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No, Major Chain Restaurants, You Can't Take Millions Of Dollars Meant For Small Businesses And Expect People Not To Hate You
The exterior of a Shake Shack in Washington, D.C. (Mike Mozart/Flickr Creative Commons)
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Did you see a lot of online hate for Shake Shack and Ruth's Chris Steakhouse this past weekend? We did.
Shake Shack, Danny Meyer's high-end, New York-based burger chain, received $10 million of aid from the Paycheck Protection Program. Yes, that would be the $349 billion federal program that was designed to help small businesses but ran out of money less than two weeks after it began accepting applications.
The program, which is part of the CARES Act, lets businesses with fewer than 500 employees (this'll be important later) apply for loans. If they use the money to cover payroll and certain other expenses without laying off employees, that loan becomes a free grant.
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Many small businesses were denied PPP loans. Others faced snags and snafus attempting to fill out the paperwork. Still others filled out applications and never heard back. Some people think the smallest businesses were never going to get a fair shot because of the way the program is set up.
The U.S. Small Business Administration, which started taking PPP applications on April 3, announced on April 16, it had stopped accepting them. That same day, it released a report revealing how the money had been distributed.
Shake Shack was one of several multi-million dollar restaurant chains that got significant cash infusions from the PPP, reports Bloomberg.
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Ruth's Hospitality Group Inc., the parent company of the Ruth's Chris chain of steakhouses, received $20 million in loans although it "racked up $468 million in sales last year and employed about 5,700 people," according to Bloomberg.
After coming under fire for applying for and taking the money, the company announced on April 23, it would return its $20 million PPP loan.
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Potbelly, a sandwich chain with nearly 500 locations, mostly in the Midwest and East Coast, received $10 million.
After petitions and plenty of public shaming, Potbelly has decided to return its PPP money.
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Taco Cabana, a San Antonio, Texas-based Mexican fast casual chain with at least 162 storefronts around the country, received $10 million. It says it is "re-evaluating" its eligibility for the PPP program.
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Closer to home, Irvine-based chain Kura Sushi, which has 25 locations, $24 million in cash on hand and access to $20 million more through a loan from its majority stockholder, received $6 million. After widespread outrage, the chain announced it was returning the cash.
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Shake Shack, Meyer's popular burger chain, got $10 million.
Cue the backlash — and understandably so.
As chef, restaurateur and California cuisine revolutionary Jeremiah Tower said on Instagram, "Congratulations to Danny Meyer who's net worth tops $400 million and has just recieved his 10 million dollar federal "small business" stimulus check. After laying off the "small number of" 2,000 employees. Wow! Time for all of this to change!!!"
The PPP was intended to help small businesses. So how did Shake Shack, which has 189 U.S. restaurants and earned $143 million of revenue during the first quarter of 2020, qualify for the program?
Because although it employs nearly 8,000 people, Shake Shack only employs approximately 45 people in each location. The PPP defines small businesses as companies with fewer than 500 full-time employees, a carve-out that hotels and large restaurant chains pushed for, according to the Wall Street Journal. So each individual Shake Shack restaurant could qualify as a small business under the PPP.
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That all makes sense but it has appeased no one. After two days as the target of withering critique, Shake Shack CEO Randy Garutti and Union Square Hospitality Group CEO Danny Meyer posted a letter on LinkedIn on Sunday night announcing Shake Shack will immediately return its $10 million PPP loan.
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The letter also explained their thought process in applying for PPP loans — it was confusing, we were just following the rules, we didn't know the money would run out.
The letter reads, in part:
"The 'PPP' came with no user manual and it was extremely confusing... The best chance of keeping our teams working, off the unemployment line and hiring back our furloughed and laid off employees, would be to apply now and hope things would be clarified in time.
While the program was touted as relief for small businesses, we also learned it stipulated that any restaurant business - including restaurant chains - with no more than 500 employees per location would be eligible... There was no fine print, anywhere, that suggested: 'Apply now, or we will run out of money by the time you finally get in line.'"
In the letter, the company also says it was fortunate "to be able to access the additional capital we needed to ensure our long term stability through an equity transaction in the public markets."
Let's see how the second round of small business loans goes.
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