A Blog by Jonathan Low

 

Feb 20, 2022

The Real Reason the Pandemic Killed Small Restaurants

The restaurant industry's Washington-based trade association is heavily skewed towards protecting the interests of big corporate chains and franchisees like McDonald's and TGI Fridays. 

It made sure that pandemic relief went to the chains, not to small independent mom-and-pops, which resulted in restaurant closures falling primarily primarily among the non-corporate small operations. JL

Kara Voght reports in Slate:

National chains like Applebee’s, Ruby Tuesday, and TGI Fridays received federal loans between $5 million and $10 million from pandemic relief. Subway, Dunkin’, and McDonald’s franchises received that funding, too - and more from $28.6 billion in restaurant relief. (But) half a million small independent restaurants account for 75% of eating establishments and employ 11 million. Thousands of independents are among the 90,000 restaurants closed since March of 2020, in which 2.5 million restaurant workers lost their jobs. The National Restaurant Association fiercely protected the industry's Goliaths.

For nearly 30 years, the Reel M Inn has occupied a squat, stucco building on a corner along Southeast Division Street in Portland, Oregon. Sleek condos and coffee shops have erased most of the neighborhood’s blue-collar grit, but the Reel, as locals call it, remains the same: a classic dive bar with neon signs and fishing knickknacks layered on its dark-paneled walls. Until closing time at 2:30 a.m., bartenders serve pop-tops and shots from behind the narrow wooden bar—“Bloody Marys are about as fancy as it gets,” Carey Bolton, the Reel’s manager and co-owner, tells me. The tiny kitchen churns out fried chicken and jojos (potato wedges)—and pretty much only chicken and jojos—for 16 hours a day, 365 days a year. The wait for food can run up to two hours, but the clientele doesn’t seem to mind. The most devoted regulars are the dishwashers, cooks, and waitstaff from the high-profile restaurant row that turned the neighborhood into a foodie mecca. “We end up being a place that feeds the restaurant world in Portland,” says Alex Briggs, Bolton’s husband and the Reel’s other co-owner.

Briggs, a Portland native with a low voice and an even lower tolerance for bullshit, grew up just four blocks from the Reel. “I thought of it as this walled-off, windowless bar with a cool neon sign my middle school teachers went to for a drink after school,” he says. Once he got a fake ID, he started going there too. Bolton, warm and equally no-nonsense, grew up in British Columbia and began her career in the restaurant industry as a teenage dishwasher. In 2014, following a move to Portland, Bolton became manager of the Reel, where she met Briggs. They got married, and in 2018, they bought the bar. “It took everything in us to purchase this place,” Briggs tells me. In 2019, business boomed, and the Reel closed for only two days: one for equipment failure, the other for a staff picnic. But as the coronavirus pandemic took root, neighboring restaurants shut down, and the Reel ended up closing for 77 days in 2020, plus 88 in 2021. Even when open, it hobbled along on takeout and a few outdoor tables in between Portland’s rainy spells. “At every turn—as creative as you wanted to be—there’s still so many things tying your hands behind your back,” Briggs says. “It’s just like a Sisyphean task to try to even make sense of how you can possibly survive.”

There are half a million small independent restaurants and bars like the Reel. They account for three-quarters of all the country’s eating and drinking establishments and employ roughly 11 million people. To operate a restaurant under ordinary circumstances is a perilous endeavor. To operate during a pandemic proved nearly impossible. Thousands of independents are among the estimated 90,000 restaurants that have closed since March of 2020, a year in which 2.5 million restaurant workers lost their jobs.

But while the Reel and fellow neighborhood joints limped by during the past two years—if they were able to stay open at all—a different story emerged for corporate restaurants. National chains like Applebee’s, P.F. Chang’s, Ruby Tuesday, and TGI Fridays all received federal loans between $5 million and $10 million from the first pandemic relief package Congress passed in March 2020. Thousands of Subway, Dunkin’, and McDonald’s franchises received that funding, too—and more cash again from the dedicated $28.6 billion in restaurant relief that passed in March 2021. By the end of 2020, financial experts raised stock expectations for major chains such as Darden (parent of Olive Garden) and Bloomin’ Brands (parent of Outback Steakhouse), which thrived by quickly pivoting to online ordering and delivery-friendly menus. One industry analysis spoke promisingly of steakhouse chain Texas Roadhouse, citing “industry closure activity, shouldered mostly by independent restaurants,” as a chance for the corporation “to expand its footprint into smaller markets.”

