Over the past 24 hours, both DRI and BJRI announced they are furloughing employees. Some of these employees will come back, and some will find other jobs. Restarting the industry with trained employees will be a significant hurdle for the industry in the coming months. In the case of Darden, the press release implies that the company may have initially misunderstood the initial impact when they reported earnings on March 19th, with sales at Olive Garden in line with the tone on the earnings call. Still, the balance of the company's brands is doing worse.
We have found it helpful to understand what independent operators on the ground are saying about the CARES Act and its potential impact. What the independent operators are saying has applications for broader publically traded restaurant brands and how long this impacts industry sales trends.
The Independent Restaurant Collation (IRC) is suggesting several proposed changes to the PPP and other ways independent operators need help, including:
- Fixing the Paycheck Protection Program – It needs to be easier for small businesses to take advantage of the loans. The proposed changes include an extension of the maximum loan amounts from eight weeks to three months and an extension of the loan repayment program from two years to 10 years. Independent restaurants will likely still be closed and will need to lay off their workers again after the existing plan is up.
- The organization also suggests expanding the $350 billion loan investment to allow for the estimated $1 trillion in requests from interested applicants that the program is likely to trigger. The IRC is also asking Congress to reinstate the $500 million gross revenue cap that was included in an earlier version of the act that would protect small businesses from getting shut out by larger chains.
- The Paycheck Protection Program is flawed when it comes to businesses that are currently closed. Many banks are prioritizing existing customers with loans to help them through the downturn, making it difficult for the little guy.
- Creating a restaurant stabilization fund - The IRC calls for $100 billion in grants for independent operators that will give them the cash flow necessary to survive until they can reopen.
- Creating new tax rebates for restaurants - Creating new tax rebates would give restaurants incentives to continue paying their employees and investing in their business to stay afloat until everything returns to a state of (relative) normalcy.
- We should have a job provider rebate that rewards restaurants based on how many people they can hire. A rent rebate would ensure some relief too.
- Requiring business interruption insurance to cover COVID-19 - A significant challenge for businesses has been the hurdle of cashing in on business insurance interruption claims. Restaurant owners have begun fighting insurance companies in court for claiming the pandemic is not covered because there is no "physical loss or damage" if a restaurant is mandated to shut down by government lockdown procedures.
The piece of good news for those in the industry is that they currently have SBA loans! The Government will cover borrowers for six months.
