What Restaurants Need Right Now to Actually Survive

March 19, 2020 Admin 0 Comments

Rent abatement, tax referrals, and immediate unemployment benefits are at the top of the list

On Sunday, chef Jason Hammel of Chicago restaurant Lula Cafe gathered with about a hundred other local restaurant industry leaders at his friend Jason Vincent’s cocktail bar, Chef’s Special, to watch as Illinois Governor J.B. Pritzker delivered a televised address. The state, Pritzker announced, would shut down all bars and restaurants for two weeks, with an exception for delivery and takeout, in an effort to slow the spread of the new coronavirus, making Illinois one of now 23 states to start stacking its barstools and dining room chairs.

“It was like a scene in a movie,” Hammel says of the somber, informal Chicago restaurant summit, attended by high-profile chefs like Paul Kahan of Publican, Rick Bayless of Frontera Grill, and Stephanie Izard of Girl & the Goat. “There’s this special bond that restaurant owners and chefs have through the rough times — and that’s every day, really.” Responding to a global pandemic and a resulting restaurant rapture “put a power in that bond that hadn’t been there before.”

Rather than just a chance to commiserate, this was an opportunity to coordinate. In short order, Hammel and other Chicago chefs launched a campaign directed at politicians like Pritzker, demanding emergency unemployment benefits, the elimination of the state payroll tax, and rent and loan abatement for workers affected by the wholesale closure of the state’s restaurant industry.

“[This is a] trauma we’ve all experienced — there have literally been cries for help. But if everybody screams out, it’s unintelligible,” says Hammel. “We need a consensus if we’re gonna start asking for things.”

That consensus is starting to emerge, especially as restaurant owners with insurance discover that a global pandemic probably doesn’t qualify for “business interruption” assistance, which typically covers closures due to physical damage from natural disasters. “If a volcano miraculously appeared on the National Mall and the lava flowed up to Columbia Heights, the restaurant would be covered,” says Sarah Thompson, co-owner of Washington, D.C. restaurant the Queen’s English. “This pandemic is not covered.”

In lieu of private insurance, restaurateurs say they need immediate government assistance to pay fixed costs, starting with rent abatement or deferment, and options like interest-free loans. Their workers need immediate unemployment benefits and emergency universal basic income; an economic relief package signed by President Trump late Wednesday ensured workers would be given 10 days of paid sick leave, but essentially exempts businesses with fewer than 50 employees or more than 500, an awkward sweet spot in which many restaurants fall. Says Jen Pelka, a restaurateur and publicist who closed her San Francisco and New York City restaurants in accord with government orders, “these are the table stakes for potential recovery.”

According to the National Restaurant Association, 15.6 million people work across 1 million restaurants in the United States. At least they did until this week. Seventy-eight percent of the nation’s restaurants are independently owned and operated, and the industry was on track to grow this year, expecting annual sales of $899 billion. Now, sales are expected to decline by $225 billion during the next three months. “I don’t think we can underestimate the significance of how this industry is going to affect the overall economy,” says Aaron Adalja, an assistant professor of food and beverage management at Cornell’s School of Hotel Administration.

For most restaurants, the single biggest fixed liability is rent. And with a sudden lack of income, rental assistance might be the most crucial support restaurant operators need. Andrew Peskoe, chairman of the Golenbock law firm and co­-head of its food, beverage and hospitality practice group, is encouraging his restaurant clients to reach out to their landlords to seek rent abatements (i.e. reductions) or deferments (late payments) as soon as possible. “It’s too soon to tell if there will be any standard landlord response,” he says, “but I’m told of all sorts of deals being struck.”

In response to a looming rent crisis, Los Angeles has declared a temporary moratorium on evictions which will cover businesses. The city of San Francisco has done the same. “One real estate executive said to me, ‘Andy, this kind of moratorium on evictions will have the unintended consequences of people not paying rent at all,” Peskoe says. “I asked him if he was sure it was really an ‘unintended’ consequence.” On the national front, President Trump has declared his administration will suspend foreclosures and evictions on homeowners until at least the end of the month, though that rule won’t yet cover small businesses.

“There are more radical models, like national rent strikes, which I’m not advocating for,” says Caleb Zigas, the executive director of San Francisco food business incubator La Cocina. “But if every restaurant across the country said, ‘I’m not paying rent,’ that’s a fairly powerful statement.”