That independent restaurants struggled while big chains flourished wasn’t an inevitable outcome. Behind this dynamic was a force that has fiercely protected the industry’s Goliaths: the National Restaurant Association. On one level, the NRA is simply another trade association that lobbies on behalf of an industry and provides education and legal support to its members. In practice, it has bent federal, state, and local governments to the will of the corporate behemoths, claiming to represent the nation’s 500,000 food service establishments, even though less than 10 percent are members. Its critics call it “the other NRA”­—an acronym the association avoids and almost never employs, but one that paints the group as comparable to the National Rifle Association, a trade group so enmeshed in corporate and GOP interests that it hardly represents the desires of most gun owners. Celebrity restaurateur Tom Colicchio described it with more diplomacy: “The [National Restaurant Association], I think, is conflicted—representing full independents but also representing the chains,” he tells me. “It’s kind of hard to do.

For its part, the organization considers its mission unambiguous and expansive. “The National Restaurant Association is the voice of the restaurant industry,” a spokesperson for the group writes in a statement. “We represent and advocate for every restaurant at the federal, state, and local levels of government.” The spokesperson adds, “To say that the National Restaurant Association only represents chains is false.”

As the pandemic raged, tension inherent in the NRA’s mission gave way to open warfare as the industry cracked along the fault lines that the NRA long sought to obscure. New voices ascended to challenge the association’s power and even succeeded to some degree. But as the crisis enters its third year, the NRA continues to guard the interests of its large corporate members while neighborhood diners and taverns wonder whether they’re about to serve their last meal.

The now-mighty trade group has humble roots. In 1916, Kansas restaurant owners banded together to block local farmers from raising the price of eggs, which then dropped from 65 cents to 32 cents. Thus, the nation’s nascent restaurant consortium notched its first win. Three years later, at the National Restaurant Association’s inaugural convention, 200 owners from across the country pledged to tamp down another potential drain on profits: organized labor.

Union hostility aside, the trade group spent its first several decades primarily as a booster organization that helped transform restaurants’ images from “greasy spoon” lunch counters to elegant, family-friendly establishments. In the 1930s, it ran ads urging married men to “Take Her Out to Dinner at Least Once a Week.” A 1950s campaign told Americans to “Enjoy Life—Eat Out More Often” and pictured happy families seated together in dining booths.

The association’s evolution into political juggernaut began amid a vicious partisan fight over President Bill Clinton’s ill-fated health care plan. During a 1994 town hall in Kansas City, Missouri, Godfather’s Pizza CEO Herman Cain challenged the president on the cost of mandating employer-based coverage. “On behalf of all of those business owners that are in a situation similar to mine,” Cain asked, “my question is, quite simply, if I’m forced to do this, what will I tell those people whose jobs I will have to eliminate?” Clinton rejected the causality, but Cain pressed on, arguing he’d have to pass increased costs on to customers and, in turn, lose business to even bigger chains that could more easily absorb the expense. Conservatives hailed Cain as a hero. Soon thereafter, Jack Kemp, the former NFL star and 1996 vice presidential candidate, traveled to Cain’s Omaha home to meet him and convinced him to advise the Dole-Kemp presidential campaign.

The episode not only dealt another blow to the prospects of health care reform but also tied the NRA’s fate to that of the Republican Party. In 1996, Cain became CEO of the NRA and further strengthened its clout. As Congress weighed lowering the legal blood alcohol content limit for drunk driving, the association balked, arguing that such a change would hurt restaurant liquor sales. Its members similarly testified against federal indoor smoking bans. But its most significant legacy was quashing efforts to raise the minimum wage and offer paid sick leave to employees.

Holding down the cost of labor became the association’s raison d’être. In 1996, Cain led the charge to defeat an effort to raise the subminimum wage, which allows restaurants to pay servers less than the actual federal minimum wage because, in theory, the workers make up the difference in tips. A legacy of Jim Crow, the tipped minimum had been tethered to the higher federal minimum wage, but Cain and allies claimed that a higher tipped minimum would increase both unemployment and inflation­—at a time when both were at their lowest since World War II. He succeeded in getting the two wages delinked. The subminimum wage, only $2.13 an hour in 18 states and still under $7.25 in nine more, hasn’t budged since.

