As the Texas restaurant industry struggles, so do farmers, truckers and others in the food supply chain
Economic experts say a slow recovery in the industry means problems will persist for the restaurant sector — and businesses in the supply chain on which it relies.
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Before the coronavirus hit Texas earlier this year, Eric Silverstein celebrated one year of opening his newest restaurant, Bar Peached, in Austin.
But ever since the pandemic led to business shutdowns and the public’s fear of catching the virus, business at Silverstein’s three restaurants has plunged. Sales fell dramatically in April during a monthlong statewide shutdown. The Peached Tortilla location at the Austin-Bergstrom International Airport remains closed. While loans under Congress’ Paycheck Protection Program helped, Silverstein said they “weren’t a cure-all.”
He cut the hours of employees, reduced salaries and laid off workers — including letting go 85% of his hourly catering employees.
“We had numerous weddings and corporate events cancel and reschedule and so we went from our peak months — March, April, May, June — the best months of the year for our catering company, when we make all our money, they got wiped out,” he said, adding that the pandemic was just short of a disaster for his operations. “The aid that we’ve gotten is not sufficient for the curveball that we’ve been thrown as a business.”
Economists project that up to 30% of all Texas restaurants will close or have to significantly shift their business models. That will not only continue to impact restaurant owners and their employees, but will also send ripple effects into related industries including agriculture, trucking and food processing.
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“The impact on our economy and also just our people and our culture is huge from Texas restaurants,” said Kelsey Erickson Streufert, the Texas Restaurant Association’s vice president of government affairs and advocacy. “We are 51% of the food dollar in Texas. So we, quite literally, are the main way that people are getting their food.”
Although many Texas restaurants have been allowed to operate at limited capacity for months, this summer’s dramatic surge in coronavirus cases left Texans worried about venturing out in public. Meanwhile, the economic recession wrought by the virus has left many Texans without the extra income needed to dine out.
Experts say the potential for a significant economic rebound in the industry remains low for the near future.
“It could be six to 18 months before we can see a full recovery,” said Venkatesh Shankar, a marketing professor at Texas A&M University.
Meanwhile, the struggling restaurant industry has negatively impacted other parts of the food service supply chain.
David Anderson, an agricultural economist at Texas A&M University, said that as demand for meat decreases and prices go down during the pandemic, livestock supply will become tighter in the long run.
“You had lots of restaurants that immediately were trying to essentially become the grocery business by selling their uncooked steaks to consumers,” Anderson said. “You could go to the restaurant and buy the steaks, take them home and cook them yourself.”
Produce, which is highly perishable, also had to be thrown out when restaurants began to close, he said, forcing farmers to reconsider how many crops they produce this upcoming season.
Russell Boening, 61, grew up on his family ranch southeast of San Antonio. He says that when the pandemic began, beef and dairy prices dropped “dramatically.”
“Milk prices have rebounded some, beef prices not so much,” he said. Boening’s ranch, where he has worked full time since 1981, operates a 500-cow dairy farm, raises beef cows, and farms wheat, corn and watermelons, among other crops.
Although Boening hasn’t had to throw out excess milk or beef or cull his herds, he said he relied on PPP loans to keep his employees on payroll and his ranch running. But he still worries about what will happen to the ranch’s operations if restaurants do not reopen at full capacity in the near future.
“There's no doubt that if restaurants continue to either stay closed, operate at 50% or, heaven forbid, close permanently, I think that could surely affect us in the long run,” he said.
After food is produced, it is processed before being distributed to restaurants or grocery stores. Greg Hanks, the president of Hanks Brokerage Inc., a food brokerage company that sells processed food items to restaurant distributors, said his business’ revenue is down about 20% to 30%.
“The longer this goes on, the more places will close, and more of the business sites will be down, and it will affect the manufacturing bases [that] supply those restaurants as well, so I think long term I would not expect to be back up to the levels we were pre-COVID for two-plus years,” he said. “In all honesty, even to get flat I think will be over two years.”
The trucking industry has also been clobbered by the pandemic, especially refrigerated trucks, said John Esparza, the president and CEO of the Texas Trucking Association.
“They’re either going to have to diversify or move away from their existing clients that are specialized in restaurants and find ways to keep their trucks rolling,” he said. “That can come at a cost as well because if you're just suited to handle refrigerated and restaurants specifically, now may not be a good time to purchase the type of equipment that you need to move into a different sector of trucking.”
Brandon Woods, the vice president of Refrigerated Transport Inc., said the pandemic tanked his company’s business by 40% “right off the bat.”
“We've had to kind of step outside of our comfort zones and look for freight in different ways than we normally do so, reaching out more to food brokers or just anybody that has freight to haul,” he said.
