The American Restaurant Industry Is On Life Support
In the age of coronavirus, restaurant sales are expected to decline by $225 billion over the next three months, leading to the loss of between five and seven million jobs.
On Monday, Christina Corvino, along with her husband and business partner Michael Corvino, laid off 27 of 35 employees at their Kansas City restaurant, Corvino. “It was one of the worst days of our life,” she said.
Local governments have shut down or severely limited restaurant operations in many cities and states. Even for those businesses whose operations aren’t limited by legislation, or weren’t several days ago, financial realities have dictated complete closures or shifts to takeout and delivery. In Kansas City, the Corvinos made the call to close their full-service restaurant—with a seating capacity of 126 —in hopes of reopening later. They’re currently offering takeout and delivery from a sister concept, Ravenous, which opened in November.
As the first high-profile restaurants closed in New York last week, local, state, and national governments largely remained silent, even as advocacy groups and industry leaders began the call for immediate relief. In a press conference on Tuesday, President Trump addressed sending aid to the hospitality industry—including small businesses—after meeting with corporate restaurant industry executives but offered no details.
The National Restaurant Association on Wednesday sent its own proposal to the administration. It anticipates restaurant sales to decline by $225 billion over the next three months, leading to the loss of between five and seven million jobs. At the beginning of the year, the National Restaurant Association predicted that industry sales this year would reach a record high $899 billion, employing 15.6 million employees.
“We talked to our bank about a line of credit and will go through the SBA process, which is tedious and takes forever. I'm not counting on it,” said Corvino. “Regardless, we already have debt. How will we tack on more in the future, going into a recession?”
This unprecedented crisis in the restaurant industry paints a bleak financial picture, even for operators at the top. Union Square Hospitality Group CEO Danny Meyer announced Tuesday he would forgo a salary and company executives would take major pay cuts to fund a relief fund for workers at the company.
In a recent Twitter thread, Nick Kokonas, CEO of reservations platform Tock and co-owner of The Alinea Group in Chicago, shared his company’s plan to support employees: a one-time payment of $1,000 for full-time employees and $500 for part time before being furloughed. Kokonas vowed he would figure out how to support any workers having trouble making ends meet, but addressed the reality of the situation. “If we keep full payroll immediately, we would never reopen,” he wrote.
His is an honest take on the reality that business owners across the country are facing: without diners, there is no money to maintain operations or staff. In a business with notably slim margins, a day’s worth of missed revenue can lead to financial distress.
Claire Sprouse opened Hunky Dory in Crown Heights, Brooklyn, last January. The all-day cafe serves a neighborhood clientele, and is especially reliant on Saturday and Sunday brunch service. A week ago, she said, people were still coming into the bar on Tinder dates. “People are still willing to make out with strangers, so that’s cool, it can’t be that bad!”
In the days to follow, New York and other cities and states would quickly roll out an escalating list of restrictions, first asking restaurants to reduce capacity, then closing dining rooms completely. By Friday, restrictions were in effect, but guest demand had already dropped. Hunky Dory, normally running a one- to two-hour wait, had empty tables—even though she’d removed half of the seating to comply with city regulations. Orders for takeout and delivery didn’t make a noticeable difference to her bottom line, either. In fact, weekend sales on Caviar were lower than usual. (Sprouse attributes this to the influx of restaurants joining delivery platforms in an effort to stay afloat.)
On Saturday, she realized she wouldn’t be able to pay her staff for much longer. “I’m very acutely aware of the numbers we need to do to survive as a business while paying our necessary bills,” she said. On Sunday, Sprouse closed the restaurant after brunch service.
Deanna Sison owns and operates two fast-casual restaurants and one bar in San Francisco. The bar was the first to shut down, per the city’s requirements. “I have just been pulling together resources for the bartenders to apply for relief or some grants or anything out there that could be helpful for them, trying to replace some of their income,” she said, noting there are programs and grants in place that could help her workers. Back of house employees are harder to support through official channels, she said. She plans to start a GoFundMe campaign to support these workers.
On Tuesday, San Francisco announced small businesses could not be evicted due to loss of income or other coronavirus-related issues. The order lasts 30 days and can be extended.
As the hospitality industry waits for larger relief action from federal and state officials, business owners, grassroots organizations, and other organizations have launched some resources for business owners, and the list is growing. Most owners and operators are calling for the government to implement immediate relief like rent abatement, tax holidays, and universal basic income for hospitality employees. By cutting expenses now, operators say they can keep more people employed.
