Default Risk High for Hard-Hit Restaurant Industry
"U.S. restaurants are being hit particularly hard by widespread stay-at-home guidelines and business closures, which contributed to a near-50% drop year over year in spending at restaurants and bars during April," S&P Market Intelligence stated.
A new S&P Market Intelligence report estimated the probability of default in the restaurant industry sits at nearly 25% as the coronavirus pandemic wreaks havoc on small and large businesses.
“US restaurants are being hit particularly hard by widespread stay-at-home guidelines and business closures, which contributed to a near-50% drop year over year in spending at restaurants and bars during April,” the report said.
BTIG managing director and restaurant analyst Peter Saleh told S&P Market Intelligence that the impact of COVID-19 varies among different parts of the restaurant industry. The franchised fast-food industry, he said, faces a lower risk of defaulting on debt. There’s a likely higher default risk for casual dining restaurants, he told S&P Market Intelligence.
The intelligence report said the latest probability of default dipped from highs in April. “Some restaurants across the industry are reporting improving trends in their sales even as they acknowledge a full recovery remains elusive and uncertain, which could help explain why the probability of default began to ease in May,” the report said.
Restaurateurs across the country are drawing up reopening plans that in many instances will include wider separation of tables, temperature checks and other measures to help minimize the spread of the virus.
On a recent CBRE podcast Jessica Curtis, CBRE senior vice president and restaurant practice leader for emerging concepts, said restaurants in urban areas such as New York might find it harder to find patio space necessary to more broadly reopen to the public.
“I’m working very hard with all of our clients to try to secure additional patio space in any way, shape or form they can,” Curtis said. “Patio is going to be king and that’s going to benefit some geographies more than others, right?”
A recent survey by the James Beard Foundation said nearly 30% of small and independent restaurants could end up closing permanently if closures continue into June.
“Restaurant companies are doing all they can to bolster liquidity, cut costs, and offset the dine-in sales decline with innovative to-go and off-premise options,” according to a report last week at the financial investment site The Motley Fool. “But COVID-19 will continue to put serious financial pressure on restaurants even as parts of the economy restart.”
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