The foodservice industry has faced its fair share of challenges over the years and has always come out stronger on the other side. While many are confident this pattern will continue, the sudden and extraordinary impact of COVID-19 has foodservice facing an obstacle unlike any other.
“Coronavirus has devastated my business,” says Rachel Adams, owner of Rachel’s Café & Creperie. With gift cards serving as the operation’s only current source of revenue and excruciating staffing decisions needing to be made, the story of Rachel’s Café & Creperie is one that is all too common as we navigate this pandemic.
Adapting to Survive
While attending Penn State, Adams picked up a part-time job at a crepe café. “I fell in love,” says Adams. “Eventually, I dropped out of college and decided to help [the owners] run the café full time, with the dream of starting my own café once I moved back home to Lancaster. I loved the uniqueness of a creperie and the fact that it was so new and ‘daring’ for a place like Lancaster, Pennsylvania.”
Much of Adams’ family lives in the area, so she knew she couldn’t be happy living anywhere else. “I was confident that if I worked hard, I could make it work and thrive,” she says. Fourteen years later and with two locations flourishing, Rachel’s Café & Creperie has become a staple of Pennsylvania Dutch Country. But like the rest of the nation, Adams’s operation is now searching for ways to stay afloat in the present without sacrificing future success.
Adams tried offering takeout after dine-in service had been forced to stop. “The sales weren’t good, but it was at least a little bit profitable,” she says. Yet as the severity of the virus became more evident and staying at home transitioned from a suggestion to an order, Adams found it necessary to adjust yet again. “We felt we were just being part of the problem by encouraging people to leave their home to buy food from us. We were also concerned about the safety of our staff – and we knew that if someone got infected and sick, we would never forgive ourselves for putting their safety second to our profits.”
So, Adams made the tough decision to temporarily close each of her locations for a few weeks. With the health and safety of the community being priority number one and financial challenges looming, she is weighing her options. Noting that crepes don’t travel well, Adams says, “We will have to make some adjustments to our menu to streamline it and make it a bit more ‘take out friendly.’ I’m working on figuring that part out now.”
The national discussion of COVID-19 often occurs in broad terms including unemployment, infections, and even fatalities. Yet what can sometimes get lost in the big picture among all the numbers, projections, and graphs is the very real impact the pandemic is having on a human level.
“I try to stay active on social media,” Adams says. “I really have no excuse not to. It’s good for business and I can’t say I don’t have time. Plus, it’s nice to still feel a little connected to my community, even if it’s just through a small screen.”
Rachel’s Café & Creperie has had to temporarily let go of all its staff and Adams fears that, when they do re-open, they will only be able to hire back a percentage of their workers. “That’s very hard for us to handle,” she says, “since so many of our staff are like family to us, and lots of them have been with us for years and years.”
The personal distress extends far beyond the walls of the kitchen. “If it were a natural disaster, I could volunteer to help clean and rebuild,” Adams says. “I could open my kitchen to members of the community who lost their homes and host meals for them. I could send monetary donations to people and organizations to try to help.” Given the importance of social distancing and the financial uncertainty over the coming months, however, it’s difficult to do any of that right now. “It’s a horrible situation and I personally feel helpless,” she adds.
Shared Experiences: Economic Headwinds
Adams’s experience is uniquely hers, but similar situations are unfolding in communities all throughout the country. A National Restaurant Association (NRA) report found that the foodservice industry had lost $80 billion in sales in March and April and more than 8 million restaurant employees have been laid off or furloughed since the coronavirus outbreak began. Across all industries, 38.6 million Americans had filed for unemployment since mid-March, as of May 21.
In all, the NRA estimates the foodservice industry will lose at least $240 billion in 2020. “We are revising our business model to provide meals in different ways, takeout, delivery, safety-enhanced dine-in, but the majority of our restaurants do not have this capability today,” Sean Kennedy, the executive vice president of public affairs for the NRA, said in a statement in March supporting relief and recovery action. “As the restrictions continue, we are facing economic headwinds that will lead many restaurants to shut down operations, lay off workers, and end service in our communities,”
The symbiotic relationship that exists among operators, dealers, reps, consultants, service companies, manufacturers, and all other parts of the supply chain is on full display right now. Since grocery stores are largely still open, for example, wholesale grocers are generally able to get by. Unfortunately, the opposite also holds true.
