How many restaurants will survive this Spring?


I remember clearly the last restaurant I sat down and ate a meal and I was going to say here that I wish it had been fancier but I really don't. It was a classic Burger Place near my house. Not a fast food chain like a real Dina and it was greasy and full of cheese and I had a double with everything on it. The fries were crispy an amazing. The Fountain drinks were bottomless. The decor was the decor. But whatever and man I would pay double more than what I paid for that meal to have it again right now claire. Why don't you tell me about your last outside world meal because I'm hungry and literally all I have is a a frozen pizza in the oven upstairs in the last meal that I had? That wasn't at my house was a breakfast sandwich. And a coffee from this great little spot just at the corner of my street and I'm just GONNA say it. They have probably the best breakfast sandwich in the city and they also have the best coffee I was there about mid March and maybe a week later they were closed. Their patio was taken down and now they have a sign on their door to actually discourage people from breaking in it says they have no money and no food inside. And that's where we're at with these places right now in that place which by the way only has the second best breakfast sandwiches in Toronto. 'cause my place has beat okay. But them and the Burger place near my house are the exact kind of establishment that it really hurts me to say. This might already begun forever. And if they're not they might easily be gone by the time. This is all over. Yeah I take walks every day and sometimes I walk along the busy strips in Toronto Bloor Street or college and those are full of bars and restaurants and cafes and it's heartbreaking to walk along them now and see all the signs and the doors with their own versions of due to cove in nineteen were closed until further notice some of them are offering takeout but a lot of them are just closed completely and the. I can't help but wonder how. And if they'll be able to come back from all of this and I think everybody's neighborhood looks like that right now and you know if you listen to this podcast you know that. Various levels of government are offering various forms of help to people in businesses that are impacted by this crisis and look by government standards. They've moved pretty damn fast on that too. Many people and Businesses. That is a godsend but to local independent restaurants. Like the ones. We're talking about here. It's not a godsend. It's nowhere near enough. So those businesses have banded together to ask for what they say they need if they're gonNA survive this and since I'm pretty sure that we want them to survive this because I don't know what my neighborhood would look like without them today. We're going to let them tell you. Why local restaurants are different from other businesses? And what happens to them when any kind of crisis like this headstone and what they're landscape will look like whenever we get the all clear to hopefully open things up and so we'll have somebody do that as soon as we bring you the news? Claire can you help us there? Well Ontario Premier Doug Ford says his patience is running thin when it comes to the provinces lag in testing for covert nineteen. It's unacceptable. We have the capacity now before I understand. We didn't have the region we didn't have all the testing. We have the testing capabilities. We have the assessment centers Capabilities the days are done of these two and three thousand a day being tested and moving forward moving forward. We need to see thirteen thousand tests every single day provinces like Quebec British Columbia and Alberta are all testing at double Ontario's rate a more provinces have been learning how this epidemic might unfold for them new modeling released in Saskatchewan shows an expected three thousand to eighty three hundred deaths and in Alberta. It's believed the outbreak will peak mid May and that the province could see as many as eight hundred thousand cases with the deaths ranging between four hundred to thirty one hundred last month air. Canada laid off sixteen thousand five hundred employees. They said it was a temporary layoff and now it looks like they're staying true to their word and already rehiring most of those people. Thanks to the government's emergency wage subsidy program at that's expected to last until at least June six Air Canada also says it has reduced its seat capacity by eighty five to ninety percent as of Wednesday evening in Canada nineteen thousand two hundred ninety one cases of covert nineteen with four hundred and seventy six deaths. I'm Jordan Heath Rawlings and this is the big story John. Synoptic is a Toronto restaurant owner and also the CO organizer of Save Hospitality Dot CA. I John Hello my first question for you is just how are you doing? How are you getting on well Bearing ourselves in government lobbying and and trying to push our agenda forward in order to do our best to save the industry that we care so much about so haven't really thought too much about the actual personal consequences down the road that are very possible as we all are trying to avoid The anxiety the uncertainty that comes with that but Really just like not sitting in our hands not sitting idle getting to work helping our community and then also doing our best to Save as many jobs as possible in our industry and we'll get to what you're doing to save those jobs and what kind of help you need. But first why don't you just tell me how the situation unfolded for you at your restaurants while this virus spread? When did you first start seeing it? What were the ramifications? When did you realize Oh crap this is going to get bad? I guess the beginning of March we started to see reports of it being in other countries other than China and spreading around getting bad in Italy Iran. And then we said Oh. Wow like this could really affect our society and in it does that will. It's GonNa destroy our business before anyone else's and so started really thinking hard about that and in and by the