US restaurants are reeling from the effect of COVID-19. Every day, more city and state leaders are closing bars and restaurants to dine-in customers in response to the virus. As of this writing (March 25), at least 25 states have mandated closures.
Fortunately, most restaurants are still able to serve food via takeout, delivery, or drive-through. This allows eateries to maintain some revenue while helping to curb the spread of COVID-19.
But even so, the US restaurant industry is going to take a major financial hit. Restaurants may close permanently if they can’t bounce back. And thousands of restaurant workers have already lost their jobs, reducing their ability to eat out, buy a house, go to the movies, and so on. The ripple effects could be astronomical.
It’s hard to know yet how big the impact will be, since it all depends on how long the closures last. But we can turn to Lightcast’s input-output (I-O) model to get some insights on what might happen.
Looking for economic data regarding COVID-19? We want to help.
How Did Restaurants Do After the Great Recession? They Thrived.
Lightcast’s I-O model helps us measure the ripple effects of economic change in a region caused by adding or removing jobs, earnings, or sales. Because, as we know, business gains and losses don’t happen in a vacuum.
During the Great Recession in 2008 to 2009, full-service restaurants (sit-down) lost over 110,000 jobs (-2%). Limited-service restaurants (fast food) dropped slightly more than 50,000 jobs (-1%). People just didn’t have as much disposable income to spend on eating out.
But after the recession, when individuals began to recover financially, restaurants exploded. From 2010 to 2019, no industry added more jobs than Food Services and Drinking Places (NAICS 722)—over 2.5 million. That’s nearly 13% of all new jobs nationally. The food industry employed nearly 12 million people last year alone. It’s been the “golden age” of restaurants, as The Atlantic writer Derek Thompson described it.
Which makes the economic impacts of these closures all the more devastating.
What happens if restaurants lose one week’s worth of sales due to COVID-19?
We’re going to look at two impact scenarios in this article. The first is a best case approach. What happens if restaurants lose one week’s worth of sales? Maybe closures don’t last too long, or restaurants are able to make decent sales with takeout and delivery. The US recovers relatively quickly.
The second scenario is more extreme. What happens if restaurants lose three months’ worth of sales? Maybe more (or all) states mandate shelter-in-place policies, and restaurants can only do takeout or delivery for six months or longer.
Again, this is extreme. But we want to provide some comparison. And depending on the spread and severity of COVID-19 in the US, this could potentially be a reality. It’s just too soon to tell.
So, let’s look at the first scenario.
In 2019, the US full-service (sit-down) restaurant industry* made over $370 billion in sales. If we divide that by 52, we get about $7 billion or one week’s worth of sales. So we can run the I-O model to see what the impact would be if the US full-service restaurant industry lost $7 billion in sales.
*For the purpose of this article, we’re only looking at full-service restaurants since fast food (or limited-service) restaurants likely won’t suffer as much. From here on out, we’ll just say “restaurants.”
If that happened, restaurants would lose $2.8 billion (initial impact). Their suppliers would lose $968 million (direct impact). And the suppliers’ suppliers would lose over $767 million (indirect impact).
So if restaurants lost just one week’s worth of sales, it would result in a $4.5 billion loss.
Then there’s the effect on jobs. In that one-week-of-lost-sales scenario, the restaurant industry would also lose over 135,000 jobs—107,000 from restaurants themselves, 14,600 from their suppliers, and nearly 13,000 from the suppliers’ suppliers.
These job losses would hit restaurant industry workers ages 25 to 34 (millennials) the hardest, followed by Gen Z females ages 14 to 21.
What happens if restaurants lose three months’ worth of sales due to COVID-19?
Now that we’ve looked at the best case estimate, let’s look at an extreme one. What happens if restaurants lose three months’ worth of sales?
If we divide the restaurant industry’s $370 billion total sales in 2019 by four, we get about $92.5 billion (three months’ worth of sales). Then, we can run the I-O model to see what the impact would be if restaurants lost $92.5 billion in sales.
As we can imagine, it’s not pretty.
In this scenario, restaurants would lose $36.2 billion (initial impact). Their suppliers would lose $12.6 billion (direct impact). And the suppliers’ suppliers would lose $10 billion (indirect impact).
So if restaurants lost three months’ worth of sales, it would result in a $58.7 billion loss.
Then there’s the effect on jobs. In that three-months-of-lost-sales scenario, the restaurant industry would also lose over 1.75 million jobs—about 1.4 million from restaurants themselves, 191,000 from their suppliers, and nearly 168,000 from the suppliers’ suppliers.
Again, these job losses would hit workers ages 25 to 34 (millennials) the hardest, followed by Gen Z females ages 14 to 21.
The effects of COVID-19 on restaurants at the state level?
To see how these closures might affect restaurants on a state level, we’ll run these same two scenarios for Washington, Ohio, and New York.
You’ll notice that a greater loss of sales leads to a greater loss of jobs. If restaurants lose sales, their overall revenue decreases, and they’ll be forced to cut expenses (in this case, personnel). And the more restaurants cut back, the more their suppliers and their suppliers’ suppliers will also have to cut back.
Washington
If restaurants lost one week’s worth of sales (about $173 million)
Total earnings loss: $89.4 million
Total jobs loss: 2,500
If restaurants lost three months’ worth of sales (about $2.25 billion)
Total earnings loss: $1.16 billion
Total jobs loss: 33,200
Ohio
If restaurants lost one week’s worth of sales (about $211 million)
Total earnings loss: $106 million
Total jobs loss: 4,200
If restaurants lost three months’ worth of sales (about $2.75 billion)
Total earnings loss: $1.41 billion
Total jobs loss: 55,500
New York
If restaurants lost one week’s worth of sales (about $644 million)
Total earnings loss: $312 million
Total jobs loss: 7,800
If restaurants lost three months’ worth of sales (about $8.37 billion)
Total earnings loss: $4.04 billion
Total jobs loss: 101,400
Conclusion
Regardless of how long restaurant closures last, the impact of COVID-19 on restaurants will be significant. Workers, communities, businesses, and policy makers will all feel the pain as we navigate this crisis and find a new normal.
In the meantime, we at Lightcast will continue to monitor COVID-19’s effect on the US economy and share insights. For the most up-to-date look at how the labor market is responding to COVID-19, visit our free job posting dashboard. You can also find more COVID-19 research, tools, and webinars on our COVID-19 resources page.