“Our broadline foodservice guys who sell to restaurants, hotels, and schools are getting killed because there’s nothing open,” says Jade West, chief government relations officer with the National Association of Wholesaler-Distributors.
NAW has been on the frontline during COVID-19, ensuring wholesaler-distributors are adequately represented in Washington’s plans. The group helped make sure wholesaler-distributors were included in the Cybersecurity & Infrastructure Security Agency’s (CISA) Memorandum on Identification of Essential Critical Infrastructure Workers During COVID-19. At the urging of NAW and others, CISA also expanded guidance to specifically include truck drivers and warehouse workers as essential workers, while lobbying state governors to adopt the CISA guidelines.
Despite wholesale distribution being able to avoid a complete shutdown, the challenges of the present and future are clear. “The layoffs are profound,” West says. “I talked to one broadline foodservice distributor who laid off half of his personnel and had to put a 50 percent pay cut on the other half. I talked to a distributor in the medical field whose business is down 85 percent – he laid off 60 percent of his people.”
According to West, the impact is heavily dependent on the commodity line and the customers. She references an image sent to her during NAW’s CISA lobbying, which shows a pallet of electrical supplies that had been delivered to a construction site. That construction site was on a hospital parking lot where they were building a temporary makeshift hospital.
“Without the distribution of the electrical supplies, there would have been no power in that facility. It really does depend entirely on what you sell and who your customers are,” West says.
Moving in the Right Direction
Although the provisions are imperfect, loan programs were included as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to help support businesses of all sizes during these difficult times. For companies with fewer than 500 employees, the Paycheck Protection Program (PPP) provides loan forgiveness to the extent that the employer retains payroll.
“There’s going to be a huge run on those loans, and really fast,” West says. “They’re expecting millions of business owners to apply. There’s $350 billion in that pool and a $10 million cap per organization. If you divide $350 billion by $10 million it doesn’t go as far as you might think it would. This is the program where smaller businesses ought to be going, and they ought to get there fast.”
West’s insight proved correct, as the PPP ran out of its initial funding on April 15, just a few weeks after lending began. However, efforts from the NAW, FEDA, and other associations across the country helped to secure an additional $320 billion allocation for the program. Those organizations have continued to push for adjustments and improvements to the PPP to make it more useful and flexible for borrowers.
For companies with 500 to 10,000 employees, the Coronavirus Economic Stabilization Act (CESA) sets aside $500 billion in loans. “These aren’t grants and they’re not forgivable loans,” West says. “These are straight loans to non-specified companies, and there are a whole lot of conditions attached. The problem is that the program has not yet been set up.”
West explains that the expectation is that U.S. Treasury will authorize the Federal Reserve to set up a program where they guarantee loans issued from participating banks to company borrowers. The Fed will then buy those loans back to push as much liquidity into the market as possible.
“If I were advising, the most important thing you can do if you’re in that 500-10,000 employee range is love your bank,” West explains. “Make sure you have the best working relationship possible because the bank is writing those loans – not the Treasury, and not the SBA.”
The Next Stage of Recovery
While the country is in the midst of the execution of the CARES Act, the wheels are already in motion toward a “Phase 4” relief package. Some believe the next package will be an expansion of the CARES Act. Others, like President Donald Trump and Speaker Nancy Pelosi, have alluded to including infrastructure provisions. Whatever the case may be, the foodservice industry stands with distribution, travel, and all other industries hit hardest by this crisis in the need for additional aid, yet with an optimistic eye toward the future.
“No one knows what will be ‘normal’ after all this,” Adams says. “I have faith in my business and my amazing customers that we will survive this. I worked my butt off over 14 years ago to get Lancaster to warm to the idea of crepes in a very ‘steak-and-potatoes’ kind of area. I’m ready and willing to do it again.”