On Restaurants In The Time Of Covid (and a webinar)
Food and music and entertainment aren’t going away. Don’t think for a second that they are.
When they excavated Pompeii they discovered restaurants (chef’s special: leg of giraffe). The ancient Greeks invented theater, though unfortunately dinner theater has somehow survived. The Grand Bazaar in Istanbul -- at 700 years old and going strong-- is the OG food hall of the world. And the Colosseum in Rome is just about the only 80,000-person outdoor music venue on the planet that the Stones haven’t played (yet).
Speaking of the Stones, a great movie recommendation from Bobby Johnson at the Twenty Two 10 Group: Olé Olé Olé
Rest assured that music and entertainment and community will return. There will be changes, no doubt, but bars and restaurants and the public consumption of live music and sports and art and entertainment are not something that will be relegated to the history books.
Let’s focus for a moment on restaurants. A lot of our investors and clients don’t normally get into the details of F+B operations (see our webinar note below), and since the vast majority of you reading this are in commercial real estate I thought I’d steal a page from Susan Sontag’s Notes on Camp and attempt to outline some of the issues facing F+B as we emerge from hibernation.
We are hearing that still-operating restaurant sales are down 30% to 85% . That is a wide range obviously, depending a great deal on price point and service style and location. For a business with 5-15% profit margins, you can see how impactful this is.
Estimates vary but around 10-15% of the 660,000 restaurants in the country have closed completely. This number is increasing every week.
It could be six months before most restaurants are truly open and operating. It might be three months but it could also be twelve. Landlords: don’t assume that every restaurant in your portfolio will spring right back. Among other reasons. . .
Many employees may be hesitant or unable to return. As a restaurant guest you might come into contact with two or three employees. However your server might come into contact with a hundred guests and the kitchen staff comes into regular contact with the servers. Don’t forget: only about a third of U.S. restaurant employees have health insurance.
Even if they have staff willing to return, many owners will be (rightfully) hesitant to put their employees’ and their own health at risk and may choose to keep their dining rooms closed beyond municipal guidelines requiring them to do so.
Many municipalities will enforce 50% occupancy rules as a short-term social distancing measure. Some restaurants will be able to return to pre-Covid sales with a combination of To Go and 50% occupancy but others won’t, and it will be important as a landlord to understand your F+B tenant’s businesses exceptionally well.
I have no idea how you operate a dine-in restaurant kitchen with 6’ separation. The answer probably means a smaller menu and less volume.
No one knows when patrons will return in significant numbers. I’m guilty too. As badly as I want a no-expense-spared Japanese omakase right now, I’m not comfortable sitting shoulder-to-shoulder with a lot of strangers. I will be, but not today.
The timing of patrons’ return will be driven by a lot of factors, but don’t forget geography. Generally it seems that suburbs and exurbs haven’t been as hard hit as intown neighborhoods, and it stands to reason that suburban patrons will be quicker to return to dining out. This may change.
Even if suburbanites come back quickly, historically they don’t spend like in-towners, and suburban restaurants may have more difficulty with those 50% occupancy rules: unlike intown spots they typically only get customers in shorter time blocks (that’s why they’re so large, so everyone can have dinner at 7:30p)
There are supply chain issues involved in getting restaurants back up and running. Those will be solved, but it will be messy and will take some time. Local farmers can help, but there are only so many and they have their own financial issues. Covid couldn’t have come at a worse time for them: April – September is peak season.
The stimulus package was seemingly designed not to help restaurants, especially small, independent ones. Most restaurants operate on thin margins and the small ones have already burned through a great deal of cash. It takes money and a lot of hard work from a lot of people to (re)start a restaurant at any time, especially in the coming months. Inventory, equipment repairs, salaries, marketing. . . it isn’t just pressing the Go Button and voila! you’re making money.
Don’t listen to anyone who tells you that we won’t go to restaurants again. Covid has not permanently altered our basic humanity. We are social animals and need community, but it is a hard road ahead.
Restaurateurs: know that landlords have financial obligations also. Real estate taxes and utilities a employees, too. Their lenders and investors have a lot of say in how this all goes down.
Landlords: be as transparent as you can. If your lenders or investors won’t give you flexibility, let your tenants know. To quote a friend: “going quiet and hoping your tenants pay the rent is not a strategy.” Right now small restaurateurs need landlords, and communities need restaurants.
Webinar: next week I’m hosting A Landlord’s Guide To Restaurants. I’ll have three highly successful restaurateurs on with me: Katie Button of Katie Button Restaurants; Nick Bishop, founder of Hattie B’s; and Ford Fry, founder of of Rocket Farm Restaurants.
We’re going to cover a lot of topics to help commercial landlords understand restaurant operations and PNLs, and what the next year may look like for the industry. We’ll be taking questions and I think it will give a good idea of the steps restaurateurs and their landlords will need to take now to ensure those restaurants’ survival.
A LANDLORD’S GUIDE TO RESTAURANTS: Thursday April 23rd, 3:00PM EST
My favorite 200-year old restaurants. Don’t believe that dining in is here to stay? These are some of my favorites and they’ve all seen their share of calamities. Normally anything labelled Ye Olde really isn’t, but Boston’s Union Oyster House (1829) is. Grab a table upstairs, get the chowder, maybe some cod and baked beans, and enjoy an American institution.
When you’re in London stop by Rules which opened in 1798. The service is outstanding. Be sure to have the (admittedly modern) sticky toffee pudding. And then a cocktail at the American Bar at the c 1889 Savoy Hotel around the corner.
Not far from Plaza Mayor and the c 1916 Mercado de San Miguel in Madrid is the oldest restaurant in the world, Sobrino de Botin. Opened in 1725, it has seen its share of famines and wars and epidemics and drunk Americans: Hemingway loved it so much he wrote about it in The Sun Also Rises.
A list of my favorite old joints isn’t complete without 170-year old McSorley’s in New York. A friend took me in college and I fell in love. There is sawdust on the floor. You will go. You will get a cheese plate with raw onions, cheddar slices and saltines, along with several light ales or dark ales (I’m not aware of other choices) and you will fall in love, too.
My wife and I are planning a Christmas trip now, and I hope you will think about planning something similar. Dining out and traveling when allowed are the easiest things we can all do to help get this economy restarted.
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Be well,
G