Devita Davison, executive director of Foodlab Detroit, an organization that supports burgeoning food entrepreneurs, would also like to see rent abatements and eviction protections for restaurants. But she’s particularly concerned about operators like those from Foodlab, 70 percent of whom are women. “Many of the chefs I know who started businesses in Detroit don’t have outside investors — they used their own personal guarantee as collateral to take out loans. Some people put up their houses. They lose their business, they lose their home.”

Small business administration loans are another option for bars and restaurants: Since the federal government has declared the COVID-19 outbreak a national emergency, the Small Business Administration can offer disaster relief loans of up to $2 million at a 3.75 percent interest rate. But those loans won’t arrive in time to make this month’s rent.

Especially because restaurants closed at the direction of government — a business sacrifice in the name of the greater good — operators expect to see government help in return. “We’re doing everything we can to be good members of the Minneapolis and Minnesota community,” chef Gavin Kaysen, the owner of Spoon and Stable restaurants, said in an Instagram video directed to Minnesota Governor Tim Walz. “We’re acting responsibly as part of an overall effort to stop the spread of coronavirus, as well as following the orders that you put in place to shut down our establishments…. We need help from the city and the state to stay afloat.”

Time is of the essence, and tax abatements and deferments could help right away. Kaysen and other Minnesota business owners were originally scheduled to pay a monthly sales and use tax, typically more than $100,000 for his hospitality group, by the end of this week. After Kaysen’s and others’ public appeals to the governor, Minnesota extended the tax deadline for a month without penalties. On Wednesday, Massachusetts announced an emergency regulation that would allow small businesses to push back payment of several taxes until June, including sales and meals taxes. But for now, these states are still in the minority.

As an accountant and partner in the hospitality division at professional services firm CohnReznick, Stephanie O’Rourk is fielding lots of nervous calls from restaurants worried about paying sales tax this month. New York state hasn’t offered guidance on possible deferment, for instance, so O’Rourk is telling her New York clients to file them. Other tax adjustments, like a cut to payroll taxes, could help in the long term. “When restaurants start hiring back employees, it will give them additional cashflow,” O’Rourk says. “But right now, there are very few [restaurants] who haven’t laid off their employees.”

In this crisis, it’s employees who are already the hardest hit. The National Restaurant Association expects to see between five and seven million hospitality service workers lose their jobs in the next three months. Seemingly invincible restaurant groups like Danny Mayer’s Union Square Hospitality Group have laid off thousands en masse, a move that allows workers to seek unemployment insurance. But with an unprecedented volume of claims, state unemployment websites are overwhelmed, and workers are struggling to get registered.

“This is a national-level disaster akin to a tornado touching down or a terrorist attack,” says James Mark, who recently closed his Providence, Rhode Island restaurants North and Big King, laying off 35 employees. “I can’t outwork this problem; I can’t out-clever it. If I could wave a wand, I would want a major stimulus for employees, some form of [Universal Basic Income], and that would be for everyday needs, essentially.” The White House has expressed support for cash payments to Americans as part of a coronavirus stimulus package, though that might not be enough for nearly an entire industry out of work.

This wave of layoffs also exposes the shaky ground on which the restaurant industry has been built, founded as at is on the backs of hourly workers living paycheck to paycheck, many of whom lack healthcare and paid sick leave. “We have to question the system in which the restaurant industry operates — the fact that the most vulnerable have no social safety net,” says Davison. “The coronavirus is unveiling this ugly underbelly of the restaurant industry — the fact it’s built on exploitative labor. Time’s up on the business model.”

As industry leaders advocate for government relief, private assistance, which may be especially beneficial in the short term, has been first to arrive for restaurant workers. The Restaurant Workers’ Community Foundation, the US Bartenders Guild, the Southern Smoke Foundation, and many more have launched fundraisers for laid off workers as they await unemployment insurance. LA chef Nancy Silverton is offering free to-go meals for restaurant out-of-work restaurant staff. Virtual tip jars for servers and bartenders have proliferated.

Kelly Sullivan, who worked until this week for the Brooklyn restaurateur Andrew Tarlow and co-hosts the service industry focused podcast Front of House, has raised $26,000 in small donations on Venmo through the newly founded Service Worker’s Coalition. “I think we’re surprised and overwhelmed by that number, but it’s also not enough,” Sullivan says. New York City alone employs 250,000 or so restaurant industry workers. This week, newly jobless New Yorkers crashed the state’s unemployment insurance website. When New York hospitality workers do register for unemployment, they can only expect to collect about half their usual wages.