second week of March we saw our sales start to drop precipitously probably did about fifty percent of our normal sales at all of our locations that second week of March and by the end of that week we come to the conclusion that the right thing to do was to close That our staff didn't feel safe. We didn't feel safe serving customers No matter what protocols you took everyone seemed to be at risk. If you're in the same room so after March fifteenth to believe a Saturday night service we made the decision to close all of our within twelve hours. A close all of our locations Sales it also just like disappeared like we were dropping. Reservations like crazy So it didn't make financial sense. It'd be open but it also didn't sense in terms of the safety of our staff in our customers to be open either and then twenty four hours a reeling from that decision. And what do we do Monday? The Sixteenth Seventeenth Forget. What be that was. We laid off all ninety seven employees. There was a difficult day given been in business for over fifteen years and we've had some employees with us just as long We've never laid off anybody Yes very trying times and I got home that night and that money night and kind of commiserated with my partner and I said like I don't know what to do here and What is the government going to do to help us? And who knows and Kinda got in touch with them. A couple of friends of mine who are close to government lobbyists. They work in that world and I said what are you hearing? And they said they're hearing that nobody knows what to do that. government is all ears that they're listening to industry for looking for solutions that these are very uncommon times and the he said like put down your asks in a letter and sent it to me and I'll put it in the rain inboxes so I started along that process. Can you explain for me a little bit in for for other people who aren't familiar with the industry how the business model for independent restaurants works and how the margins are and why this crisis is so bad particularly for independent businesses in the hospitality industry? Yeah I'm glad you asked that because a lot of people say well. The government's giving seventy five percent wage subsidy and they're giving you forty thousand dollar. You know loans that you don't have to pay all of it back later and our answer to that is that unfortunately. Neither of those initiatives fit our problem as a solution in as you said the reason being is at our business model is unique in the sense that our margins are very very small and we have very very high costs so we are cash flow business if the cash stops flowing There's no way to recover. I'll give you an example At our restaurants We have well over fifty vendors that we pay every month for product or services that includes food drink coffee wine beer alcohol a grease trap removal linen companies pest control companies cleaners window washers H Rack maintenance fridge maintenance Like you name it. Beer gas guys you name it. We have someone we pay on average Seventy five cents of every dollar. That enters restaurant leaves In the form of a payment to someone else into government in taxes so when your margins are on average less than five percent It doesn't leave you. A lot of room for cash reserves like the owners basically live off of that like five percent margin in restaurants that the smaller the restaurant and usually the your margin me be a little bit higher but the smaller the profit and smaller the income. Our business model is that You know we pay everyone first. And then if there's something left we pay ourselves. Unlike other businesses we don't have cash reserves. We don't make thirty forty percent margin on our on our incoming dollar we generally have much higher rents given our income than other than other businesses. Because we need to be customer facing on Main Street in cities and towns To take take advantage of the traffic. So we're stuck with very very high fixed costs Which is different. Some small businesses can be in a unit in the suburbs or in an office building where office rents are a fraction of what retail are and in addition to that We employ more people than any other business per dollar earned so to make a million dollars a year in the restaurant business. You need to employ just under fifteen people to do that. In the next most intensive labor sector for example like retail. It's less than half that. It's like six and a half people per million dollars of income So right away you see that. We spend way more lever. We spend way more on rant. We spend way more on product costs. we do this because we have passion for it. We Lo- we do. We Love Serving. People will make them happy love cooking and delicious food pouring them. Amis and drinks and interesting wines And when the tap gets turned off You know we're used to tap being slowed down like we you know business slows different times of the year or with different snowstorms whatever but when tap just gets turned off for a long amount of time like this. There is no plan to address this. Our businesses never designed to shutdown. We're always open. We're always going our job at hospitality. Save hospitality DOT CA is to inform the government of our business model because many of them were not Up to speed on it explain to them. What are fixed carrying costs are even though we're closed. We still need to pay insurance. We still need to pay our Internet and our phone bills. We still need to pay rent. You know there's so many costs still associated with just having a space with no income and our our whatever cash went into banks is depleted like talk to most of US zero after we've paid our staff for full two-week payroll before we laid them off and plus pay and then there you know we had already reduced revenues the week before we close We just don't have any money to come in. So we are uniquely position. Fail in this and We're asking for the government to feed our economic ecosystem from the bottom up. Our solution is very simple. Give us some money now so that we can pair vendors and keep them in business and so they don't go