Attempts to raise it on the local level have met a similar fate at the hands of the NRA’s affiliated state groups, which receive policy and advocacy training from the national group. When the District of Columbia held a vote on a ballot measure to eliminate the subminimum tipped wage in 2018, the NRA gave more than $70,000 to Save Our Tips, an astroturf campaign that convinced bartenders and servers that such a ban would hurt their bottom lines. The ballot measure passed, but D.C.’s City Council later reversed it thanks to pressure from the NRA. The Illinois Restaurant Association killed Chicago’s efforts to raise the minimum wage to $15 and eliminate the subminimum wage—even though Mayor Lori Lightfoot had won the election promising to do so.


When Democrats made attempts to include similar measures in the COVID relief package earlier last year, the NRA killed them and all but obliterated them from the Democratic agenda. They argued these “increased workforce costs are particularly difficult for independent owners to manage” and that “the elimination of the tip credit would hurt millions of servers who rely on the current system where they earn between $19–$25 an hour with tips.” New York Sen. Kirsten Gillibrand assured me in November that raising the wage was “absolutely something we’re going to do before the end of the year, because it’s one of our highest priorities as a caucus.” But Congress left Washington in December without breathing a word about it, a testament to the durability of Cain’s vision.

The CEOs after Cain have been cut from a similar corporate cloth. Marvin Irby, the NRA’s longtime chief financial officer and current interim CEO, did stints at Disney and Kraft Foods. He replaced Tom Bené, who was previously the CEO of Sysco and spent 23 years ascending the corporate ladder at PepsiCo. Dawn Sweeney, who helmed the group for 12 years starting in 2007, now works at a Connecticut-based consulting group alongside the former executives of Starbucks, Jamba Juice, and Pizza Hut. Both the NRA’s current CEO and top lobbyist earned spots on Washingtonian magazine’s 2021 list of “Most Influential People,” the index of Beltway insiders “who’ll be shaping the policy debates of the years to come.”

Leadership that’s so tied to chains comes as no surprise, since most of the organization’s more than $4.3 million in dues revenue comes from its 165 corporate members. Starbucks, Yum! Brands (owner of KFC and Pizza Hut), and Darden paid $50,000, $79,000, and $150,000, respectively, to the NRA in 2019. Members also include food-and-beverage behemoths like PepsiCo, which regularly pays the NRA between $250,000 and $500,000 in dues, as well as hospitality giants like Disney, which shells out between $50,000 and $100,000 annually. Another top revenue source, according to the association’s spokesperson, is from “the ServSafe suite of training products,” which offers operators and staff food safety and service training.

Some of that money goes toward schmoozy receptions on Capitol Hill as well as the NRA’s newish headquarters on L Street—“larger, cooler digs,” Washingtonian reported in 2013—which has a conference room named for Coca-Cola. The NRA has spent more than $5.7 million on federal campaigns since 2007, making it the second-largest food funder after the Farm Credit Council, which lobbies on behalf of the country’s nearly $1 trillion agriculture industry. Roughly 80 percent of the NRA’s campaign spending goes to Republican politicians; when the group boosts Democrats, it’s typically those with a conservative bent, or the chairs of congressional committees key to its interests, such as agriculture. Its top five recipients over the last 15 years have all been Republicans; House Minority Leader Kevin McCarthy leads the group with $56,000 in receipts since 2007, according to a report from Feed the Truth, a food industry watchdog group. (Unsurprisingly, the NRA opposed the 2001 McCain-­Feingold campaign finance reform bill.)

The crown jewel of that political operation is its lobbying. The NRA spends an average of $3 million a year on lobbyists, totaling more than $38.4 million over the past decade. Its leading lobbyist, Sean Kennedy, served under President Barack Obama as a liaison to moderate Republican and Democratic senators. But on the whole, “it’s a very conservative group,” says Craig Holman, a campaign finance and lobbying expert at Public Citizen, a consumer advocacy organization. “They’re heavily skewed toward the Republicans.”

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