How to Help Save the Food and Drink Industry During a Pandemic
Stories abound of restaurants, breweries and other gathering-oriented businesses—which all operate on notoriously thin margins in the best of times—making the decision to permanently close as a result of COVID-19. According to the National Restaurant Association, restaurant sales were down nearly 50 percent through the first three weeks of March, while close to three-quarters of restaurant owners report having to lay off workers or reduce hours. More than 1 in 10 restaurants predict they will close permanently over the next 30 days, a number we can expect to grow as more states extend stay-at-home orders into May and June.
Prominent food personalities like David Chang have gone so far as to predict that we could be seeing the death of the restaurant industry as we know it. The economic impact of a food and drink industry collapse is almost possible to overestimate. The Bureau of Labor Statistics pegged the number of people working in the hospitality industry at more than 16 million at the end of 2019, and jobs in sectors like restaurants and breweries have shown some of the most promising job growth in recent years. These jobs provide key employment opportunities for Americans from every walk of life, and especially for those without advanced degrees.
In light of this dire prognosis, it’s time policymakers and legislators act fast to help the food and beverage industry limit damage as much as possible. While no single policy change—or even a combination of changes—will be able to replicate business as usual, there are several clear steps that should be taken both now in the midst of COVID-19 and in preparation for potential future pandemics.
1. Business Interruption Insurance for Pandemics
One of the key areas of concern in the food and drinks world is how to keep businesses whole during times of unexpected business interruption. David Chang has floated the idea of rent abatements since most restaurants rent their spaces, while famed D.C.-based bartender Derek Brown has discussed the surprise many restauranteurs and bar owners have felt upon discovering that their insurance policies do not include coverage for non-physical interruptions like those caused by pandemics.
In the short term, one potential legislative solution with support from many groups in the insurance, real estate and retail communities is a federal fund to offer revenue replacement to businesses forced to shutter because of the COVID-19 outbreak. The proposed COVID-19 Business and Employee Continuity and Recovery Fund would be modeled on the Sept. 11 Victim Compensation Fund, which was authorized by Congress to provide financial compensation to the families of anyone injured or killed in the Sept. 11 terrorist attacks, regardless of whether they had life insurance or workers’ compensation insurance.
A longer-term solution may be more complicated. Some have proposed requiring commercial insurance companies to offer coverage for business interruption caused by pandemics, paired with establishment of a federal reinsurance facility to compensate insurers for very large losses. That idea, modeled on the similar reinsurance facility created for terrorism events as part of the Terrorism Risk Insurance Act, appears to face strong opposition from the insurance industry.
R Street has instead proposed having the federal government underwrite pandemic business interruption coverage directly, with a structure more similar to the National Flood Insurance Program. The program would be voluntary and funded by a small assessment applied to the amount of revenue a given company would seek to replace. Setting up such a system for compensating businesses that are forced to close as a result of pandemic-induced government lockdowns should be a priority goal for policymakers both now and in the wake of COVID-19.
2. Add Delivery Loading Zones Near Restaurants
Cities weren’t built to anticipate every restaurant offering delivery and takeout. This new dining paradigm will only be sustainable if it’s easy for delivery drivers and takeout customers to pick up orders. Many businesses already have plenty of parking. But those that don’t, the ones that line urban streets and town centers, could benefit from crisis-time infrastructure updates by local transportation planners. First, restaurants should be able to request the creation of temporary delivery loading zones on roads adjacent to their businesses. These requests should not require approval of the property owner or the business’s landlord, which stands to dramatically slow the process.
In Washington, D.C., the municipal Department of Transportation has successfully rolled out such a program, with more than 50 temporary zones created so far. While D.C.’s program has been successful, it requires businesses to make requests through neighborhood business associations and public officials. This combines the needs of various nearby businesses at the cost of slowing the approval process. Other cities could make the process quicker and easier by allowing business owners to apply directly to local transportation departments on a standalone basis.
