Huilin Yang, The Implementation of Paycheck Protection Program on the Recovery of Restaurant Industry in COVID-19 (2022)

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A paper by Huilin Yang of the Department of Economics, University of California, San Diego, titled The Implementation of Paycheck Protection Program on the Recovery of Restaurant Industry in COVID-19, in BCP Business & Management, MEEA 2022, Volume 34 (2022). The abstract says the paper analyzes the extent to which the Paycheck Protection Program under the CARES Act helped the restaurant industry, and reports that the first round of PPP loans helped the industry's transaction rate but that many restaurants decided to lay off employees because they did not receive follow-up subsidies. The paper's sections cover the impact of COVID-19 on restaurants, the basics of the PPP and a case analysis of PF Chang's.

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“Huilin Yang, The Implementation of Paycheck Protection Program on the Recovery of Restaurant Industry in COVID-19 (2022).” Original at bcpublication.org. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/huilin-yang-the-implementation-of-paycheck-protection-program-on-the-r-7dde0b6b7d/, SHA-256 f96b273c3a4309db7b8b6c3c039b439e30c1e7e04d3310913e56b4c9457f0553.

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BCP Business & Management MEEA 2022
Volume 34 (2022)

The Implementation of Paycheck Protection Program on the
Recovery of Restaurant Industry in COVID-19
Huilin Yang1, *
1Department of Economics, University of California, San Diego, United States

*Corresponding author: huy005@ucsd.edu
Abstract. The epidemic has had a significant negative impact on many industries that rely on foot
traffic for profit, with the restaurant industry being the most representative. The government also
implemented different levels of lockdowns and subsidies at the beginning of the outbreak to control
the spread of the epidemic while subsidizing the affected companies. This paper analyzes the extent
to which the Paycheck Protection Program (PPP) under the Coronavirus Aid, Relief, and Economic
Security Act (CARESA) for small companies helped the restaurant industry. Even with the limitations
of incomplete information on small companies, the results indicate that the first round of the PPP
loans helped the restaurant industry's transaction rate, but many restaurants decided to lay off
employees because they did not receive follow-up subsidies. Therefore, it is inferred that the help of
the PPP is phased, bringing significant boost effect immediately but not sustaining long-term
economic recovery. This analysis also provides the basis for a more effective and applicable
emergency relief program in the future.
Keywords: COVID-19, Restaurant Industry, Fiscal Policy, Relief programs.

1. Introduction
Coronavirus is an airborne, highly infectious virus. The primary mode of transmission is person-
to-person, with droplets from infected patients carrying the virus and infecting people within one
meter of them. During the early stages of the outbreak, many countries took emergency lockdown
actions. Along with this decision to lockdown, many industries that rely on in-person activities (e.g.,
the restaurant industry), drive their operations faced unprecedented challenges. According to data
publicized on the US Bureau of Labor Statistics, unemployment was as high as 14.8% during the
lockdown, and many small companies chose to shut down their business because of unaffordable high
levels of debt.
Even though the CARES Act was enacted timely to relieve the stress of individuals and businesses,
coronavirus still brought an irreversible impact on the short-term recovery of small businesses. This
pandemic has had a particularly serious negative impact on the restaurant industry, where the larger
the infectors, the lower the restaurant demand [1]. Dine-in guests in many countries dropped to zero
as governments around the world adopted social movement restrictions. Restaurants that are not able
to provide a delivery service encountered a more severe liquidity crisis [2]. According to previous
literature, the restaurant companies with larger size, greater leverage, higher cash flow, and greater
internationalization have better ability to against the impacts of COVID-19 [3]. Some existing studies
indicate that it is almost impossible for restaurant industry to oscillate back to the normal state in pre-
epidemic state. The reason is that the widespread promotion of contactless delivery and artificial
intelligence servers during the epidemic has undoubtedly brought new challenges to the traditional
restaurant business [4]. As stated, restaurants of different sizes in the restaurant industry are affected
differently.
Among them, the small-scale restaurants are the most seriously affected. Some of the bills in
CAREs are specifically designed for small companies. This article will focus on the analysis of the
Paycheck Payment Program (PPP), which assisted companies to maintain their workforce in times of
the COVID-19 crisis [5]. According to previous research, the implementation of PPP nationwide had
successfully improved the ratio of business survival as well as lead to a moderate decrease in
unemployment rate [6]. PPP increased employment in the targeted companies by 2-5% with a peak
effect around mid-May 2020. In addition, as a result of the PPP, employers maintained 3.6 million

