10% of restaurants worldwide teeter on the brink of collapse

Every one in five will have to go through a restructuring process, according to Aaron Allen & Associates

With each week, more data emerges to show how the Covid-19 pandemic is permanently reshaping the restaurant industry. The world is currently on track for a radical overhaul of its food-service landscape: Hundreds have filed for bankruptcy over the last three months, according to consulting firm Aaron Allen & Associates, and the situation is poised to keep worsening. 

“Based on our estimates, we believe up to 10% of all restaurants globally will disappear, with 20% or more also going through a restructuring process,” said founder Aaron Allen. “This is a conservative case, in our view.”

Allen estimates there are about 22 million restaurants worldwide, so the projection implies that 2.2 million of them will close. In the US alone, the industry employs 15.6 million workers, according to the National Restaurant Association.

OpenTable, which tracks restaurant activity via reservations, estimates the failure rate could be even higher. Even before the global pandemic caused a dramatic and unprecedented shift in consumer behavior, the restaurant industry was suffering from rising debt and too much competition.

“Weaker businesses are searching for pre-Chapter 11 (bankruptcy protection) solutions,” said John Gordon, principal at Pacific Management Consulting Group, a restaurant consultancy. “There will be many closings, particularly independents.”

For now, restaurants are trying to find new ways to survive, from discounts and curbside pickup to selling groceries. Many have cut staff and trimmed menu items to reduce costs. But his list of more than a dozen monthly expenses over protective equipment still seems to keep growing.

“Another wave of the pandemic will take the numbers higher without further bailouts,” Allen added.

Restaurateurs and their lobbying groups have complained that US relief programs don’t address restaurants’ real needs as they face financial shortfalls from reopening under occupancy caps and social distancing measures, in addition to their need to cover expenses beyond payroll.

More on this subject: Coronavirus

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