Yves here. Given our recent discussions of the profound obstacles facing restaurant operators in the Covid-19 era, this case study seemed germane. Readers may be able to help in advising how much this example can be generalized to other middle to high end eateries. For instance, in NYC, except for a very few restaurants where the tables are spaced well apart (helpful for business discussions) like the Le Bernardin, the old Four Seasons, and even some not quite at pricey spots (Brasserie 8 1/2, quite a swank spot in the basement where KKR has its offices), New York is big on “buzz” as an excuse for crowding.
I assume most fancy and even mid-range wine country restaurants have fairly generous table spacing because expansiveness would seem consistent with being outside a city. I would also assume that’s because rental costs are generally lower than is urban settings.
I also wish the article had provided more data of a general nature. For instance, a recent Wall Street Journal story indicated that restaurant fixed costs (wages plus rent) in the old normal were about 35% of revenues. Is that proportion different in a top-tier restaurant?
By John M. Glionna. Originally published at California Healthline, a service of the California Health Care Foundation
Like countless other restaurateurs across California and the nation, Alex and Charity Prestifilippo have been caught in a precarious health-and-safety limbo.
Beginning in March, the COVID-19 pandemic shuttered their popular Gourmet Italia restaurant in Temecula, a wine-growing community of 115,000 southeast of Los Angeles. Dozens of employees were laid off; food stocks quickly became outdated.
They began bleeding cash — about $20,000 every day in lost business, rent and sundry other payments on Gourmet Italia and their other properties, a winery and the pizzeria Spuntino.
While desperate to reopen, the couple also realized the perils involved in serving food to the public with a dangerous pathogen on the loose. The Centers for Disease Control and Prevention’s guidelines were confusing enough for the general public. For restaurants trying to keep loyal patrons safe, the lack of clarity was maddening.
What precisely did social distancing mean inside their restaurant, the Prestifilippos wondered. Did customers expect servers, chefs and busboys to wear masks? How vigilantly did they have to sanitize counters and tables? How often should employees wash their hands?
“It was stressful,” said Charity. “While we understood the government itself was trying to figure all of this out, nobody could give us any hard answers. And we couldn’t devise a plan of attack without permanent information.”
After being advised he could seat his restaurant at only 50% capacity, Alex said, he was later informed there was no capacity limit, as long as tables were spaced 6 feet apart.
“Government health officials were giving owners a moving target. Even restaurant associations were having a hard time getting a handle on the right process,” said Phil Mott, a Colorado-based restaurant consultant. “Owners faced retraining all their employees, but they weren’t even sure what that training entailed.”
The Prestifilippos recently reopened Gourmet Italia and Spuntino, but not without much anguish and deliberation, and many tough decisions.
Beginning in April, Charity joined a weekly virtual meeting with dozens of other restaurant owners in the tightknit tourist community, dotted with privately owned wineries and mom and pop eateries. Many feared they would be forced to close for good if they didn’t reopen soon. Some wanted to “go rogue,” opening collectively and gambling that heath officials would not close them all down.
In the end, the group of Temecula restaurant owners decided to wait, using the time to develop a list of preferred practices for the future, precautions that ranged from providing hand sanitizer and wipes to replacing traditional salt and pepper shakers with disposable packets.
They agreed to document bathroom cleaning schedules and open the parking lot to outdoor tables so customers could keep their distance. Cafes with counter service considered installing plexiglass barriers between diners.
“The idea was to do more than you would probably need — so customers could see that you were doing your best to create a safe place,” said Charity. “But there were also business considerations. Could you be as quick and efficient with your service if you have to take all these precautions? How was all this going to work?”
After emigrating from Sicily, Alex, 51, learned English and opened his first restaurant in 1999. He eventually developed a 7,000-square-foot space with high-end Italian cuisine and white linen tablecloths that Tripadvisor describedas a romantic dining spot.
Charity, 47, was one who found romance there. She came in first as a customer, then met Alex, and they fell in love.
The Prestifilippos received about $300,000 in economic assistance through Small Business Administration loans. Still, it felt as if they were leaking hard-earned money. And the projected costs of implementing all these health precautions — between $500 and $1,000 a day — brought sticker shock.
“I showed Alex the figures and he said, ‘Are you kidding me?’” Charity recalled.
Not only were supply prices escalating with increased demand, but also there were long waits for items such as specialized thermometers that could be applied to the foreheads of employees, and possibly customers, which cost $180 or more — if you could get them. They also needed gallons of sanitizer, masks, gloves and who knew what else?
“I just spent $2,800 on peroxide for the two restaurants and I have no idea how long that’s going to last,” Alex said. Masks cost $1.50 each, and the chefs, servers and busboys use several each shift, he said.
Alex decided not to raise prices to cover the costs. That would not be fair to his customers, he said.
On May 30, after months of quarantine, customers formed a line outside for Gourmet Italia’s first lunch seating.
