Weekly Briefing, Vol. 34, No. 2 (PL), November 2020
The impact of the pandemic on the functioning of the restaurant and sport industry
The coronavirus epidemic and its major intensification starting from October 2020 forces the authorities to take preventive measures to limit the movement of people and the possibility of virus transmission. Yet, these measures have a huge impact on the Polish economy – in recent months, in particular on the restaurant and fitness industry. From October 24, food in restaurants and bars can only be bought to take away or deliver; sports clubs and gyms are not functioning already since October 17. The result of these restrictions is a sharp reaction from restaurateurs and owners of fitness clubs – both industries are protesting and want to implement a rescue plan for the next six months. The government has already proposed help, but this is definitely not enough for the industries to survive the current crisis. Both are concerned about their future, and consider the aid proposed by the government to be insufficient.
Protest of the sport industry
On October 17, new restrictions related to the functioning of sports centres entered into force – the activities of swimming pools, water parks, fitness clubs and gyms were suspended as a result of the extremely rapid increase in the disease. Mid-September, about 400-600 new cases of coronavirus were detected daily; meanwhile, in mid-October, there were already 8,000-9,000 daily; and at beginning of November already 25,000-28,000 at average every day. Hence the restrictive measures taken by the government.
Owners of sport clubs, their employees and customers decided to protest, since they do not agree with the government’s decision and the complete ban of activity imposed on them. Representatives of the branch point out, that their industry creates 150,000 jobs and with the closure of sport facilities, all the employees will be without any income.
This is an important indication, because in fact most people in the fitness industry work on a contract of mandate, and not on a permanent contract. This means that the previous government aid actions (subsequent versions of the so-called “anti-crisis shield”) do not cover them. The assistance from the “anti-crisis shield” applies only to entrepreneurs with permanent employees. For the past months, due to the specificity of employment in this industry, only 8% of sport centres could benefit from state aid. As a result of the epidemic, sport industry has so far suffered PLN 3 billion in losses [EUR 700 million].
Interestingly, the government has so far failed to produce credible evidence that sports clubs are a hotbed of contamination. It is known that the sanitary regime they maintain (even without pandemic) is at a higher level than in shops or churches, which after all remain open. The owners are therefore concerned that the closure of the clubs will lead them to bankruptcy.
Yet, although this industry is not the key one, we can expect that its closure will trigger a “domino effect” in the economy, the consequences of which will also affect other sectors. The deterioration of the financial situation of fitness clubs and gyms will deprive them of the possibility of servicing loans or leasing, which will harm the financial industry (losses of at least several hundred million PLN). It will also mean problems for the real estate industry, because 95% clubs use rented premises. The fitness industry also generates revenues for cities and state-owned companies. So, electricity and water as well as property tax are at stake. Clubs spend over PLN 200 million annually for this purpose.
The closure of clubs will also have negative consequences for all companies that support them. Not only for trade and service companies, but also for developing Polish brands of sports clothes, devices and accessories, and producers of club management software. Representatives of the industry use also health arguments in favour of keeping fitness clubs and gyms operating during pandemic. Research shows that physical activity can increase the body’s resistance. More than half of those who are physically active (54%) report that in time of infections they use antibiotics very rarely or never. It is therefore indicated that exercise in the gym is definitely healthier than in the open air in winter (in poor-quality air, which is in Poland so due to the high level of smog), and it will contribute to the fight against the pandemic rather than to its aggravation.
Protest of the restaurant industry
Even more than the fitness industry, the restaurant industry will be affected by the new restrictions. Importantly, limitations related to the functioning of the catering industry were announced on Friday at noon (October 23), and the regulation on this matter appeared on the government’s websites after 23:00 – less than an hour before the rules came into force. Restaurateurs were faced with a fait accompli. They were already getting ready for the weekend with their purchases for goods, and it turned out overnight that most of the ordered products would have to be thrown away.
The new regulation allows only for take-away activities. But it is difficult to switch overnight to a new type of business. For example, pizzerias or kebab bars will probably not face this problem, because pizza and kebab have been Poles’ favourite take-away dishes for years. Yet, a very difficult time is waiting the owners of the cafe, where coffee/tea and desserts are served. Cafes are facing a huge challenge for the second time this year because their clients in Polish conditions are mostly young people, often students. Since they did not return to universities to study in the traditional way, and learning takes place only online (like in spring months), they do not come to local cafes, which are often located around the faculties (in Polish conditions, faculties of individual universities are often scattered around the city centres; universities usually do not have their campuses, e.g. on the outskirts of the city). Therefore, this period may prove deadly for the owners of cafes and a large part of restaurants.
Also in this sector, the owners, employees and customers are very disappointed. They indicate that the restaurant is not only about preparing a meal, but also its proper presentation, atmosphere and service. So if the authorities want to limit transmission of the virus, a ban on meetings of more than four people should be introduced, and not practically shutting down the restaurant industry.
In fact, due to restrictions in catering activities, more than 76,000 small and medium-sized enterprises and around 1 million jobs (mainly young people under 26 years of age) are at risk of closure. Industry officials say the introduction of a take-out-only order caused a 70% drop in sales. According to current data, the value of delivery service is about PLN 6 billion per year – it is estimated that only approx. 15% of restaurants and bars are actively selling through this channel. Restaurateurs alarm that almost all eating places are operating below the break-even point today, and many of them will not recover. It is an important issue, since these SMEs generate nearly PLN 37 billion for the national GDP [EUR 8.6 billion].
Protesters demand clear action from the government and a rescue plan that would include several points:
- substantive plan for overcoming the crisis calculated for the next 6 months;
- dismissal of employers and employees from payment of social insurance contributions for the next 6 months;
- fixed and identical rate of 8% VAT on all products and services;
- establishment of the Gastronomy Support Fund and “anti-crisis shield” dedicated for gastronomy;
- introduction of “Safe restaurant in epidemic” standards by type of premises;
- removal of time limits for opening all premises.
Undoubtedly, the crisis in the restaurant industry will cause a tsunami wave for the Polish economy – a large increase in unemployment, financial problems of many people, an increase in debt and bankruptcy of premises. If the government leaves the industry unhelpful, it could prove fatal to it.
Conclusions
During the first wave of the coronavirus pandemic in the spring, the sectors most at risk by government restrictions (tourism, beauty industry, restaurants, sports venues) accounted for 4.2 million people and ¼ of Poland’s GDP. At present, those sectors that rely on direct contact with the consumer and the gathering and movement of people – restaurants and sports – may be the most affected by the epidemic. Their total share in Polish GDP is today 5%.
The government has already come out with a proposal to help. At the end of October, the Prime Minister presented the details of the “anti-crisis shield”, which are to cover both the sports and restaurant industries needs. The assumptions include: 1. exemption from social security contributions for November, 2. standstill benefit for November; and 3. PLN 5,000 in subsidies [EUR 1,160], provided that revenues will be 40% lower than a year ago at the same time. The representatives of the affected industries believe that it is definitely not enough and are demanding help for at least 6 months.
Economists estimate that the impact of the pandemic on GDP in the fourth quarter of 2020 will reach half of the shock of the second quarter of 2020, which would mean a decline in GDP by 4.5% (in total 6% year on year; 3.6% throughout 2020). Indeed closing down the industries may take oxygen from the economy. On the other hand, one should be aware that in the current, dramatic situation in the health service, this may be the only way to stop the transmission of the coronavirus.