“This could be a come-to-Jesus moment in the restaurant industry, where we say ‘this industry was built on an unsustainable system in the first place,’” says Davison, who is calling for changes like an end to the tipped minimum wage. “If we’re gonna rebuild this industry again, we gotta fight like hell to center it on the most vulnerable workers. If we don’t, then we throw it all away.”

As the government drags its feet and slowly unties its hands to help a foundering hospitality industry, some private businesses that depend on restaurants have offered their support. Resy, the restaurant reservations service, has suspended its fees to restaurants. Square, the mobile payment/credit card processing company, will waive vendor fees and software subscription services for March. The rewards platform Seated will waive its profits and offer a complimentary hotline with accounting experts from CohnReznick and lawyers from Golenbock Peskoe LLP.

Many restaurants that typically rely on dine-in customers have shifted their focus to delivery orders, leading third-party delivery companies like Uber Eats, Doordash/Caviar, and Seamless/Grubhub, to offer restaurants varying levels of financial support. Uber Eats is waiving delivery fees to customers, but not restaurants, while Doordash and Caviar are waiving commissions for 30 days. Grubhub made a splash by announcing that it would defer collection of up to $100 million in commissions — but will eventually seek that money back.

Still, without dine-in customers and alcohol sales, most businesses can’t make their finances work. “During normal times, delivery and pickup is a nice supplement for most full-service restaurants,” says Bo Peabody, a co-founder of Seated, who closed his own restaurant in Williamstown, Massachusetts this week. “It could be 5, or 10, or 15 percent of revenue, but when dine-in goes away, it’s probably better to let everybody go on unemployment.”

Private sector assistance will not be enough, says La Cocina’s Caleb Zigas. “What we’re looking at is an entirely altered economic landscape, and one that’s uncertain week to week. No amount of cheerleading is going to solve it. It can’t just be about ‘what do restaurant’s need?’ It has to be, what levers can government pull?”

Food TV host Andrew Zimmern, who met with Minnesota Governor Tim Walz this week, is also making that case. “When we’re talking about government bailouts for airlines and stuff like that, I’m screaming at the top of my lungs, the food industry! We need to be in that conversation.”

Earlier this week, leaders of major food chains, but not independent restaurants, pulled up a seat at the table. Companies like Domino’s, Chick-fil-A, McDonald’s and Darden Restaurants, joined a call with the White House to discuss relief measures. The list of participants had many independent operators rolling their eyes. “In 2008, remember how they said they had to bail out the banks because they said the banks are too big to fail?” asks O’Rourk. “Well the hospitality industry, which is primarily made up of small business owners, is — in totality — too big to fail.”

Immediate relief for restaurants and service workers could also pay longterm dividends, Zimmern argues. “These businesses are providing a cultural resource, they’re feeding people, and they’re keeping people off of public assistance programs… If restaurants can just get enough money with these abatements to do some to-go business, delivery business, some volunteerism, to sneak and eek by for a couple of weeks and months, that might be the difference between being in neutral, or seeing 10 million people go on public assistance, which would be a disaster economically.”

For those who have long been critical of the restaurant industry from within, the silver lining of this crisis might be the chance it affords to make much needed changes. “Everything that’s been a topic of discussion within our business, whatever that might be, for whatever city or state, is on the table,” says Gavin Kaysen.

“The bad news is everyone’s fucked,” says Zigas. “There’s no credible path for the large majority of the business I work with to sustain themselves through this crisis, absent immediate and dramatic structural assistance.” Many, perhaps even most, restaurants in the country will never reopen. “The good news, from where we sit, is that most of the people in our community who are starting businesses did so in pursuit of economic freedom,” Zigas adds — successful La Cocina graduates include Nite Yun of Oakland’s Nyum Bai and Reem Assil of Reem’s California. “What that means is that they are often familiar with what it means to be vulnerable, and to live under the weight of a system that doesn’t value you or your labor. And so what’s been inspiring over the last couple weeks is the grace and generosity and kindness with which the entrepreneurs in our community approach these moments. The first thing you hear, almost every time, is ‘it’s not money that matters, I wanna figure out how to keep people safe and my employees from being at risk.’”

That’s a perspective shared by Davison. “In 2013, my city filed for the largest municipal bankruptcy in the nation’s history,” she says. For Detroiters, “we’ve been here before.”

“You’re talking to someone that lived in a city that didn’t have street lights. But what gives me hope is I know the power of community. I know what people can do in tough times like this to get each other through.”