United States / Coronavirus Insights
Opportunities & Challenges: Restaurant Reopenings

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by Cecilia Fernandez, Lead Industry Research Analyst
Jun 16 2020

The economy in the United States is slowly reopening in different phases, placing the food service and hospitality industries in the one of the last phases as a precaution. Even though some restaurants were able to keep operating by offering pickup and delivery services, others had to close completely. As a result of temporary closures due to the COVID-19 pandemic, the Single Location Full-Service Restaurant (IBISWorld report 72211b) and Chain Restaurant (72211a) industries will likely experience an estimated 4.5% and 4.9% decrease in industry revenue, respectively, in 2020 alone.

As states move to more advanced phases of economic reopening, such as Philadelphia and New Jersey, their local governments have decided to start opening outdoor dining areas. However, in Georgia and Florida state, restaurants have already reopened their dining rooms by taking necessary precautions. Reopened restaurants still have to follow social distancing guidelines and take steps to minimize the risk of spreading the virus such as: screening workers and customers for fever, keeping a safe space between tables and operating at 25.0% to 50.0% capacity.

 

 

New York state has had the highest number of coronavirus cases in the US. Consequently, New York is reopening at a slower pace. New York will soon allow restaurants that have outdoor dining areas to reopen during phase 2 in July. However, indoor dining will take longer and some might not be able to open at full capacity until fall. The situation in New York City is so complicated that there have been proposals to eliminate sidewalk licensing fees for the rest of the year. Sidewalk licensing fees cost restaurants thousands of dollars plus application and renewal fees, which is why fewer restaurants have outdoor and sidewalk dining space. However, having an open space to operate could bolster restaurants’ prospects as consumers feel more comfortable being outside even if restaurants open at reduced capacity. In New York, restaurants will be able to expand their services to parking spaces and into closed streets and will not need approval from local community boards in order to move restaurants outdoors as soon as possible.

Drops in consumer confidence index and consumer spending, which IBISWorld estimates will likely decrease 13.5% and 6.6% in 2020, respectively, have caused slowdowns across the food service industries. An increasing number of restaurant owners have been applying for zoning permits to offer outdoor dining with an application fee of $250.0. However, temporary restaurant closures have caused restaurants to fall under or incur net losses, making it harder to comply with outdoor dining fees. Some states have been easing zoning requirements for outdoor dining and refunding the application fee in order to promote and stimulate the economy in the restaurant industry.  This represents a potential opportunity for the Restaurant and Hotel Equipment Wholesaling (42344) and Outdoor Furniture Manufacturing (OD4821) industries in 2020 and 2021 as restaurants seek to improve their outdoor aesthetic and purchase more furniture and equipment suitable for outdoor dining.

Over the next years, coronavirus could have a permanent impact on the restaurant industry. Potential restaurants owners and new entrants could shift their real estate preferences to areas that have a larger outdoor space instead of being in a crowded, overpopulated area. The Restaurant Construction industry revenue (OD4677) has declined strongly in 2020, and this shift in real estate preferences poses a threat as demand for new construction falls and restaurants focus on outdoor dining spaces. High traffic areas tend to provide restaurant owners with a larger audience, but consumers will likely prefer to have proper space between people in order to eat without worry as this becomes the new normal.