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additional jobs from mid-May 2020 and 1.4 million additional jobs by the end of 2020 [7]. Current
research has shown that PPP is very effective in driving the economic recovery approach in general.
However, s research gap exists at the effectiveness of the implementation of PPP on the restaurant
industry specifically. This paper is dedicated to fill in that information considering that the restaurant
industry has a great economic impact on the region, where the restaurant industry contributes to
regional job growth and supports local agriculture. The extent of the impact of PPP on the recovery
of the restaurant industry will be determined by comparing the restaurant industry data before and
after the time of disbursement of PPP loans. The rest part of the paper is organized as follows. The
Sec. 2 will discuss the impact of COVID-19 on the restaurant industry through analyzing transaction
rates of full-service restaurants. The Sec. 3 will introduce the basics of the PPP including amount of
loans and distribution status. The Sec. 4 will analyze the impact of PPP on the restaurant industry
through comparison of recovery status around the time of allocation of the PPP loans. The Sec. 5
included a case analysis of PF Chang’s as a representation of the restaurant that are eligible to receive
the PPP loans. Subsequently, the limitations of the study is discussed with the proposal for future
prospects. Eventually, a brief summary is given in Sec. 7.

2. The COVID-19 Impact on the Restaurant Industry
Owing to the spread of COVID-19 and the fact that its spread among person-to person, many
industries that rely on foot traffic for profit (tourism, hotels, restaurants, etc.) have been greatly
affected. In December 2019, three months before the Coronavirus outbreak, 2019 Vixxo Restaurant
Survey results showed that more than 60 percent of people would choose to dine-in at a restaurant
rather than ordering take-out. In this environment, only some well-funded restaurants can support a
shift from traditional operation mode to online delivery. However, during the epidemic, according to
the National Restaurant Association, the number of people willing to dine-in decreased to less than
30% with the remaining 70% preferring to either order take-out or cook at home. This sudden shift
in the eating habits of the public has certainly deepened the impact of the outbreak on the restaurant
industry [2].

Fig. 1 2020 Full-Service Restaurant Transactions.

Figure 1 depicts a comparison of transactions from full-service restaurants in March 2020 to May
2020 based on data collected in 2019. Full-service restaurants were hit the hardest for several reasons.
One of the main reasons is that fast food and other restaurants that have provided delivery services
have developed maturity, resulting in full-service restaurants not able to complete the transformation
in a short time. A research that calculated the relationship between daily new cases confirmed in the
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US every day and visits to restaurants had proven that under the sub-category for fast-food services,
the demand was less affected comparing to that of full-service restaurant [1]. In addition to take-outs,
during the epidemic, many consumers prefer self-cooking at home due to health concerns. Even after
the lockdown was eased, the dine-in rate did not return to pre-pandemic level because there were still
customers who were concerned about exposure to the virus and thus reduced the frequency and
confidence of dine-ins. The most direct solution to restore confidence in the dine-in restaurant
industry to the lost customer base was to reduce patronage and to sanitize and clean more frequently,
but both steps were very costly and led to a slower rebound in restaurant turnover after the bottom
was reached [4]. Compared to the large catering companies that have available working capitals to
adjust their business model in a timely manner, small dine-in companies are the ones that received
the biggest hit due to COVID-19 in the whole industry. Nevertheless, as the industry’s turnover
plummeted during the epidemic, the restaurant industry's stock market plummeted and investors'
confidence was undermined. Current studies have shown that the large restaurant industry will be less
affected but speculated that they will enter a slow recovery period due to investors' uncertainty [3].

3. Basic Descriptions of Paycheck Protection Program
The CARES Act was proposed into law on March 27, 2020, which allocated $2.2 trillion as an
economic aid to individuals, families, and businesses affected due to the outbreak of the Coronavirus.
The PPP under the CARES act is dedicated to assist small businesses to recover on a solid base which
are eligible for businesses with less than 500 employees or meet the Small Business Administration
(SBA) size standards. The loans under the PPP are funded by private lenders or credit unions that are
backed up by the SBA to incentivize small businesses by assisting with their pay-rolls and reducing
the unemployment rate through hiring back laid-off workers. Round 1 of the PPP was initiated on
April 3, 2020 and closed on April 16, 2020. Approximately $340 billion of funds were approved by
the congress. The distribution of the fund is listed in Table. 1 [5].