The diners encountered a coronavirus safety plan that had been months in the making. For starters, the owners kept the front doors open so customers didn’t have to touch the handles and installed hand-sanitizing devices at the entrance.
Servers and busboys wore masks, and the bar and kitchen staff donned gloves as well. Only after tables were seated were plates and wrapped silverware presented. Menus were sanitized after each use, and salt and pepper shakers were brought on demand — and quickly wiped down. Tables were moved into the bar area to create extra distance, and workers patrolled the restaurant to clean surfaces. All 35 workers returned from layoffs.
So far, business has been down. Alex handled 150 diners during the Saturday night of the reopening and brought in $10,000, down from 450 customers and $30,000 on a typical Saturday before the shutdown. Street protests against police violence in Temecula held down the opening-day crowd, he said.
Alex described the opening-night atmosphere as like a family reunion, with people constantly approaching to congratulate him. He had to duck inside his office to get any paperwork done. Alex said he’s sure no customer will get sick in his restaurant. “We have one employee whose only job all day is to sanitize menus, chairs, tables and door handles, and clean the bathroom every half-hour,” he said. “I feel safe.”
And though he hails from an Italian culture of embraces and social kisses, Alex has chosen to put safety over traditional social graces.
“I told myself, ‘I’m not gonna hug,’” he said. “It’s very important to respect the code. I let my employees know — elbow bumps only. No hugs. No hands.”
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Here is an interesting analysis of the grocery/beverage store business versus restaurants and bars since around 1940. Grocery costs have declined substantially since then but the cost fo eating out has gone up. As a percentage of hosuehold spend, they roughly equalized a couple of years ago, and then Covid hit.
https://www.msn.com/en-us/finance/companies/restaurants-will-be-back-i-promise/ar-BB15BGAE
BTW – this restaurant owner says he is sure that people won’t get sick because they are sanitizing all the surfaces. The primary mechanism of transmission is aerosols that are breathed in and he will have a roomful of people talking. If people are socializing and talking, there is a very good chance that tables 6 feet apart indoors are still too close unless he has a world-class HVAC system.
I believe that quite a bit of Trump’s base is 60 and over. I wonder how they are going to react when they understand that the strategy is to open everything up with few preventative measures so they can’t see their kids and grandkids for two years because they have likely been turned into vectors. Also, once they realize that the official Trump policy is they are expected to hunker down in hiding for the next two years if they don’t want to risk getting sick, will they be supportive of “freedom” with inadequate testing, little contact tracing, no mask requirements, and few safety measures?
I don’t think people understand yet what the next two years are going to be like for at risk populations, or they don’t care.
I’m not saying that he should raise prices, but that it would be unfair to customers sounds a little silly to my ear. I don’t know why some people think that people have a natural right to stable pricing, regardless of conditions.
I agree with your point on stable pricing, there seems to be a weird expectation from consumers around that. However I disagree with raising prices, I think this should happen in a lot of cases. Food in general, especially in a lot of restaurants, has been notoriously underpriced in America for a long time. This means less money goes to the staff, and less money to pay for higher end food product. To me, this is why a lot of restaurants fail, along with the bizarre structure of rules and regulations surrounding the restaurant industry. I remember reading stories of restaurants that were packed 7 days a week with raving reviews having to close because they still couldn’t make a profit. It’s too common to blame a single proprietor, in my opinion.
Raising prices in a demand collapse typically doesn’t work out too well.
I think generalisations are difficult, as there seems to be a surprising variety of how restaurants make money – its not always the place that is heaving with people on a Friday night thats making money. Years ago, I remember an uncle of mine who owned a popular pub/restaurant said to me that the places that made money weren’t those packed on a Friday night, because they also had the highest costs. He maintained that the place with a few customers in drinking or eating at 4pm on a weekday was most likely to be making real money.
I slightly knew a restauranteur, a French guy who came to Ireland, who not just survived, but thrived during the last crash. He opened a French style bistro a couple of years before the crash, but actually expanded to a second one when other places were falling like ninepins. He was, in the very French style, contemptuous of the failed restaurants – he said that when circumstances change, the restaurant must change. He focused on providing a fun atmosphere for very good value, and rejigged his prices to ensure he wasn’t dependant on the upselling of wine and coffee and desserts. He said you had to make some profit, no matter how small, on every thing you sell. The trick was to keep a turnover of people – it didn’t matter if they weren’t spending much, so long as you had a good circulation of customers. Mind you, both his places are super tight for space, so I suspect he’ll find it hard to get through this year.
My gut feeling is that the survivors of this will be small family operators who can keep their costs down, and have maybe been doing deliveries during the shut down to keep customers faithful. A local bistro to me is owned by a husband and wife team, and they’ve been in there all the time, selling pastries and takeouts to passing customers. Another small local sushi place just shut down its very small number of seats, and has been doing a roaring trade in take-out. They have noticeably closed their Uber and Deliveroo accounts and do their own deliveries. Their quality is much better than the chain sushi places, so if anything they could really thrive as more people opt for collection to eat at home on the way back from work.