For many small businesses, it’s too soon to understand what they should do, or what business might look like on the other side of the crisis.
Only one of Sison’s businesses, Little Skillet, remains open with a pared down menu and meal-prep kits available for takeout and delivery. The restaurant is fully stocked with food now, so the plan is to go through the current inventory and then make a decision whether to order more product or close. Even after scaling back staff to a skeleton crew of four, sales of under $1,000 per day don’t support staying in business.
“We’re wondering if we cease operations, is it better to have a slow trickle and is that recovery time going to be a little easier, or do you stop completely and just bank on some kind of business assistance? There’s so much loss of income right now it’s hard to gauge on what it means to get back into healthy operations.”
For others, a temporary shift to takeout operations could set up an easier reopening. Nur is a 59-seat fine dining restaurant in Manhattan that started offering delivery within a few miles of the restaurant. It’s a way for the restaurant to support its highly trained kitchen staff, according to co-owner Daniel Shein. “If everything gets fixed tomorrow and we have no staff, rehiring a kitchen staff, retraining them becomes very difficult,” he said.
As businesses close with hopes of reopening, they’re also relying on investors to help keep them afloat.
Jen Pelka is founder and CEO of The Riddler, a Champagne bar with locations in New York and San Francisco. On Monday she announced the temporary closure of both locations, paying out her team’s sick pay and paid time off, and honoring employees’ health care coverage through the end of April. She also formed an emergency fund to help employees.
To support a reopening, Pelka has already approached investors for a capital call, a contract provision that allows her to ask investors for an emergency injection of cash. Pelka’s contract requires her to commit a substantial amount of her personal savings to these efforts, too.
“Our investor community has been incredible,” she said.
Things have moved quickly. The Riddler’s chief financial officer, who happens to be Pelka’s brother, Zach, spent two days running numbers on outstanding liabilities and operating expenses, projecting nearly every possible scenario.
“It was looking really bad, really quickly. Basically what we found was if we got to 70 percent of revenue we were deep in the red. If we go down to 50 percent there’s no turning back,” Pelka said. On The Riddler’s last day of operations before shutting down, revenues were well below the 50-percent mark.
A couple weeks ago, the cards were stacked in the Pelkas’ favor. Both businesses were operating on healthy profit margins. Four months into business in New York, Jen described the business as very profitable, and in San Francisco, every month is profitable except for January. So both businesses had plenty of cash on hand, even as the New York location paid off final pre-opening expenses like construction bills.
All of that changed quickly. “Every day is packed with the largest leadership decisions you’ve ever had to make in your career, one after another after another after another,” she said.
Pelka and the team considered other options: food for delivery or even a weekly wine pickup, but ultimately she said it wasn’t worth putting hourly workers at a health risk trying to sustain a business that was operating in the red. Early this week, she and her team secured both physical locations, depositing cash in the bank, emptying the safe, even boarding up windows and deadbolting doors in San Francisco to prepare for “hibernation,” as she called it.
There’s no timeline for reopening, and if the closures last longer than a few weeks, she won’t rule out a re-concepting. “Can we reopen as a Champagne bar after six months? I don’t know,” she said.
There are thousands of stories like these, of small business owners working immediately to support staff and make sense of changing regulations and what it means for the future of their businesses.
“Unless there's cash, it will be near impossible [for businesses to reopen],” Christina Corvino said. “And the big questions—how long will it take to get back to our numbers of over 250 guests on weekend nights? How long will it take to feel safe again? Will it be safe? Will we have to keep parties distanced apart for a while? Will everyone be broke?”
Current government-backed support systems don’t account for the particularities of the hospitality industry. Employees paid fully or partially in cash don’t have official representative wages to use when filing for unemployment. Claire Sprouse didn’t draw a paycheck from Hunky Dory, instead relying on other professional bartending 1099 income, leaving her unable to file at all.
In Brooklyn, Sprouse spent Tuesday afternoon—St. Patrick’s Day—behind the bar at Hunky Dory, serving Irish Coffees to go. It was a small bright spot, as New York City lawmakers adjusted liquor licensing requirements to allow restaurants to serve alcohol for takeout and delivery.
“We were doing cocktails to-go—or, I was,” she said, correcting herself. “I’m so used to saying ‘we,’ as the collective ‘we,’ the bar-restaurant. But it’s just me. I was doing cocktails to go.”