bankrupt we can keep our landlords whole as warlords are our partners we're interested in in keeping them Paid and then we can maybe bring on some staff after some time right before we open to get ready to open and have some ramp cash. Otherwise you're going to see an immense amount of restaurants. Just say forget it. I don't have the money to do this. I can't go into debt Bankruptcy now is better than bankruptcy later with more debt And we're just going to hand in her Keesa landlord so tell me what it looks like when the government announces aid packages for Small Businesses Etcetera. And you go to them and say look. This is nice but it won't keep us going. We need cash What is that conversation like first of all? And what's the response? Been the responses will. What do you mean we're doing all this? We're giving you a seventy five percent waive subsidy we're giving you forty thousand dollars in cash in our response is well the forty thousand dollar loan First of all we don't have the resources later to pay back. These loans as our our margins are too small to take on more debt Secondly forty thousand dollars for the average hundred seat restaurant in this province is like a drop in the bucket. It's nothing for many many of the restaurant signed on signatories to our letter to government and Steve Hospitality. Forty thousand dollars does not even cover one month's rent like for example in our company we have Four properties and our rents range drastically from a small thirty eight seat restaurant to a large hundred and ten seat restaurant. Downtown King Street West Right So Forty Thousand Dollars. Just doesn't cut it. And then if you take into account like all the other bills you need to pay payroll like you know. We have in in and out at our smallest restaurant Terms of cash flow of well over one hundred thousand dollars a month so a forty thousand dollar loan doesn't get you through two weeks. And then the seventy five percent week subsidy. First of all is just an announcement. They haven't detailed how that money will be fed to us in terms of how that subsidy is implemented and they're telling people to call their employers to ask for your job back for us that's very responsible advice given that we don't have any money in the bank to hire anyone back. Even if they do like backdate. The subsidy March fifteenth. We have no money now to foot the bill for that subsidy in the meantime so maybe at a later date when subsidies implemented it will be of help but that is assuming that anyone has any employees left in that people haven't already just close their businesses because there's no certainty there's no positive prognosis on their future. So they're just going to throw in the towel. But what is the reaction? Then when you're asking government for this and they've already done all this kind of stuff like what are they say? Their reaction is that they are working very quickly at lightning speed to implement changes in programs and our response to that. Is that in our world in restaurants. Your lightning speed is a snail's pace and that what you think is lightning. Speed is not even close to fast enough to save the businesses that are in peril and that you need to think outside the box. You need to think more bully you need to not try to lean on the normal tools and levers that you normally implement in tough economic times as this is a new world and we we have to be thinking in wartime measures here so their responses will look at what we're doing in response is none of that applies to us. Think again and people are listening. We know that they care We know the bureaucracy is working very very very hard behind the scenes But we know that. Every day that ticks by more and more people will just close their business that is income that when those businesses closed they are not coming back. No one's just going to walk in and open up the restaurant like that. Someone closed down next month. Those people don't exist. There's no money for it. How much of that has happened already? We've been self-isolating now for almost a month Let's say this somehow Through some miracle that Donald Trump's probably talked about this ends next week. How many of the restaurants that have closed now would not be able to reopen? Like what's the the attrition rate so far gas so restaurants Canada has done a survey and they say ten percent already and by the end of this month. They're seeing another eighteen percent. That ten percent was as of April. Second like after April I went by in the province had an implemented any rent relief or moratorium on objections. We're thinking another eighteen percent so we're talking about close to thirty percent of restaurants closing four good by me. I and this is going to go on longer than that. So if the government doesn't act before me I we're talking about a catastrophic collapse of this entire sector this sector. That employs one point two million Canadians. That support industries employ. Another three hundred thousand Canadians. That's responsible for thirty billion dollars in tax revenue a year. The first thing that needs to happen is the province needs to implement all provinces needs implement of moratorium on commercial lease evictions. People need to put a pause on rent obligations immediately right now. We are in violation of releases so by April fifteenth. If a landlord chooses they can go and lock the doors and chained up on us and just take our business away from us in this kind of environment you cannot just rely on the good graces of people in landlords to do the right thing. Many of them are doing the right thing many of their working with their tenants because they're smart and they know they want to the want to come back and be ten on the other side of this others are taking advantage of this opportunity saying oh well you know. I can get more rent if I close you down and bring someone else in or they're just not thinking clearly and they're they're threatening their tenants saying no you have to pay. You have to pay when there's no money to pay so people are saying I'm done. Here's your keys. There's not exactly