Some restaurants didn’t make it. Those that did need more help

OPINION: Federal rent and wage supports are set to expire in June. But restaurateurs are still struggling — so what comes next?
By Corey Mintz - Published on Apr 05, 2021
Walk down any restaurant row in your town, and you’ll see closed storefronts. (Dominic Chan/CP)

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Despite the expectation that every small-business owner must now navigate, understand, implement, and enforce public-health policy, restaurateurs are not epidemiologists. When their businesses closed suddenly in March 2020, a lot of operators thought it would be for a few weeks. That was a year ago.

Despite the hospitality-school lesson of saving at least three months’ worth of operating capital, almost none had that banked. Many had accepted food on credit, often on 90-day terms from suppliers, and needed the room to be packed every Friday to pay off bills from three months ago. Forty years ago, according to University of Guelph hospitality professor Bruce McAdams, it was common for restaurateurs to own their buildings or to be paying no more than 5 per cent of sales in rent. These days, it’s not unheard of for rent to claim 10 per cent of revenue.

How, then, have restaurants survived over the past year? Many haven’t. Between crushing debt, the transition from hospitality to logistics, the need to shift entire business model to focus on new products and services, and changing public-health directives, a lot have shuttered for good. Walk down any restaurant row in your town, and you’ll see the closed storefronts.

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Those that have stuck it out have done so by the grace of their wits, goodwill from diners, and government supports of varying levels of effectiveness. Even with all three, they’re just limping along.

“Most people are down 60 to 70 per cent still,” says John Sinopoli, restaurateur and co-founder of Save Hospitality, an advocacy group for independent restaurants. “I don’t think any restaurateur is expecting to make profits this year.”

So what aid has government offered so far? What has been helpful and what has not?

The Canada Emergency Response Benefit, which accepted applications from April 6 until December 2, 2020, basically paid workers to stay home. It was widely hailed as a relatively speedy measure from government, one that was effective at keeping workers from needing to work in unsafe environments. While many restaurant employees in the United States were still waiting on unemployment benefits by the end of May, Canadians I spoke with were able to apply for and receive CERB funds within days.

An initial wage subsidy, announced on March 18, 2020, that covered 10 per cent for three months was not going to cut it for businesses that had seen their revenue drop to zero overnight. On March 27, it was upgraded to 75 per cent. By then, many employers had already laid off or furloughed their entire staff. But the Canada Emergency Wage Subsidy enabled many to rehire workers (usually a tenth of staff and rarely more than a quarter) for takeout, meal kits, or the upcoming patio season — although, at that point, no one knew whether patios would happen.   

The Canada Emergency Rent Subsidy proved much more of a frustration. The first version, launched on April 24, offered rent assistance for April, May, and June. But applications, which were optional, had to go through landlords, many of whom had not received April’s rent and were already on bad terms with tenants. Barely anyone I knew was able to access it until the program changed in November (retroactive to September and extended to June 2021). It now goes directly through business owners and is calculated based on the drop in revenue in year-over-year sales.

I’ve spoken with owners who are thankful to have taken advantage of all available forms of COVID-19 government assistance, including the interest-free, partially forgivable Canada Emergency Business Account loans. But just as many have found the application process arduous or discovered that their businesses are ineligible.

“Government programs have been a nightmare to wait for and navigate,” says Pam Fanjoy, who has been able to collect the CEBA loan. But because she owns the building in Hillsburgh where her restaurant, Fanjoy, is located, she hasn’t been eligible for any rent rebates and can’t delay her mortgage payments. “The fact that the government has not put forward any mental-health supports for employers or staff is insane to me,” she says.

On March 26, Ontario dropped some of its prohibitions on alcohol sales, enabling restaurants to sell drinks for takeout and delivery. Though according to Sinopoli many types of restaurants don’t sell a significant enough amount of alcohol for this to make much difference, drinks constitute about 40 per cent of revenue for full-service restaurants. While restaurateurs were nervous that this change would be temporary, there was no putting this horse back in the barn. By December, it had become permanent.

At first, the public might have thought that takeout and delivery would save restaurants. But once full-service restaurants had begun generating all their sales through third-party delivery, diners became aware of how high the commissions are for most of these app-based companies — often higher than the profit margins of restaurants. Despite pleas to cap commissions, Ontario took no action until late November, when it limited third-party-app fees in regions where indoor dining was prohibited. That helped those still in business. But anyone who’d been unable to break even or squeak by for seven months while paying up to 30 per cent of sales to such companies as Uber or Doordash had already thrown in the towel.

