That makes a lot of sense. This was brought up at an executive round table that happened at the White House a month ago. While the participants were very much on the same page regarding extending the Paycheck Protection Program to 24 weeks, I didn't hear as much about the restaurant stabilization fund. Is that because it was still in the infancy days of what it might look like? Now that the PPP program is more beneficial to the hospitality industry, is that the big next step is to focus on including this in the next round of any stimulus packages?

Ethan Singer: I believe so. I'm not directly involved in the legislative efforts, but my understanding is that this was introduced or at least announced today by Senator Wicker and Representative Blumenauer. So it's both bipartisan and bicameral–there is support on both sides of the aisle and in both chambers of Congress.

The PPP is really a great program to help small businesses, but at the time it was designed, I think the general consensus was that these shutdowns and the impact of coronavirus would be very short and very sharp. That there'd be a sudden stop to economic activity that then within eight weeks the economy would be able to restart at a fairly robust level. By providing the initial eight weeks of loans, which could then be forgiven, that would provide a bridge for small businesses, including restaurants.

Unfortunately, what we've learned since then is that this is going on a lot longer than eight weeks. And particularly for restaurants and bars, where social distancing mandates remain in effect for all the public health reasons, these businesses will not be back to normal within eight weeks or within 24 weeks. The extension to 24 weeks is very helpful for the businesses that received it because it gives them more time to spend those funds, but it doesn't increase the amount of those funds, and it doesn't provide for the fact that this is a much longer crisis than was envisioned when PPP went into effect.

Bar & Restaurant:
What were some of the other key takeaways or highlights, you thought that this report really showcased in terms of both need for help, but also the overall impact it could have on the economy?

Ethan Singer: Well, I think one key thing is that it's not just restaurants. It's the restaurant supply chains, and it's the ability of the entire economy to get back to normal because, without the neighborhood restaurant, you kind of lose the sense of community around the neighborhood. There's no face-to-face meals and interactions. Restaurants are really the cornerstone of a lot of economic activity, and they are really essential for that reason.

Another thing that has really stuck out to me throughout all that's been going on lately is the numbers are so big that you almost get desensitized to them.

One such number is the 4.5 million independent restaurant jobs that have been lost.  This is based on the proportion of independent restaurants of total restaurants. In actuality, I believe that more than 4.5 million independent restaurant jobs have been lost, because as we mentioned in the paper, a lot of the big chains, certainly the pizza restaurants and Dunkin Donuts, they've announced that they're hiring tens of thousands of workers to meet the demand for some of their delivery services. Independent restaurants are disproportionately affected, and you can see that on the data on page 26, for example, where you see fine dining and casual dining have been hit much harder than fast food and fast-casual. These independent restaurants have probably lost more than four and a half million jobs.

But four and half million isn’t just a number, these are four and half million people, families—in every corner of the country—that are on unemployment and that are insecure about their job prospects in the middle of a recession with high unemployment nationwide, who are then in turn not spending as much throughout their communities. And so it really has a ripple effect throughout all industries of the economy. Restaurants right now are the sector that has been hit the hardest, in terms of numbers of jobs lost. By shoring up the restaurant industry and providing stability here, Congress would be able to really ensure that the rest of the economy is able to recover at the appropriate time.

Bar & Restaurant:
Looking at some of the numbers that came out earlier last week, the National Restaurant Association said that total sales lost since this started was actually at $120 billion. They expect it to go up to $240 billion by the end of the year, which is almost more than 25% of what the industry was supposed to do overall in 2020. I believe you're right, it's going to disproportionate because even those made up sales, are most likely are now going to be the chain restaurant, because they're still around. They're surviving. They have capital assets to leverage compared to these independents, who are completely drying up.

Ethan Singer: Another key difference between some of the large chains and independent restaurants is the large chains, and not all of them but certainly a number of them, have an infrastructure set up that makes it easier for them to adapt to this. Restaurants with drive-throughs are at an advantageous position. Others that are making food that is well-designed for takeout, where they can do curbside pickup and delivery are in a better position. Independent restaurants with the business model of in-restaurant dining have more to do to adapt to this new environment.

