‘We Might Not Make It’: The Math Simply Doesn’t Work for NYC Restaurants

(Bloomberg) -- For more and more New York City restaurants, the math isn't working.

Even as they prepare to reopen indoor dining on Sept. 30 after a six-month, pandemic-induced shutdown, many restaurateurs worry they will struggle merely to get by. A mandated cap on capacity will guarantee that three out of four tables stay empty. And as fall turns to winter, outdoor dining will become even less attractive. Everyone agrees more establishments will close for good.

Here's a look at how four restaurants are coping as indoor dining resumes.

THE DUTCH, SoHo

• 25% indoor capacity: 30 seats
• Sept. revenue: roughly $175,000
• Same month a year ago: about $500,000
• Labor costs as percentage of sales: over 60%
• Pre-pandemic: under 40% 
• Rent: $45,000 a month
• Last paid: March

“For most restaurants, it's not month to month, it's week to week,” says Luke Ostrom, managing partner at NoHo Hospitality Group, which owns The Dutch and nine other New York establishments, seven of which are open. “They're not sitting on piles of cash for a rainy day.”

“If the landlord says, ‘You owe me every penny since March,' almost no restaurant will have the ability to pay it all back.”

Ostrom says his group is in the process of renegotiating a lease that would give its landlord a percentage of the profits, a structure employed by many food halls and hotel restaurants. At the start of the pandemic, Ostrom's group laid off 98% of its staff; a little over 30% have been hired back, he says.

A lot of the difficulties of running a New York City restaurant during the pandemic stem from the fixed costs. At The Dutch, Ostrom has to employ the same number of line cooks — five — at 25% indoor capacity as he would if seating went up to 75%. The price of perishable goods has also crept up, accounting for a third of monthly revenue. Meanwhile, his restaurants also had to absorb the cost of protective equipment, from gloves to masks and filters, which has run in the “thousands and thousands of dollars,” Ostrom estimates.

While the Paycheck Protection Program helped Ostrom relaunch his restaurants, the PPP loans for The Dutch expire on Oct. 1. After that, the restaurant has to rely on its own cash reserves — at a time when plummeting temperatures may crimp demand for outdoor dining. Congress may vote on a $120 billion restaurant bailout as early as next week, providing much-needed support to the ailing industry. But for now, Ostrom is hoping his restaurants can soon restart hosting private events, which will help offset the drop-off in revenue.

“Places that are only doing 35% of previous sales, without an influx of cash or forgiveness of debt, they'll close,” he predicts. “50% capacity is the baseline threshold for restaurants surviving.”

CROWN SHY, Financial District

• 25% indoor capacity: 62 seats
• Estimated loss in Oct., including outdoor dining: over $80,000
• Oct. '19 revenue: $1 million
• Rent: usually 10% of each month's revenue
• Last paid: March

Jeff Katz, owner of the modern American restaurant Crown Shy, agrees that without private events, his business may be doomed. “Even with a good landlord, a good first year, good head winds, we might not make it,” says Katz, who opened Crown Shy just last year and is also general manager at the Italian restaurant Del Posto. “For many restaurants, December and the holiday season can bring in more than one-third of the entire year's profits,” he observes.

Katz says Crown Shy's revenue last October was a little over $1 million. This year, at 25% occupancy and even with outdoor dining, he estimates the restaurant will lose over $80,000 after all the expenses, including rent, labor and food, are paid. For November, he estimates he might be able to clear $9,000 — what he calls “breaking even” — assuming the capacity cap doubles to 50% by then. “Nothing is more important than getting to 50, then 75, then 100% occupancy,” he says.

PETER LUGER STEAK HOUSE, Williamsburg

• 25% indoor capacity: 90 seats
• Estimated decline in Sept. revenue versus '19: roughly 75%
• Labor costs as percentage of revenue: “definitely higher than last year”
• Food costs: 50%
• Rent: none

David Berson, co-owner of the venerable steakhouse, says he's one of the lucky ones. He doesn't have to worry about rent — Luger owns its property. He's brought back over 90% of its staff, including more than 40 servers. And he intends to keep the establishment's roughly 60 outdoor seats and add electric heaters, in addition to the 90 inside the restaurant.

“It will be almost a server per table,” Berson says, half jokingly. But even he's worried. “My fear is that we get stuck at 25% indoors when it's too cold for comfortable outdoor dining.”

While having outdoor dining has helped, he says the average check per table is lower than what he would expect for indoor tables because patrons inside tend to stay longer and drink more.

15 EAST AT TOCQUEVILLE, Union Square

• 25% indoor capacity: 25 seats
• Projected decline in full-year revenue versus '19: over 65%
• Estimated labor costs as percentage of revenue in Oct.: 75%
• Food costs: 40%
• Rent and utilities: 25%

Because of the impact from the virus, Marco Moreira says he's combining the two restaurants he owns, French restaurant Tocqueville and sushi destination 15 East, which are just steps apart in Union Square, into one space with a combined menu. Moreira estimates he's already spent around $150,000 to “keep the lights on during Covid,” for everything from insurance to utility bills and a minimal staff. He says it will cost an additional $100,000 to reopen, which includes an outdoor patio that he bought essentially at cost for $35,000 and a filtration system upgrade for about $15,000.

At the existing Tocqueville location, he negotiated with the landlord to pay rent based on percentage of sales. In September alone, labor costs exceeded revenue by 25% and he expects to lose money again in October. Moreira doesn't anticipate any profit this year.

“If I break even,” he says, “I'm lucky.”

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