On April 19, Randy Garutti, the CEO of Shake Shack, took to LinkedIn to explain why his company—which operates 275 locations worldwide and has a market cap of $1.8 billion—applied for federal small-business assistance under the Paycheck Protection Program.
Garutti’s 1,200-word post was a far-ranging treatise that touched on everything from the importance of eateries (“Restaurants function as the lifeblood of the U.S. economy and the nation’s spirit”) to the vagaries of applying for the loan (“The PPP came with no user manual, and it was extremely confusing”) to an acknowledgement that many genuinely small businesses wound up with no money at all (“We now know that … many who need it most haven’t gotten any assistance.”)
Shake Shack returned the $10 million it received, and was the first such company to do so. And while the fast-casual burger chain received many kudos for that gesture, a number of the responses to Garruti’s missive reflected anything but goodwill.
“You and other shithole companies … took advantage of loans meant for small businesses,” raged one reader. “Just shows what kind of company you really are.” Huffed another: “Good at making excuses but probably nothing else.” And a third: “Great PR student for you to coax out good will [sic], but let’s be real.”
By now, most everyone has heard of the debacle that characterized the distribution of $349 billion worth of aid money through the federal Small Business Administration. Owing to a single paragraph nestled somewhere in the 900-page, $2 trillion rescue package, scores of very large companies were able to obtain federal assistance as “small” businesses. And while many of them were industrial firms that the average man on the street had never heard of, a notable few were prominent consumer-facing brands including Potbelly sandwich shops, the upmarket Ruth’s Chris Steakhouse chain, the Los Angeles Lakers and, most visible of all, Shake Shack.
But now that the hubbub has died down and the media spotlight has moved on, a key marketing question remains for these and other big brands that accepted small-business aid money: Will they suffer any damage—reputational or financial—as a result of the headlines? And are angry consumers likely to exact their revenge once business gets back to normal?
Speculation about the latter issue varies. On the one hand, news of the small-business aid money going to big brands was so widespread (and at a time that many Americans have short tempers anyway) that some believe a backlash is unavoidable.
“I’ll use Shake Shack [as an example]—they’re getting hit,” said Eric Yaverbaum, the author of Public Relations for Dummies and founder of New York public relations firm Ericho Communications. “They tried to take money that wasn’t really theirs, and they lamely apologized. The fact they apologized so quickly will help them over the long term. But in the short term, nobody’s going to forget Shake Shack. Yes, they will absolutely take a hit in the short term.”
To be sure, a quick check of the Twittersphere turns up no shortage of gall. Podcaster Kenyon Laing tweeted that her own small business lost 40% of its revenue in April and she received no loan money. “But I’m so glad MASSIVE corporations […] with millionaire owners will get thru ‘these uncertain times.'”
But other observers told Adweek these brands might well win this case in the court of public opinion—not because consumers aren’t red-faced but because, ironically, Covid-19 itself could act in their favor by keeping Americans at home long enough for the angry ones to get over their fury.
“My sense is that brand reputation damage is a long-term outcome, and I don’t think they’re going to experience that,” said David Lemley, president and chief strategist of Retail Voodoo. The pandemic and the lockdown it’s brought about, Lemley explains, have afforded brands a “grace period. And by the time we’re able to go out and imbibe, we’ll be so enamored by the possibility of going out and enjoying a meal somewhere that we will flock to the [restaurants we like]—not because they were good citizens, but because they deliver on the promise of a dining experience.”
How big businesses could seem small
Rolled out on April 3, the Paycheck Protection Program suffered from a glut of applications, confusion over how to apply and, since the Small Business Administration allocated the funds through some 5,000 lenders, charges that businesses with standing relationships with large banking institutions received more attention than the little guys. Terms of the aid specified that businesses had to use at least 75% of the money to meet payroll obligations within an eight-week window and, if they do, the loan will convert to a grant.
Whether it was an indicator of the favorable terms or just the immense need, the $349 billion pool of money drained away in just two weeks, forcing Congress to drop another $310 billion into the kitty, money that banks began distributing on April 27.
But it was a single paragraph in the legislation that wound up creating much of the news and, soon afterwards, much of the public anger. While Congress broadly defined a “small business” as one with fewer than 500 employees, one section of the legislation stipulated that an eligible businesses could have 500 of fewer employees “per physical location.” That opened the door for some rather large corporations (over 100 publicly traded companies, in fact) to apply for funding and be approved.