Bar & Restaurant:
It's a completely steep learning curve for independents because a chain can split tasks among employees, with one team really drilling down to figure out the to-go packaging and another team's focused on the culinary. Whereas at independent operations, it's the head chef, it could also be the owner, and now they're trying to figure out every aspect of that themselves. So there is no shared learning really as a team which can be very tough.

You have been studying these economics for a long time and not just in this industry. How often do you see these reports really resonate with legislators? Do you believe they will grasp the necessity of this fund given your experience over your years of working in this field where sometimes it's hard to kind of get the data to turn into action?

Ethan Singer: Well, I think Congress gets this. This is unprecedented and everything I've seen shows that they really understand how bad this is. And even when you look at the stimulus so far, it's historic in its magnitude. We're facing an economic crisis like we've never seen before. Really the willingness of Congress and the administration to enact what they've already done demonstrates that they understand what's going on.

What's unique about the economic portion of this crisis is that in February, the economy was humming along doing very well, and then it was actually a public health crisis that put us into the situation. The fundamentals in the economy were strong before this, and they'll be strong afterward if businesses are able to make their way through. I do think Congress understands that.

Another point that I think is quite powerful is appendix A in the paper, which lists 500 restaurants that at the time we finished the study had already announced they were closing permanently. And every day I see more restaurants announce that they are permanently being closed across the country. These are 500 restaurants spread throughout the country. I think almost anybody can look at this list and see restaurants that they know, one that is in the neighborhood they grew up in, or around the corner from where they live, and really see the magnitude of where this is happening and the personal nature of this. Because of this, these are places that may have a lot of memories for folks, and a lot of meaning to people, and a lot of meaning to the communities that they're in.

Certainly what Congress does in the next month or so will matter a lot for these restaurants. One of the things that I get a sense of is that there may be a lot of restaurants that are trying to make it, with reduced capacity and social distancing and take-out and delivery. They're just trying to hang on as long as they can. And maybe they open up at 50% capacity and are burning through their savings and their capital and figure they can make it one month or two months or however long, and every month, once their rent payment is due, they may reassess. Can we keep going? How much longer can we hang on for? And I think nobody knows.

Nobody's been through this before, and every restaurant is kind of learning as they're going. I think that's unfortunately why we may see more restaurants fail if Congress doesn't step in.

Ethan Singer: As you know, the average restaurant margin is about 5% nationwide. These are businesses that are operating on razor-thin margins. If all of a sudden the restaurant has extra expenditures for modifying their space to add plexiglass and other social distancing and protective equipment, to add new HVAC equipment, and if they also have less revenue because they can accommodate fewer people and customers are nervous about going to restaurants, they can't operate at 50% of capacity and revenue, or even if they're lucky 80% revenue. That does not give restaurants enough to cover their costs, if they were only operating at a 5% margin. Because when they scale down their service, yes, they can buy less food. They don't have that expense, but the rent, the labor, certainly all of these PPE costs, those are things that don't get reduced proportionally. I think what we'll probably see now is a lot of restaurants operating at a loss and seeing how long that they can hold on just to try to make it through this.

Bar & Restaurant:
Because I think, we either continue to put pressure on our elected officials to make this a priority, and I think the last time I went to IRC's website, I think they had like 30,000 signatures, which is great 30,000, but this is an industry of 16 million, so, how can we kind of get that number way up to where it should be and make it a priority.

Ethan Singer: Building off the comment that you just made about only 30,000 signatures, one of the things that's unique about independent restaurants—and it also goes to list of restaurant closures in the appendix we were discussing earlier—is that they're spread throughout the country. And probably, one of the most impactful things that a restaurant can do or a restaurant owner, or manager, chef or employee can do, would be to contact their own representatives in Congress. Because my understanding is that these representatives really want to hear from their own constituents. And every single congressional district in the country will be impacted by restaurant closures. If people in the restaurant industry, people who rely on the restaurant industry, and people who love going to restaurants in their communities want to do something to save independent restaurants, I would think reaching out to their own members of Congress is probably the single most impactful thing that they can do.

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