businesses lining up to get in those places now. Well that's why I don't think smart landlords would do that because you're like you say we don't think there's businesses lining up. We think that one of these businesses closed. They're gone forever. It takes so much capital to start up a restaurant even if it's already built for you in product and training in in so many so many incidentals that you need to spend to Get a restaurant going again at. We estimate that it's somewhere between one and two percent of annual sales of the restaurant. So if you do million dollars in sales you need about twenty thirty grand. Just open the doors. Well we're going to have to see whether or not Provincial governments around the country Are Willing to up their game for for what you need. But before I let you go I want to pick your brain as somebody who runs restaurants. Because what I'm really curious about is whenever we ramp down social distancing. What kind of thought you've given to what your restaurants look like when they reopened. Because I kind of think about it and I can't wait to go back to a restaurant and eat a lovely meal but I'm also not going to rush back into like a crowded dining room you know like I'm a little gun. Shy of that agreed agreed. And so we're kind of in my opinion. We're looking at a double edged sword. So there's GonNa be a wide spectrum of people's anxiety as we come out of this some people will be Gung Ho among were bars. I want to go out to eat. I WANNA have fun. Get me out of my house. Other people will be very gun. Shy and very cognizant of the risks that still is there in the pre vaccine world. And they're going to be not want to be in a crowded room. The problem is that we don't make money if the room's not crowded yeah we don't make money fifty percent capacity as you heard like our business. Model is a five percent margin when we are running at proper capacity if we are all of a sudden at fifty percent capacity We're losing money. And then the other part of the equation is. We have to make an estimation of what people's ability to spend. Money is on the other side of this. Well that's a good point to how many people are at our at home getting the CRV making fifty percent less than they normally make and just won't have the disposable income. Are you looking for that kind of cheap and cheerful option so the double edged sword is that is that you're going to have less people probably going out and they're all GONNA WANNA be spending less price point in that just destroys our business model? So who you're GONNA have to retool rethink. I think people are going to be doing a lot. More prepared foods in the style of their restaurant and designing them to be executed at home with family and groups. That are not in a public gathering setting but to be honest. Like we've been discussing an ad infinitum and we don't have a crystal ball we don't know you know maybe people will be happy to spend money for that really special experience as long as you're not sitting right beside someone else or maybe they just want a quick bowl of pasta and a glass of wine at the bar and they want to get out as quickly as possible but they've got they. They went out and they had their fine. And now they're gonNA go home for their final drink. You know it. It's GonNa be a different world. We're not sure already how many people are going to be able to survive the storm so in order to save our industry as a whole we know we need to mitigate the losses there will be losses due. We'll be closures that never come back. But the effect that will have on Main Street on the streetscape of our cities in our our towns Lack of is on the street latte much less safer. Streets as less businesses are operating between six. Pm and midnight Less disposable income in your community as the people who had those jobs cash tips and good money on nightly basis are no longer able to go out. The knock on effect is pretty atrocious to think about So we're doing everything we can to. You know mitigate that loss and keep everything going. We really need the government to get on side to help us to to it. Thanks for talking to us about this John. I hope you get what you need. I appreciate the opportunity. Thank you Johnson. Lee is a restaurant owner and for now at least an unlikely lobbyists that was the big story. Allow ME TO LIST. All the places you can find us if you want more episodes. We're at the big story podcast dot ca if you WANNA chat. We're on twitter at be big story F. PM if you want other podcasts from frequency you can find that frequency podcast network DOT COM. And of course you can find all of them in your favorite podcast player. Whether that's apple or Google or stitcher or spotify or something else but if you want to tell us what you've been up to while we've all been locked down. You can do it by using the voice recorder on your phone or just by taking a video and e mailing to the big story podcasts at RPI GOT RODGERS DOT com. We are off for the long weekend. I hope you ve virtually get together with your family. Take care thanks for listening. I'm Jordan Heath Rawlings and we'll talk Monday I Jordan. My name is manny from Brampton Ontario. And I listened to your podcast every single day in fact I patiently wait for it until four. Am Seven. I could download into my phone and listen to it immediately. So keep up the great work. I'm very fortunate to be of those Canadians Who still have a job. And that's because the fuel hauler. I am in me and my company. The company that I worked for hiring the business of Providing fuel mostly diesel fuel to those semi trucks into supply chain management company. Fleet that Replenish all the products in supermarkets. For for Canadians. So I believe We're doing a great job here My heart goes out to all Canadians. Who ARE FACING CHALLENGES? These testing times. And I I truly hope that things get better sooner rather than later for office. That's all I have to say again. Keep up the amazing work that you're doing on the podcast and I and I'm looking forward to your next podcast to to be released on Monday thank you.

Coming up next