Among them were consumer brands including Red Lion Hotels, hot dog chain Nathan’s, casual-dining outfit J. Alexander’s, and U.S. Auto Parts Network, a large manufacturer in the aftermarket accessories space. But the companies that generated the most attention were household names including Potbelly, which received $10 million in aid despite a market cap of $71.2 million. Ruth’s Chris, the expense-account steakhouse whose Q4 revenues hit $135 million, received $20 million in assistance.
The L.A. Lakers also received small business assistance to the tune of $4.6 million, even though it’s the second-most valuable franchise in the NBA and is valued somewhere north of $4 billion. (With only 300 people on the payroll, the Lakers met the letter of the law.)
Of the brands above, all but Red Lion Hotels have announced they are returning the money.
How afraid should these brands be?
At first blush, it would seem these companies are in for their day of reckoning with consumers. A Morning Consult survey released Wednesday found that only 1 in 5 Americans felt that the SBA loans were distributed fairly. And a PR News survey released April 30 found that the reputation damage stemming from the SBA loan debacle is likely to be shared equally by the federal government and the big “small” brands that took the money: 48% of Americans pin the blame on Uncle Sam, and 52% on companies.
Significantly, 45% of respondents said big brands would suffer “significant” damage to their reputations for having taken money earmarked for little brands.
But it seems just as likely that, as Lemley suggested, brands might well dodge this particular bullet, if for no other reason than Americans have a lot of time to cool their heels at home and, come the day they head out to eat again, they’re likely to have gotten over it. He’s not the only expert to feel that way.
“Whatever the impact is, is going to be vastly diffused because we have Covid-19 underway,” said Pacific Management Consulting Group founder John A. Gordon, who’s spent 45 years working in restaurant operations. Gordon points out that, right now, restaurants are either doing business on a take-out and delivery basis only, or are simply shuttered altogether. As a result, “consumers’ consumption patterns are extremely disrupted by this thing and, as we all know, people are not going to return to normal patterns for a considerable period of time,” he said.
“If this had happened while there were normal consumption patterns and normal retail patterns and normal mobility patterns, these companies would have had a miserable slap on the face by the consumers,” Gordon added. “But this impact will be muted at best, because of everything else.”
Eric Schiffer, an entrepreneur, author and reputation-management expert, compares consumers’ ire at these companies to what happens with brand boycotts: “a period of emotional peak, and then a dissipation,” he said. “Time is the best friend of a brand that’s under assault because the media cycle ends and their branding and advertising cycle kicks in, and so you then get a one-way channel, and advertising always rules and the brand is reshaped. There are few brands that don’t benefit from this condition unless they continue to do further harm.”
Maybe they got a bum rap
Adweek reached out to Ruth’s Chris, Potbelly, the Lakers and Shake Shack, but only Shake Shack responded by press time. Speaking on background, a company representative said the negative responses so apparent on social media don’t represent the broader sentiments of the consumer community, which applauded the chain’s decision to give the money back.
But what about the decision to take the money in the first place? While it’s easy to assume that all of it was little more than a greedy cash grab, the truth appears to be more nuanced.
None of these chains was violating the law by applying for the money. As for the poor optics, those arose after it became clear that mom-and-pop operations were being shut out—a fact that Shake Shack said it did not realize when it was submitting its paperwork. For its part, in a prepared statement Potbelly said: “We were surprised and disappointed when the fund was quickly exhausted, leaving many without help.”
Gordon added that even if some of the companies applying for the loans were big brands, it was a case of executives making decisions under pressure about how to preserve their payrolls in a crisis—not screwing the little guy.
“This is the largest single challenge to the restaurant industry ever. Even before WWII, there’s been nothing like this,” he said. “Their major issue has been to get the restaurants and staff secured and to preserve cash. They just might not have been able to take the time to think. And as a result, when they went to their banks and said: ‘I need more working capital because I’m in shut-down mode,’ [their banker] said, ‘Well, your best option right now is the PPP.’”
As for what these brands should do about a damaged image going forward, that’s a job for the marketing department. “If Shake Shack was smart,” Yaverbaum said, “what they’d do is make some gesture to small business.”
Such as? “A free burger!” he said. “That would be a good PR move for them.”
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