Following a relatively optimistic March in which independent restaurants’ rent delinquencies improved materially, things seemed to have slowed down again. According to new data from Alignable, 49% of small restaurant businesses couldn’t pay the rent in April.
April’s delinquencies were at the highest level thus far in 2023. In March, rent delinquencies fell to 34% versus 40% in February, 38% in January and 52% in December.
Restaurant rent delinquencies trailed only transportation across all segments in April. Overall, 39% of small business owners fell behind on rent this month, compared to just 30% in January, pointing to a steep downward trend within the past four months. According to Alignable’s survey of over 4,200 respondents, independent operators cited rent increases, continued inflation/supply costs, reduced revenue and less access to funding as their biggest roadblocks. Fifty-three percent said their rent is now higher than it was six months ago, while 75% of small business owners say they haven’t experienced any relief yet on cooling inflation.
Further, 48% of small business owners said they are earning half or less of the income they generated a year ago, and just 20% say they are growing income versus last year. And, 47% of small business owners say it is more difficult to get a loan now than it was prior to the recent bank failures. Last month, the Fed raised interest rates another quarter percentage point, bringing the rate to between 4.75% and 5% – the highest level since September 2007.
This confluence of factors is causing some general anxiety. According to the newly released Bank of America 2023 Small Business Owner Report, 72% of small business owners are concerned about the impact of a potential recession. The survey also indicates the ongoing impacts of inflation, supply chain issues and interest rates. Eighty-eight percent of small business owners said inflation continues to impact their business, while 73% are still navigating supply chain issues. Sixty-seven percent cite higher interest rates as their current top concern.
Despite this uncertainty, small business owners’ outlook remains sunny; 76% are confident their business could withstand a recession. Also, 48% plan to expand their business, 65% anticipate revenue growth and 82% intend to obtain financing.
Perhaps this optimism comes from the National Restaurant Association’s most recent sales data that shows continued steady growth despite macroeconomic challenges. Consumer spending is up significantly – 19% – year-over-year as menu prices continue to stay elevated. Six out of 10 operators predict higher sales in six months which could then perhaps translate to lower rent delinquencies in the months ahead. Time will tell. In the meantime, Bruce Grindy, chief economist for the National Restaurant Association, said the industry’s growth remains on track, driven by “resilient consumers and a healthy labor market.”
“While the path forward won’t be without challenges, we expect the industry to continue on a positive trajectory in the months ahead,” he said in a statement.
Contact Alicia Kelso at [email protected]