Small Restaurants Struggle to Stay Afloat

(Bloomberg Businessweek) -- Governors in more than a dozen states have been allowing restaurants to reopen, according to this New York Times state reopening tracker. Dine-in places are anxiously trying to figure out how to keep customers and employees safe, Bloomberg News reports, and comply with state protocols. Tennessee’s guidelines, for example, suggest restaurants limit the number customers to half of seating capacity, screen employees and customers by taking their temperatures, and ask them about Covid-19 symptoms.

As these reopening experiments unfold, many of America’s roughly 500,000 independent restaurants, which employ 11 million workers, are struggling to stay solvent. Most have laid off the bulk of their staffs—more than 90% of hourly workers and almost 70% of salaried employees, according to a James Beard Foundation survey in April of about 1,400 restaurant owners. Close to 40% have closed. There’s almost no cash cushion for most. Only one in five owners in cities that have shut down is confident about reopening.

“In shorthand, the situation is dire,” says Katherine Miller, vice president for impact for the Beard foundation. Restaurant closures mean cash isn’t flowing to farm workers, suppliers, or real estate owners. “Our independent restaurants sit at the heart of every community on Main Street,” she says. “We could be looking at large-scale commercial bankruptcy across the United States.”

If you run a small restaurant, here are some suggestions to keep in mind from fellow restaurant owners, advocates, and others.

1. Speak up, speak out.
Camilla Marcus, a founding member of the Independent Restaurant Coalition and Relief Opportunities for All Restaurants NY, urges restaurant owners to make their concerns known to legislators through advocacy groups. The sobering reality little understood outside the industry is that “over the next six, nine, 12 months, there will be a mass decline in sales,” says Marcus, who’s the chef-owner of Manhattan cafe West-Bourne, which employed 30 people before she temporarily closed it on March 15. “Most of us are projecting about 50%.”

In addition to familiarizing themselves with resources available from national groups such as the James Beard Foundation, National Restaurant Association, Main Street Alliance, and Small Business Majority, owners should speak with state and city restaurant groups such as the Golden Gate Restaurant Association and the Illinois Restaurant Association to get a sense of what reopening might look like, says Miller: “Everybody should be looking at what policies you can fight for and what dollars you can help mobilize.”

2. Understand and accept the limitations of federal loan programs.
The Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) program haven’t worked well for many independent restaurant owners, who have different needs than owners in other industries. After running out of funds, both programs recently received more money from Congress. We took a look at the latest round in our article Five Takeaways From the Small-Business Relief Mess.

PPP uses the promise of loan forgiveness to encourage businesses to rehire employees. The clock starts ticking for the eight-week forgiveness period when the loan is disbursed. But most restaurant owners don’t think they’ll reopen soon, Marcus says. Even if they do, “they’re opening at 50% capacity at best,” she says. If the forgiveness isn’t met, the loan has to be repaid within two years. That’s a problem because independent restaurants are struggling to stay solvent and shouldn’t saddle themselves with more debt, Marcus says— “they’re already bleeding and on the verge of being extinct.” She didn’t apply for an EIDL loan.

A forthcoming lending effort is the Federal Reserve’s Main Street Lending Program, through which banks and other lenders will make loans starting at $500,000 that mature in four years. Unlike PPP loans, they’re not forgivable. 

3. Explore grant and low-interest loan programs from other entities.
A patchwork of grant and low-interest loan programs for small businesses got launched in March, but many quickly depleted their funds. Delaware has a Hospitality Emergency Lending Program  (HELP) for small businesses. The James Beard Foundation is seeking donations to help independently owned restaurants across the U.S. “The coronavirus doesn’t decimate physical structures the way hurricane or fires do,” Miller says. “Organizations should reorient thinking that this is a disaster and not a business interruption.” The foundation has raised more than $4.5 million in direct aid since April. We collected a selection of other programs for small businesses in any sector in this roundup.

4. Handle rent negotiations carefully.
Until there’s a clearer picture of what reopening will look like, don't renegotiate your lease, says Samantha Safer, the owner of Otway, a 49-seat restaurant in Brooklyn, N.Y. Safer, who employed 16 people before the virus, pays around $7,000 in rent a month (her dining room is about 750 square feet). Her landlord is pushing her to keep paying. She sold almost her entire inventory of wine to bring in $20,000. "That's the only thing paying my rent right now," she says.

Safer recently participated in a meeting with dozens of fellow restaurant owners, lawyers, and accountants in the restaurant industry that showed her that negotiating rent without knowing what sales will look like is a bad idea. One owner described the situation as betting in a poker game without knowing the rules. "If you negotiate your lease now, you're taking the risk of negotiating yourself a bad deal and then having to go back and renegotiate once you're told you can reopen," Safer says. "There's no point in negotiating a lease if you don't even know what your income is going to be."
 

This is the first installment in a series looking at the challenges faced by small, independent restaurants.

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