Another ‘winner’ might well be the smaller local chains, those operators who have 4 or 5 restaurants, each maybe focusing on a different sector. They will have the flexibility to focus on their most profitable venues and experiment.
The big losers will I think be those downtown restaurants with high rents and a dependancy of a high turnover of big spenders. I think they’ll really struggle. It will be interesting to see if the big chains survive it – in the UK a number of high profile mid to upmarket chains have been in big trouble for a few years – Jamie Olivers brand being the most famous. One – the Unicorn – just opened a super elaborate and huge up-market operation on a very expensive site in Dublin. They’ve already let out a chunk of their floorspace to a pharmacy. I can’t see them surviving – which isn’t necessarily bad as they are a notoriously bad employer.
Another big loser I think is the mid market chains who cater for the family market. A friend worked in a place known for fairly bland food, but very popular for the ‘taking your mum out for a treat with the grandkids’ type of customer. I think those places really are going to be in big trouble.
The other ones that will crash and burn are of course those dependant on the tourist trade. I doubt anyone will miss them too much.
I think it was an Anthony Bordain show where they were talking about restaurant economics in NYC. It was pointed out that the restaurants and bars that had stayed in business through thick and thin owned their own space. They didn’t pay rent. They often owned the building they were in and got rent from other spaces.
In our suburban area in upstate NY, there is a fair amount of restaurant competition so new places have to earn their stripes. However, once they do, the clientele is pretty loyal. Some of them were quite surprised over the past three months at the support they have gotten from customers. A couple of places were looking to just stay closed, but opened up for takeout 2-4 days per week due to customer demand. They streamlined menus, changed hours etc. and everybody was pleased. If they sold out, before closing, nobody bitched but were happy for them instead. I am sure they are hanging on by the finger tips, but generally low lease costs mean they can stay in business with customer support.
One place that had looked to stay closed was primarily a bar, but had some good food. So she revamped her food menu and also became a sales point for things like desserts from other nearby small businesses like bakeries in the area. While they hadn’t done that before the closings, I think some of those changes will be permanent when they go back to their regular business.
Social distancing forcing a limit of 50% of capacity or 6ft minimum spacing for tables is going to be a gut punch to the rentier class. Commercial real estate, and therefore banks and holders of commercial MBSs, won’t fare well. Who will be left holding the bag? I suppose the Fed, you, and me?
This is a very important point. When I think about who lost money, a very prominent candidate is commercial real estate. Well the owners of the debt and the owners of the collateral will need to come to terms, unless the debt is bought up cheaply by those who can manage real estate. I suspect this is a bit like the 6th Sense – I see bankrupt REITs, and they dont even know they are bankrupt!
There are quite a few Restaurants here in Sebastopol, three of the higher end ones would be “Peter Lowell’s” on Healdsburg Ave which has no patio seating, but may be able to survive because they can seat a fair number of customers inside.
The there’s the KL Bistro which had one Michelin Star, intimate dining and a small bar, no patio seating.
It won’t survive in its current location.
It’s questionable whether they can find an appropriate space to move to, there isn’t one in Sebastopol.
“Landline” also owned by Peter Lowell has enough outdoor seating that it should be OK.
At lest half ( And there are a lot, tourist town) of the restaurants in Sebastopol will close for good and so will quite a few of the small businesses that cater to the tourist trade.
It’s going to affect the City budget significantly.
Not generalizable. Visualize the kitchen and dining areas at Nougatine. Gramercy Tavern? Maybe four tables per room? They haven’t reopened. Service is part of the experience at most of these places and it precludes distancing. In Los Angeles, Providence reopened two days ago. Can they physically distance in the kitchen? Who in their right mind would subject themselves to the risk? It’s not so much the fomites as it is the air. Taking temps at the door? Asymptomatics don’t have fevers. Lucques had a large outdoor back patio dining area, but it’s permanently closed. Regardless of how far apart tables are, many, if not most, restaurants are enclosed spaces, which makes them risky.
https://providencela.com/news-event/providence-presents/
That’s a mistake. His default outlook should be that someone WILL get sick. And if / when that happens, he should be ready to provide contact tracing data. I’m surprised this was not discussed at all those weekly restaurant-owner meetings.
And yes, if someone feels the need to dine out, they should be ready and willing to provide that information.
It may seem non-intuitive, but Canlis, one of the higher-end restaurants here in Seattle, is doing OK with drive-thru, takeout, and delivery.
The new business model: Don’t pay yourself. Don’t pay rent.
Then there’s complying with the ADA, which eliminates the conversion of a building into a restaurant. In preexisting restaurants, periodic updates of commercial spaces are hideously expensive if walls have to be moved to say, widen a hallway.
The good news is that there will be many already compliant restaurants sitting empty.
https://www.cbfcontractinginc.com/commercial-renovations-trigger-ada-compliance-upgrades/