Hospitality sector begins to feel hopeful but requires more federal support
For 20 years, Christopher Raynal ran the Montmarte bistro in Washington, a place on Capitol Hill beloved by lawmakers and lobbyists alike, and famed for its rabbit leg and truffled linguine.
Its doors closed in March as the coronavirus shuttered popular eateries across the U.S. But now, as stay-at-home orders end, Raynal has decided that Montmarte and its sister pizzeria won’t be coming back — in part because federal aid programs designed for small business won’t help enough.
Raynal had explored pandemic relief loans created by Congress, yet found that bringing back staff to operate under new occupancy caps would boost labor costs and bring only a small gain in revenue, an unsustainable scenario that restaurateurs are wrestling with across the country.
“We’d probably lose even more money,” Raynal concluded along with his business partner, Stephane Lezla. “I don’t think there would be anything left for us to be able to reopen.”
Raynal is one of thousands of restaurant owners nationwide stuck in the same trap: They’re desperate for assistance, but are reluctant to tap the Small Business Administration’s Paycheck Protection Program because of the strings attached to the relief loans.
The economic pressure from the pandemic is hitting some of the country’s top-tier establishments, forcing some to close for good. The casualties include David Chang’s Momofuku in Washington, New York’s pioneering Pegu Club cocktail bar and John Fraser’s 701 West in the Times Square Edition hotel, which itself is scheduled to close in August.
Many more establishments are teetering financially and may have to scale back their culinary ambitions just to survive.
Although President Donald Trump signed legislation on Friday giving more flexibility for spending the loan money, it may be too little, too late for many establishments. Loans under the PPP program, which was designed to keep workers on the payroll, could only be converted into grants if used within eight weeks under initial terms of the program.
“We couldn’t count on that,” said Marguerite Zabar Mariscal, chief executive officer of Momofuku restaurant group, which also closed Nishi in New York’s Chelsea neighborhood. “You’re looking at the numbers and wishing they added up differently. And when they don’t, the decision is clear, but that doesn’t mean we’re at peace with it.”
Restaurateurs and their lobbying groups have complained that the program’s design doesn’t address restaurants’ real needs as they face financial shortfalls from reopening under occupancy caps and social distancing measures, in addition to their need to cover expenses beyond payroll. They say hundreds of billions of dollars may still be required to keep enterprises afloat. The limits of the program could lead to a wave of permanent closures, with some estimates showing a quarter of restaurants could shut permanently.
Trump said Friday that he’d asked Treasury Secretary Steven Mnuchin to study relief for the sector in the next round of stimulus, which could reach US$1 trillion. “The restaurants will be a little harder to come back,” the president said at the White House. “We’re going to be doing things for restaurants and various pieces of the entertainment industry which will be an incentive.”
Despite lawmakers’ hopes that PPP would bolster hotels and restaurants in particular, the industry has tapped the program at a lower rate than other sectors, a Bloomberg News analysis of SBA and Census data found. Approved PPP loans have covered 73 per cent of the industry’s eligible payroll compared to 99 per cent for retail and 94 per cent for construction.
At the same time, almost 80 per cent of firms in the accommodation and food services industry are experiencing a large negative effect from the pandemic — the most of any industry surveyed by the U.S. Census Bureau.
The PPP loan program included a carveout designed to help hotels and restaurants, some of which faced curfews and property damage in the wake of some of the recent protests in addition to the difficulties of reopening from the coronavirus lockdown.
“It’s more of a mental setback,” said award-winning chef Robert Wiedmaier, who has several Belgian-inspired restaurants in the Washington area, where a curfew to contain protests in the city began just three nights after the virus lockdown ended, before being lifted Thursday. “You got whacked like a Whack-a-Mole right over the head again. Now we’ve got to tuck and roll and figure out when we’re going to reopen again.”
Under the original terms of the PPP, loans would be forgiven if businesses maintained headcount and salaries and spent at least 75 per cent of the funds on payroll within eight weeks. Congress passed a bill to extend the period for spending proceeds to 24 weeks or the end of the year, whichever comes first, and required that only 60 per cent be spent on payroll.
But restaurant owners say they need the funds as they reopen because expenses are likely to outstrip income. They also want more flexibility in the program to cover mortgages, leases, utilities and personal protective equipment.
“It’s a Band-Aid on a really deep wound,” said Sean Kennedy, the National Restaurant Association’s executive vice president for public affairs.
Kennedy’s trade group, which represents thousands of restaurant owners and chains including McDonald’s Corp. and Chipotle Mexican Grill Inc., estimated that the industry is expected to lose US$240 billion by the end of the year.
Industry advocates say hundreds of billions of dollars in stabilization financing will still be needed to help restaurants weather the months ahead — an idea that they say is still far off.
“Some independent restaurants are able to reopen, but the odds of staying open have grown nearly insurmountable,” the Independent Restaurant Coalition, another trade group, said in a statement Friday. That group also called for an industry bail-out fund.
The PPP is available to franchises with 500 or fewer employees per location, including those operating under nationally known brand names, such as Restaurant Brands International Inc.’s Burger King, Popeyes and Tim Hortons after a special carveout was inserted to help franchise owners, thanks to a last-minute lobbying push.
Despite the carveout, TGI Friday’s Inc. CEO Ray Blanchette told Bloomberg in an interview that 10 per cent to 20 per cent of the Dallas-based company’s restaurants would probably close permanently as a result of COVID-19. It has 386 U.S. locations and got about US$14 million through the loan program.
‘Perfect Storm for Hopelessness’
He said that business-interruption insurance could be more helpful than PPP loans — but insurers have largely refused pandemic payouts, citing policies that excluded losses because of viruses or that focused on property damage. A bill in Congress would set up a fund to support future claims, but the process is just beginning on that issue and could take weeks or months and still fail.
Even those chefs and restaurant owners who took PPP loans are dealing with uncertainty and difficult decisions. James Beard award-winning chef Kwame Onwuachi of Kith/Kin restaurant in Washington decided to take funds so that he would have some breathing room to bring workers back.
But Onwuachi, whose Caribbean/West African restaurant is listed in the Michelin Guide, said he’s still trying to figure out how many employees he can afford to bring back and whether the forgiveness terms will really be advantageous.
“You throw in these curfews that are coming nationwide because of the racial injustices, it’s a perfect storm for doubt,” he said. “It’s a perfect storm for hopelessness.”