Though often money-losing, takeout and delivery at least facilitated sales, which kept the lights on. When patios opened in the summer, those off-premises sales dropped in relation to the growth of dine-in services; the pattern then reversed in the fall after restaurants were forced to close again.

There are success stories. General Assembly Pizza, for example, launched a pizza-subscription model and grew it enough to attract $13 million in funding. But that is an outlier. For most, the goal of this past year has been survival. And the mixed bag of government aid, which was never going to be perfect or equally available to all, was a huge part of that. Even the owners who criticize some elements of the supports acknowledge how essential others have been.

“Wine selling is one of the best things that came out of COVID,” says Darlene Mitchell, owner of Greta Solomon’s, in Toronto. “Because of the pandemic, we are allowed to do this. Now it’s a permanent thing. We’re finally getting with the rest of the world. And people are loving it.”

Mitchell also credits the city’s CaféTO program, which allows owners to set up outdoor dining, with saving her business. And even that was a bit of a fluke and a risk. After deciding to build her 14-seat patio when the regulation was still in the rumour stage, she happened to see a city councillor on the street and asked whether it would be legal. They told her, unofficially, to go ahead.

Government action has acted as a suture on a wound that is still bleeding. The federal rent-subsidy and wage-subsidy programs are scheduled to expire in June. COVID-19 will not end in June. So, as we transition to the next phase of the pandemic, what is the hospitality industry asking for?

Some fingers are crossed for debt relief. Not just to keep restaurants solvent — but also to pay off debt to suppliers, who have also seen their sales evaporate and don’t have the ability to forge new revenue streams with their customers. When restaurants had to close, the people who sell meat, fish, produce, and so on were left with huge bills to collect and clients who had no money. (Full disclosure: my brother is a restaurant produce supplier.)

In March, after its revenue had dropped 90 per cent, 100km Foods — a local-food distribution company — laid off half its staff and rapidly switched to retails sales. Co-founder Grace Mandarano, who hates the words “pivot” as much as everyone else, says it took 12 days to construct a retail business to replace a wholesale business that had taken 12 years to build up. Staffing is back up to nearly 50 per cent. But, without a change in fixed costs, a business can’t sustain itself with only half its earnings.

Mandarano says the company has been able to collect most of the $750,000 in accounts receivable from the start of the pandemic, but she’s urging the creation of  some form of aid designed both to alleviate debt and to credit restaurants that did pay off suppliers during trying times. “What I think suppliers need from the government is some kind of subsidy both for restaurants that have not yet been able to pay their debt and for those so loyal that they did pay back their debt. We don’t want to penalize restaurants that worked really hard to pay that down.’”

Although there’s been an outpouring of public support for restaurants, many don’t realize that their fates are symbiotically linked to suppliers — and that those Ontario suppliers are linked to Ontario farms.

“No one has been talking about farms,” says Mandarano, noting that some were able to service retail needs after grocery sales spiked at the start of the pandemic. “But most farms we dealt with, their revenues dropped in tandem with ours.”

I’ve heard from a lot of restaurateurs that rent should be based not on what the market will bear but on a percentage of sales. This is not in the hands of the government. But the practice of landlords pricing every property based on what Starbucks or a bank would pay is untenable and unsustainable. The market won’t bear it. And many restaurateurs (not just in Toronto, but in other Ontario towns) have hinted that they will only negotiate new leases based on a reasonable percentage of revenue.

Federally, Sinopoli would like to see a ministry established for the restaurant industry, so that it would get a level of attention comparable to fisheries, energy, and manufacturing.

On the provincial level, Save Hospitality is pushing for the wholesale pricing of alcohol for licensees. Ontario restaurateurs pay the same LCBO retail prices as consumers, no matter what quantities they buy. Sometimes, restaurants even pay more: a complicated series of markdowns and markups can leave them facing a price 1 per cent higher. Other parts of Canada, such as Nova Scotia, Quebec, and Alberta, offer discounts for restaurants. Last summer, British Columbia introduced wholesale pricing temporarily. Save Hospitality wants Ontario to follow its lead by bringing in a 12-month markdown of 20 per cent for restaurants. “That is the magic bullet that will change the business model of restaurants,” says Sinopoli.

There’s more than one type of restaurant — and there’s no one magic bullet for everyone. Every operator who’s survived owes as much to their own ingenuity and adaptability as to government aid. Many of us talk about life “post-Covid,” but there will never come a day when headlines declare “Pandemic Over! We Won!” We will never fully resume the lives we had in March 2020. When it comes to restaurants — and every other aspect of our culture — we’re going to have to think past temporary measures and grapple with how our society has fundamentally changed.

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