Business improved once restaurants reopened, Woods said, and Refrigerated Transport is now operating at 80% of where it used to be. He worries about the truckers his company employs, who own their own trucks, while the company owns the refrigerated trailers.
“They're paid based off a percentage of the freight that we haul,” he said. “So any downturn in that amount of freight obviously affects their bottom line and their paycheck at the end of the day.”
A slow recovery
The food and alcohol service industry made up just over 2% of Texas’ annual real gross domestic product in 2017, representing $33 billion, according to data from the Bureau of Economic Analysis.
Prior to the pandemic, there were over 1.1 million Texas jobs in that industry. By the end of April, when Texas was under a statewide stay-at-home order and businesses were shuttered, the sector had shed 40.3% of jobs, according to data from the Texas Workforce Commission that is not seasonally adjusted. In May and June, the most recent months for which data is available, only about 300,000 of the roughly 453,000 jobs lost in March and April came back.
Of the 3.2 million unemployment claims filed in Texas between the beginning of March and the week ending Aug. 8, around 12.5% have come from workers in the accommodation and food services industry — the largest share for any single industry in the state, according to a Texas Tribune analysis of TWC and U.S. Employment and Training Administration data.
“Many of those Texans can't easily get a job somewhere else. We're often someone's first, second, third, last chance,” Erickson Streufert said. “We hire folks who are coming out of our prisons and jails. We hire folks who are getting their very first job. We hire the single mother who needs a flexible schedule and nontraditional work hours.”
Charles North, the chair of the economics department at Baylor University, said the impact of the pandemic will be particularly pronounced on family-owned restaurants, those that don’t have computerized ordering systems and those without websites.
“The mom-and-pop kind of places are in much more jeopardy,” he said. “They probably already closed, and they're just going to close permanently.”
North said the restaurant industry’s fate largely depends on how comfortable people are going out to eat while the pandemic still grips the state. Although he predicts an “upward trend” in terms of restaurant spending over the coming months — including if the virus persists and people simply become accustomed to its presence — he thinks a full economic recovery comes down to the personal comfort of millions of people.
This summer, the state faced record-high numbers of coronavirus-related hospitalizations and deaths, putting pressure on health care facilities to accommodate patients and state officials to take steps to mitigate the virus’ spread.
“As long as there remains uncertainty and people are concerned about catching the disease, then I don't think it will catch all the way back up,” North said. “So time is really tied to how long the uncertainty lingers about COVID and people's concern about dining out.”
But there’s also the pandemic’s parallel economic crisis. The state’s unemployment rate hit an all-time high of 13.5% in April. It fell slightly in May and dropped to 8.6% in June. While that’s a dramatic and quick improvement, that figure is still far higher than the unemployment rate in the state at the start of the year. July’s unemployment rate for Texas isn’t expected to be released until Friday.
“People need a paycheck to be able to go out to a restaurant,” Anderson said.
Erickson Streufert, of the Texas Restaurant Association, said she hopes that small, family-owned businesses in particular will survive the pandemic.
“I hate to think of the world right where the only restaurant available to you is a chain or a drive-thru,” she said. “And those are important parts of our business, too — I don't mean to diminish that — but it's those local family-owned restaurants that are often the heart and soul of our communities.”
Silverstein, the owner of Bar Peached, said his restaurant is breaking even — a sustainable model in the short term — but would face a “very tough uphill climb” if the restaurant shut down again due to a state mandate. Gov. Greg Abbott has made clear he has no such plans for another statewide shutdown, though he did scale back restaurants' allowable operations after this summer’s surge.
Ashleigh Roessler, a server at Bar Peached, said that if the restaurant closes again, she doesn’t know how she’ll make ends meet.
“I'm knocking on wood right now,” Roessler said. “I would be OK for about a month, but after a month, if I hadn't found other forms of employment, it would get a little testy. So it's something that is always forever in the back of my mind.”
Silverstein said he is not taking a salary from Bar Peached in order to keep the business afloat and thinks the restaurant can continue to operate for another year and wait for things to improve in the interim. He said he is not worried about competing with big chain restaurants because he is focused on his own operations.
“I'm worried about myself,” he said. “They're gonna do what they have to do, and we're gonna have to do what we have to do. ... It's survival of the fittest.”
Reese Oxner and Anna Novak contributed to this report.
Disclosure: The Texas Tribune, as a nonprofit local newsroom and a small business, applied for and received a loan through the Paycheck Protection Program in the amount of $1,116,626.
The Texas Restaurant Association, the Texas Trucking Association, Baylor University, Texas A&M University and The Economist have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.
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