'Harrowing And Heartbreaking': Restaurateurs Question Their Future

For decades, restaurateurs from all over the world have come to New York City to make their name. In a searingly competitive environment, with high costs and nosebleed rents for tiny spaces, many don’t make it. But those that do often reach legend status, become institutions of neighborhoods and crucial attractions for new developments.

But a depressing picture for the future of restaurants amid the coronavirus crisis has emerged — and nowhere does the food service industry face a more challenging, complex road to recovery than New York.

The lockdown has claimed many already — cocktail bar Pegu, described by The New York Times as one of the “most influential cocktail bars in the world,” isn't reopening after the crisis. Danny Meyer’s Union Square Hospitality Group laid off 2,000 people in mid-March. Coogan’s in Upper Manhattan, an Irish bar that opened in the mid-1980s, won't be reopening.

In a widely circulated personal essay in The New York Times Magazine, Gabrielle Hamilton, who owns 20-year-old restaurant Prune on the Lower East Side, questioned if her restaurant will be one the New York of tomorrow will "recognize" or "want." She still goes into her restaurant space, which she wrote has 10 years left on its lease.

"Sometimes I rearrange the tables. For some reason, I can’t see wanting deuces anymore: No more two-tops? What will happen come Valentine’s Day?" she wrote. "It’s no mystery why this prolonged isolation has made me find the tiny 24-square-inch tables that I’ve been cramming my food and my customers into for 20 years suddenly repellent."

Nationally, 41% of restaurant owners said the slow return of customers will be the biggest challenge in reopening, per a survey released this month by the Independent Restaurant Coalition and the James Beard Foundation. 

Sources say legal and policy changes, not to mention a major reduction in rent, are all key elements to recovery. But they acknowledge fundamental elements of the city, which has been defined by cozy and crammed locations in small space, could stymie their attempts to re-establish themselves in this next chapter.

While much of the country talks about plexiglass, installed dividers and disposable menus, New York City may have to search even harder for answers — confounding some of the most successful operators.

“It’s a harrowing and heartbreaking moment,” said Nicholas Stone, the founder of Australian coffee chain Bluestone Lane.

Bluestone has 52 locations around the country, 21 of which are in the five boroughs. Seven of those are operating for takeout and delivery, and six of its other 31 stores are still taking orders. The company has laid off roughly 600 workers across the country. 

Some of Bluestone's New York locations will never reopen, Stone said, but he doesn't yet know which ones or how many. 

Stone said the company has told its landlords that "we are in no position to pay rent to anybody.” Some have been understanding, he said, but not all. The only way to solve the problem, he believes, is to move to a percentage-based rent model.

“If revenue at everyone's restaurant falls 30%, your whole cost basis needs to come down. Rent has to fall in line," he said. “I just think we have to move to a position that your rent is dynamic based on how your business is performing."

"Let’s be realistic — there is no market demand," Stone added. "I just think we have to bridge this short-termism into something pragmatic and realistic for everybody.”

Stone, whose café sells Australian staples like flat whites and avocado on toast, has a well-trod New York City success story. He opened his first location as a Melbourne-style hole-in-the-wall café in Midtown, and the concept quickly took off.

Related Chairman Stephen Ross invested in the business in 2018, and there are two Bluestone locations in the temporarily shuttered Shops and Restaurants at Hudson Yards, which opened to much aplomb last year. But like many businesses, Bluestone Lane was dealing with rising costs and an increased minimum wage well before the crisis.

Rents and challenges associated with the Paycheck Protection Program have been cited as a major obstacle to American restaurants’ recovery. And in New York City, many see the bars and restaurants ability to return as fundamental to the entire city’s future.

“If our restaurants, bars and retail shops do not recover — New York City will not recover,” New York City Hospitality Alliance Executive Director Andrew Rigie said.

Rigie is lobbying for amendments to the CARES Act that would allow Paycheck Protection Program loans to be converted to grants and insurance companies to pay out business interruption insurance. He also wants there to be a plan for restaurants to use outdoor space more easily in the city.  

Mayor Bill de Blasio has vowed to close 40 miles of streets this month to allow pedestrians more space to move around, and said he "thought about it" when asked if restaurants would be able to use more space on sidewalks as part of a reopening plan, but declined to give specifics.

“People will be more comfortable [going into] spaces with open air,” he said. "We need to reimagine how we use public space to help generate economic activity and vibrancy and excitement in New York City public spaces in a safe way."

Lee & Associates principal Gregory Tannor estimates as many as 25% of NYC restaurants won't reopen. But even as the city recovers and restaurants begin open at reduced capacity, it simply won’t work for many businesses.

“I’ve spoken to a few that are giving back the keys,” Tannor said. “Restaurants were having a problem making money at full capacity. … Opening at half capacity, which probably means 25% capacity, how will you survive?"

Many are afraid of opening up their doors, and then being forced to go through the costly process of closing once more, Tannor said.

“I need to be at 65% or 70% [capacity] to potentially break even,” said Jeffrey Bank, the CEO of Alicart Restaurant Group, which owns restaurants Carmine's and Virgil's BBQ.

He said opening at a reduced occupancy in the city makes sense from a safety perspective, but not from a business one. He said he is working with seven different landlords across the country, all of whom are taking a different approach ranging from “supportive” to “Oh, my God, you are killing me,” he told Bisnow.

He said the government needs to support landlords. Otherwise, restaurants in New York City will not survive.

“The cities are all different, they all have their unique challenges," said Bank, whose company has restaurants in New York, Washington, D.C., Las Vegas, Atlantic City and the Bahamas. He also said personal liabilities in leases should be waived.

"There is no one flying to Los Angeles for trips. In Atlantic City, there are no conventions, though it may have a chance because gas is low,” he said. "But New York City is going to be rough. ... The city is extremely litigious. If you are trying to do the right thing, are you going to get sued over that?"

Susan Povich, who founded Red Hook Lobster in 2008 with her husband, said there is a strong argument against opening for dine-in until the restaurants can operate at full capacity. 

Her business has a full-service restaurant in Red Hook, Brooklyn, an oyster bar in Midtown and the Rockaway Clam Bar, a seasonal stand at Rockaway Beach. She said the recovery will be different in each neighborhood.

In residential Red Hook, she said her full-service restaurant is performing well with takeout and delivery. But she predicts Midtown will suffer from lack of tourists and office workers for as long as a year. She said she pays $125 per SF in monthly rent for her 200 SF oyster bar.

“I have no appetite to open in Midtown, and it’s a wait and see at the beach,” she said, adding that she has been approved for a PPP loan but is still doing calculations to examine if it will actually help.

“People are not coming back to restaurants [right now]," she said. "It’s much bigger than just rent. We can fix rent, but we can’t fix consumer sentiment."

She said she is working on developing an online business that provides prepared fish for deliveries that can be grilled at home.

“We lived through 9/11. I lost my business and my home in [Superstorm] Sandy,” she said. “I’m going to get through, I will just live off my savings. ... I’m not sure my business that emerges from this is the same business that I had before.”