Tuesday, October 26, 2021

Inflation, labor, and delta weigh down restaurant owners, according to Goldman Sachs data

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Restaurants across the county looked toward reopening the economy in recent months, as Covid vaccines became widespread and pent-up consumer demand was palpable.

But headwinds from supply chain disruptions to labor shortages and rising costs are weighing on the industry as the contagious delta variant clouds hopes of a return to normalcy.

Food, restaurant and hospitality small business owners are more concerned than most about continued disruptions to operations from the pandemic, according to new data from the Goldman Sachs 10,000 Small Business Voices program. Data shows that 84% of owners in these sectors are concerned about the impact of rising rates of Covid-19 infection on businesses, compared to 75% of the general small business population.

Almost all have seen an increase in operating costs, with 93% saying that inflationary pressures have increased since June, which has had negative effects on finances.

The data subset of 117 food, restaurant and hospitality owners comes from a larger survey of 1,145 participants in the Goldman Sachs 10,000 Small Business program earlier this month.

The figures underscore the sustained pressure restaurants face even in an economy that has recovered from the worst of the damage inflicted by the coronavirus. While the launch of vaccines and looser public health restrictions have brought the industry closer to normal, challenges abound as restaurant owners look to fall.

Ruby Bugarin, who runs Margaritas and Pepe’s restaurants in the greater Los Angeles area, said both product availability and higher costs have affected her businesses. Products like crab are harder to find, chicken and pork costs have risen more than $ 1 per pound, and prices for other products have skyrocketed.

“In the last two to three weeks, the price of avocados has gone from about $ 40 per box to $ 85 per box. So that’s more than double,” said Bugarin, a member of the Small Business Voices program. “We cannot do the same with our customers: we raise prices once or twice a year.”

Labor costs are also rising at its two restaurants, which together have 63 employees. Bugarin said he would like to add one or two cooks at each location, but instead pays his current staff overtime weekly.

Job challenges have also hit restaurant, food and hospitality owners like Bugarin at higher rates than seen in the broader small business community. Data shows that 79% of business owners say workforce challenges have worsened since before the pandemic, compared to 64% overall.

Recent data from the National Federation of Independent Business underscores the labor issues weighing on small business optimism. Vacancies were above the 48-year historical average in August for the second consecutive month.

“In June, 67% of small businesses, despite inflation, despite workforce challenges, said they thought the United States was going in the right direction,” said Joe Wall, national director of Goldman Sachs. 10,000 Small Business Voices. “That number is now 38%. The delta variant is definitely the number one issue in terms of why sentiment has changed, and then added to it, the dynamics of inflation and the challenges of the workforce.”

As the pandemic weighs on restaurant operators, Goldman data found that nearly 40% of food and hospitality companies say they expect to have to obtain a loan or line of credit for their business this fall or winter. That compares with 29% of companies overall.

The Small Business Administration recently announced a review of the Business Economic Injury Disaster Loan program. The loan limit will increase to $ 2 million, and recipients will be able to use the funds to prepay business debt, allowing restaurants to put the money toward business debt and more.

“At a time when there is still a dire need for small business restaurants to access working capital, these changes will improve the prospects for thousands of operators and raise the economic prospects for communities small and large,” said Sean Kennedy. , executive vice-president. policy officer at the National Restaurant Association, it said in a statement. The group worked with the SBA on the new terms for small businesses.

Beyond these changes, small business and restaurant owners and advocates have asked lawmakers to replenish the $ 28.6 billion Restaurant Revitalization Fund. It provided subsidies to the industry, but it quickly sold out due to high demand.

“We were able to distribute it to more than 100,000 companies across the country. However, the demand was 2.5 times higher,” SBA administrator Isabel Guzmán told CNBC of the RRF last month. “There are still restaurants, food and beverage businesses that need support, we know they were hit the hardest and will often be the last to reopen in communities, but they define many of our main streets. However, I cannot specifically comment. what the actions of Congress will be, but the SBA would be ready to administer these programs quickly, efficiently and equitably. “

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