3. Adapt Land Use Rules to Allow Grocery Retail and Other Building Changes
Land use and zoning rules are traditionally put in place to control noise, foot traffic, and other externalities caused by different types of businesses and homes. But during a crisis like a pandemic, what constitutes a true nuisance changes. For instance, the extra traffic from deliveries and takeout business is forgivable when it substitutes for the clamor of normal restaurant operations.
Restaurants have important relationships in the food supply chain and could offer to sell things like flour, milk, eggs and vegetables to nearby residents. Many have. But this can continue only if they’re legally allowed to do so, which is not the case everywhere. Some municipalities, including Los Angeles County, have cracked down on the practice, arguing that food retailers lack permits to operate grocery businesses.
This type of action needlessly limits consumer access to food while cutting off an important lifeline for many restaurants—especially those in America’s food deserts, far from grocery stores. Local governments and zoning boards could make changes to give food and beverage businesses the extra scope of action they need to survive the coming months. For instance, zoning boards could change local zoning codes to explicitly allow grocery retail at all food and beverage businesses, without forcing businesses to comply with regulations associated with typical grocery stores. More broadly, officials could add grocery retail by right to all zones that allow restaurant, bar, brewery or distillery retail, including industrial zones that house many of the latter establishments.
Similarly, businesses that could better-adapt to the sanitation and convenience needs of a crisis are stifled by the need to apply for zoning variances and permits before modifying their properties. If these requirements were eased, standalone restaurants could add new drive-through windows and reconfigure parking. Inside, restaurants and bars may find it safe or productive to reconfigure interior space, adding kitchen space at the expense of seating.
Local officials could make this process quicker by allowing inspections of food and beverage building changes after they have been completed rather than requiring approval prior to work taking place. Alternately, officials could maintain pre-approval of building changes, but expedite all permits from still-open essential food and beverage businesses using any existing emergency approval procedures the entity has in place. As with restaurant-based grocery retail, zoning officials could throw a lifeline to food and beverage businesses with swift regulatory relief that allows them to adapt their establishments quickly to the new retail reality.
4. Liberalize Alcohol Delivery and Sales
It’s no secret that alcohol sales are vitally important to most restaurants. Alcohol sales have some of the highest profit margins for restaurants, and booze sales make up an average of 20-25 percent of sales for most restaurants. These numbers are of course even higher for craft cocktail bars, breweries and craft distilleries.
When dining rooms and taprooms are forced to close, the only way many of these businesses can survive is by providing more robust curbside and delivery options for their booze. Unfortunately, many governments severely restrict these practices. Notably, some locales—including New York City, Washington, D.C. and Texas—have temporarily tweaked their rules to allow to-go and delivery alcohol sales for bars and restaurants.
This is a good start, but it’s hardly enough. Most of these rule changes nonsensically still require food to be part of any order and neglect producers like breweries, wineries or distilleries. Some states like Virginia and Oregon allow local breweries to deliver if they obtain a delivery permit, a process which they have expedited during COVID-19. Others, such as New Jersey, have suspended delivery from breweries, triggering panic among brewers in the Garden State.
During the crisis, alcohol delivery across all channels should be radically liberalized to match food delivery. Retail stores, restaurants and producers should be granted delivery privileges—including the ability to team up with third-party entities such as Amazon, Drizly and others—to allow them to sell alcohol directly to quarantined customers. Additionally, interstate shipping laws governing alcohol, which are extremely restrictive, should be reformed, given that most Americans are unable to travel beyond a small radius at this time. Restaurants should also be permitted to sell bottles of spirits in their inventory to customers along with to-go mixed drinks.
While these reforms should be instituted right now during the crisis, they should also be made permanent. Nearly every product under the sun can be delivered to our doors these days, and it makes little sense to exclude alcohol.
. . . . .
As noted from the outset, none of these changes should be seen as standalone silver bullets that will entirely insulate the food and drinks industry from the current crisis. But they are straightforward, readily available policy tools that could ease at least some of the pain. Lawmakers and government officials should start pursuing these options immediately. If they do not, a collapse really could be imminent.
Image credit: Rawpixel.com