Table 1. PPP First Round Industry Distribution
NAICS Subsector Description Approved Loans Approved Dollars % of Amount
Construction 177,905 $44,906,538,010 13.12%
Professional, Scientific, and Technical Services 208,360 $43,294,713,938 12.65%
Manufacturing 108,863 $40,922,240,021 11.96%
Health Care and Social Assistance 183,542 $39,892,493,481 11.65%
Accommodation and Food Services 161,876 $30,500,417,573 8.91%
Retail Trade 186,429 $29,418,369,063 8.59%
Wholesale Trade 65,078 $19,489,410,472 5.69%
Other Services (except Public Administration) 155,319 $17,707,077,167 5.17%
Administrative and Support 72,439 $15,285,814,286 4.47%
Real Estate and Rental and Leasing 79,784 $10,743,430,227 3.14%
Transportation and Warehouse 44,415 $10,598,076,231 3.10%
Finance and Insurance 60,134 $8,177,041,995 2.39%
Educational Services 25,198 $8,062,652,288 2.36%
Information 22,825 $6,675,630,276 1.95%
Arts, Entertainment, and Recreation 39,670 $4,939,280,138 1.44%
Agriculture, Forestry, Fishing and Hunting 46,334 $4,374,343,877 1.28%
Mining 11,168 $3,894,793,207 1.14%
Public Administration 5,570 $1,197,353,586 0.35%
Management of Companies and Enterprises 3,211 $1,170,748,130 0.34%
Utilities 3,247 $1,027,575,137 0.30%

As of the end of the second round on August 8, 2020, available loans in the pool approved by the
congress have raised to over $525 billion and with the same TOP 5 industry receiving over 50% of
the loans as in Round 1. PPP ended on May 31, 2021, with a total of $800 billion congress approved

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loans and the distribution status [8]. By the end of the PPP, the restaurant sector received the largest
share of loans far exceeding its share in the first and second rounds, which was only around 9%. A
portion of all loans received by the restaurant industry were not to small businesses, i.e., those with
fewer than 500 employees, but to restaurant chains with well-established business models.
Researches have shown that the Paycheck Protection Program loans have inherent limitations.
Therefore, these factors should be taken into account when analyzing their effectiveness in helping
small businesses. Based on observations, a company's connection to a bank has a positive relationship
with its loan application rate. In this case, it means that a company with less liquidity is less likely to
get approved for a loan than a company with in a better financial situation, but the former situation is
obviously more urgent and are the one in need [6]. Even so, since about 75% of small businesses are
not able to run funds on short notice to pay for emergencies such as the COVID-19 epidemic.
Therefore, even though some companies have presented a higher passing rate in their loan
applications, PPP loans have helped most small businesses by giving them the funds to help cover
expenses and reduce layoffs [9].

4. The Impact of the Paycheck Protection Program on the Restaurant Industry
The restaurant industry encountered the hardest hit by the epidemic in the entire service sector and
received the most help from loans during the PPP implementation. Therefore, a comparative analysis
of the recovery of the restaurant industry during the PPP implementation period can be a good
indicator of the effectiveness of the PPP and the resumption of work for small companies. A study
comparing the economic situation of companies that met the PPP criteria and those that did not during
the implementation of the PPP found that the employment rate of companies that met the criteria was
2% higher than those that did not meet the application criteria.

Fig. 2 Overall Restaurant Transactions.

The overall restaurant industry in Figure 2 presented a similar rebound after bottoming out in mid-
April as shown in Figure 3 and this period is around the enactment of the first round of PPP [7].
Therefore, based on a preliminary comparative analysis, the implementation of PPP loans has helped
the restaurant industry's return to work in the form of a decrease in unemployment and a rebound in
transaction rates.

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Fig. 3 Employment Rate by Firm Size.

In a survey of small and medium-sized restaurants, or restaurants that meet the PPP application
criteria. In South Carolina, the second largest representation state in the restaurant industry in the
U.S., more than 80% of respondents said they were able to continue operating in large part because
they received funding from CARES Act. Of these, 70% of respondents said that if similar financial
help were to follow, their restaurant would likely be back to its pre-epidemic state in 18-24 months
[10]. Since this survey is directly aimed at small restaurant companies that are eligible to apply or
have applied for government loan assistance, this result greatly corroborates the preliminary judgment
results mentioned before.

