Goldman Sachs data found that inflation, employment and delta variables affected restaurant owners

Restaurants across the county have been looking to reopen the economy over the past few months, as Covid vaccines become more prevalent and pent-up consumer demand becomes palpable.

But headwinds from supply chain disruptions to labor shortages and rising costs are hitting the industry as shifting clouds of Contagious Delta hope for a return to normalcy.

Small business owners in the food, restaurant and hospitality industries are more concerned than most about the pandemic’s ongoing disruptions to operations, according to new data from Goldman Sachs 10,000 Small Business Voices. The data found that 84% of owners of these sectors are concerned about the impact of high rates of Covid-19 infection on businesses, compared to 75% of the total number of small businesses.

Almost everyone has seen an increase in operating costs, with 93% saying inflationary pressures have risen since June, which has had a negative impact on finances.

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

The numbers underscore the continued pressure restaurants are facing even in an economy that has recovered from the worst of the damage they caused Corona virus. While the rollout of vaccines and lax restrictions on public health have brought the industry closer to normalcy, challenges abound as restaurateurs look toward fall.

Ruby Bugarin, who operates Margaritas and Pepe restaurants in the greater Los Angeles area, said availability of merchandise and rising costs have affected her business. Products like crab are more difficult to find, chicken and pork costs have risen by more than $1 a pound, and prices for other goods have gone up.

“In the past two or three weeks, the price of an avocado has gone from about $40 a case to $85 a case. That’s more than doubled,” said Bugarin, a member of Small Business Voices. “We can’t do the same for our customers – we raise prices once or twice a year.”

Labor costs are also rising at its two restaurants, which together have 63 employees. Bujarin said she’d like to add a cook or two at each location, but instead pay her current employees weekly overtime.

Business challenges have also affected restaurateurs, food and hospitality owners like Bougarin 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 confirms that labor issues are weighing on small business optimism. Job openings were above the 48-year historical average in August for the second month in a row.

“In June, 67% of small businesses, despite inflation, despite workforce challenges, said they believe the U.S. is heading in the right direction,” said Joe Wall, national director of Goldman Sachs 10,000 Small Business Voices. “That number is now 38%. The delta variable is definitely the #1 topic in terms of why sentiment shifts, and then piles on it, inflation dynamics and workforce challenges.”

As the pandemic taxes restaurant operators, Goldman data found that nearly 40% of food and hospitality companies say they expect to have to take out a loan or line of credit for their business in the fall or winter. This compares to 29% of businesses overall.

The Small Business Administration recently announced a major overhaul of the Corporate Economic Injury Disaster Loan Program. The loan ceiling will rise to $2 million, and beneficiaries will be allowed to use the money to prepay business debts, which will allow restaurants to put the money into business debt and more.

“While small business restaurants still need access to working capital, these changes will improve the outlook for thousands of operators and raise the economic outlook for communities small and large,” said Sean Kennedy, Executive Vice President. Public Policy at the National Restaurant Association, in a statement. The group worked with the SBA on the new terms for small businesses.

Alongside these changes, small business owners and restaurants and advocates have called on lawmakers to replenish the $28.6 billion Restaurant Revitalization Fund. It offered grants to industry but was quickly laid off due to high demand.

“We’ve been able to distribute it to more than 100,000 companies across the country. However, demand was 2.5 times that amount,” SBA Director Isabel Guzman told CNBC last month from RRF. “There are still restaurants and food and beverage companies that need support, we know they have been the hardest hit, and oftentimes they will be the last to reopen in communities, yet they delineate a lot of our main streets. However, I cannot comment on the actions that Congress will specifically take them up, but the Small Business Administration will be willing to administer these programs quickly, efficiently and fairly.”

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