Apr 30, 2020 - Economy

The plight of restaurants and retail in the face of coronavirus

Data: Census Bureau via YCharts; Chart: Axios Visuals

Good restaurants are by their nature small businesses — and they're bearing the brunt of the coronavirus shutdown as locked-down retail and service-sector businesses can shut down and reopen much more easily.

Why it matters: The CARES Act has earmarked hundreds of billions of dollars to help small businesses through this crisis, but it has largely failed small restaurants.

The big picture: Chefs who open up multiple "concepts" in cities around the world can become rich and famous, but they always lose something along the way. The best cities are those with hundreds or thousands of fantastic unique restaurants, all of them sourcing top-quality local produce.

Restaurants are eligible for Paycheck Protection Program (PPP) funds — but those funds do them little good.

  • How it works: Closing down a restaurant costs a lot of money in terms of wasted food. Restarting a restaurant costs much, much more.
  • It's not just that food needs to be bought. Menus need to be rebuilt, and cooks and servers need to be trained, especially if many of the old staff have moved away or found other jobs. None of that can happen before the shutdown is lifted.

What we're reading: Gabrielle Hamilton, the chef-owner of Prune, in New York's East Village, explains small restaurants' financial predicament in a gripping New York Times essay.

Some restaurants applied for PPP funds and are now "highly likely" to simply return them, just because they can't be used to support the business.

  • The PPP money could be used to pay workers, but most workers are making more money from unemployment insurance than they would be at the restaurant. Simply offering laid-off workers their jobs back — to do nothing, while the restaurant is closed — makes them ineligible for unemployment. So using PPP funds for that purpose makes no sense for either employer or employee.

The bottom line: Local farmers aren't just going to be facing the devastation of restaurants at 50% capacity once the shutdown is lifted. A huge number of those restaurants aren't going to reopen at all.

Go deeper: Restaurants gingerly test how to return amid coronavirus

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