5. Case analysis
A portion of all loans distributed are also given to businesses that are not considered small
companies. P.F. Chang’s, one of the largest restaurant chains in the restaurant industry received a
loan which is 99 percent greater than the average loans for the rest of the restaurant industry.
According to SBA, P.F. Chang's successfully applied for a $10 million loan subsidy on April 4, 2020
[11]. From The Washington Post, P.F. Chang's officials responded to a successful PPP loan
application, stating that the loan directly helped the company retain more than 12,000 key employees
and largely supported the restaurant's paradigm shift from traditional dine-in service to delivery or
take-outs during lockdown [12]. Whereas in the second round of PPP loan applications, P.F. Chang's
did not submit a follow-up application. According to Worker Adjustment and Retraining Notification
filings P.F. Chang's indicated that by October 2020 it would lay off up to 5,800 employees to maintain
normal restaurant operations. The reason for this may be attributed to the company's decision to
transform to a new business model. It is reported that P.F. Chang's had a to-go-only restaurant in
Chicago before the outbreak of the epidemic. During the COVID-19, P.F. Chang's is planning to
increase the number of this type of restaurant. The trend is that a to-go-only restaurant is cheaper to
operate and more profitable than a traditional dine-in service which requires high rent and overhead
costs. Adding to-go-only restaurants means that some of the existing staff will have to be laid off [13].
The decision by P.F. Chang's to lay off employees in October is most likely related to the results of
the second survey discussed in Sec. 4. The results indicate that most companies would favor the
government to implement follow-up subsidies to help them run their businesses. Since P.F. Chang's

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did not apply for other government loans after the first round of the PPP, one can reasonably conclude
that the PPP assistance is phased and not sustainable as a source of funding for the company's survival
in long term.

6. Limitation & Future outlooks
The limitations in this study mainly stem from the incomplete information of the studied cohort.
The PPPs studied in this paper are mainly loan subsidies opened for small businesses while most
small businesses lack comprehensive public information. In the restaurant industry studied in this
paper, many small restaurants do not even have their own websites. Therefore, some of the data and
analysis in the research process rely on comparing the stage restaurant industry transactions with the
recovery of all industries to arrive at the results. The second limitation comes from other grant
programs in the same period. The impact of other sectors in The CAREs Act that may have had an
impact on restaurant recovery was not analyzed. For instance, the Economic Impact Payments given
by the government to individuals that may have boosted customer spending psychology and thus
attendance at restaurants. Since these grants occurred over almost the same period, it is not possible
to compare the degree of impact of either one in isolation. A final limitation comes from the volatility
of the epidemic. There was a steady rebound in the restaurant industry during the PPP implementation
period but some of this may be due to the initial control of the epidemic coupled with the increased
number of vaccinations resulting in the relief of controls thus making customers feel that the safety
of dine-in dining has been ensured.
Considering that the restaurant industry accounts for a relatively large proportion of the loans
disbursed by the PPP, it may be more representative to judge the effective situation of PPP by
analyzing the recovery of the restaurant industry. Moreover, the restaurant industry as a key to drive
the economy of a region to understand its operation status and help its important source to resume
production will have no small impact on the economic recovery of the whole region. Therefore,
feature studies can be conducted to compare the Economic Impact Payment and the PPP on the
restoration of the restaurant industry to provide a contingency plan to achieve economic stability in
emergency situations similar to this epidemic.

7. Summary
In conclusion, this paper investigates the effectiveness of the implementation of the PPP on the
recovery of the restaurant industry based on data comparison of period based general industry along
with a case analysis of P.F. Chang’s as a representation of the business in the restaurant industry.
According to the analysis, the trend of the recovery of all industries at the time of the first round of
the PPP loan disbursement has a high coincidence with the trend of transactions in the restaurant
industry during the same period. It can be reasonably assumed that the first round of the PPP loan had
positively impacted the recovery of the restaurant industry. The extent of the impact of the first round
was further confirmed in the case analysis. However, since P.F. Chang’s announced its decision to
lay off employees about 6 months after the first round. Considering the former discussion, most of
the companies felt that a follow-up PPP-like subsidy would be of great help to operations and
maintenance. On this basis, P. F. Chang's decision may be related to the non-receipt of a follow-up
government subsidy. Moreover, this indicates that the help provided by PPP is likely to be of a phased
and maintaining it is undoubtedly a huge investment.
This study utilizes the restaurant industry, which received the largest amount of PPP loans, as a
good proxy for the impact of the effectiveness of the program and provides reasonable suggestions
for improving similar emergency policies in the future. However, due to the degree of information
incompleteness of small businesses and the degree of impact of other policies during the same period,
the inferences in this paper do not reach a high degree of precision. Further research is needed to
determine specific effective strength of different policies through analyzing and comparing the data

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of other policies in the same period. Overall, these results offer a guideline for determining a more
reasonable and effective emergency response policies to ensure that the community has the ability
and experience to respond to an emergency (e.g., COVID-19 epidemic) while maintaining a relatively
stable economic level.

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[11] PPP Loan Data - P.F. Chang's China Bistro, Inc, Scottsdale, AZ. FederalPay, June 2020, Retrieved from:
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layoffs-for-up-to-5800-workers/586304/.

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