Jordan: I remember clearly the last restaurant I sat down and ate a meal at. And I was going to say here that I wish it had been fancier, but I really don’t. It was a classic burger place near my house. Not have fast food chain, like a real diner. And it was greasy and full of cheese and I had a double with everything on it. The fries were crispy and amazing. The fountain drinks were bottomless. The decor was the decor, but whatever. And man, I would pay double, more than what I paid for that meal, to have it again right now. Claire, why don’t you tell me about your last outside world meal? Because I’m hungry and literally all I have is a frozen pizza in the oven upstairs.
Claire: And the last meal that I had that wasn’t at my house was a breakfast sandwich and a coffee from this great little spot just at the corner of my street. And I’m just going to say it, they have probably the best breakfast sandwich in the city, and they also have the best coffee. I was there about mid March, and maybe a week later they were closed. Their patio was taken down, and now they have a sign on their door to actually discourage people from breaking in. It says they have no money and no food inside.
Jordan: And that’s where we’re at with these places right now. And that place, which by the way, only has the second best breakfast sandwiches in Toronto cause my place has them beat.
Claire: Oh, okay!
Jordan: But them and the burger place near my house, are the exact kind of establishment that it really hurts me to say this, might already be gone forever. And if they’re not, they might easily be gone by the time this is all over.
Claire: Yeah, I take walks every day and sometimes I walk along the busy strips in Toronto, like Bloor street or College, and you know, those are full of bars and restaurants and cafes, and it’s heartbreaking to walk along them now and see all the signs on the doors with their own versions of “Due to COVID-19 we’re closed until further notice”. Some of them are offering takeout, but a lot of them are just closed completely. And I can’t help but wonder how and if they’ll be able to come back from all of this.
Jordan: And I think everybody’s neighbourhood looks like that right now. And. You know, if you listen to this podcast, you know that various levels of government are offering various forms of help to people in businesses that are impacted by this crisis. And look, by government standards, they’ve moved pretty damn fast on that. To many people in businesses that is a godsend. But to local independent restaurants, like the ones we’re talking about here, it’s not a godsend. It’s nowhere near enough. So those businesses have banded together to ask for what they say they need if they’re going to survive this. And since I’m pretty sure that we want them to survive this, because I don’t know what my neighbourhood would look like without them, today we’re going to let them tell you why local restaurants are different from other businesses, and what happens to them when any kind of crisis like this hits them. And what their landscape will look like whenever we get the all clear to hopefully open things up. And so we’ll have somebody do that as soon as we bring you the news. Claire, can you help us there?
Claire: Well, Ontario Premier Doug Ford says his patience is running thin when it comes to the provinces lag in testing for COVID-19.
News Clip: It’s unacceptable. We have the capacity now. Before I understand, we didn’t have the reagent, we didn’t have all the testing. We have the testing capabilities, we have the assessment centres capabilities. The days are done of these 2,000 and 3,000 a day being tested. And moving forward, moving forward, we need to see 13,000 tests every single day.
Claire: Provinces like Quebec, British Columbia, and Alberta are all testing at double Ontario’s rate. And more provinces have been learning how this epidemic might unfold for them. New modelling released in Saskatchewan shows an expected 3,000 to 8,300 deaths. And in Alberta it’s believed the outbreak will peak mid May and that the province could see as many as 800,000 cases with the deaths ranging between 400 to 3,100. Well, last month Air Canada laid off 16,500 employees. They said it was a temporary layoff, and now it looks like they’re staying true to their word and already rehiring most of those people thanks to the government’s emergency wage subsidy program. That’s expected to last until at least June 6th. Air Canada also says it has reduced its seat capacity by 85% to 90%. As of Wednesday evening in Canada, 19,291 cases of COVID-19 with 476 deaths.
Jordan: I’m Jordan Heath Rawlings, and this is The Big Story. John Sinopoli is a Toronto restaurant owner and also the co organizer of safehospitality.ca. Hi, John.
Jordan: My first question for you is just how are you doing? How are you getting on?
John: Oh, well, bearing ourselves in government lobbying and trying to push our agenda forward in order to do our best to save the industry that we care so much about. So, haven’t really thought too much about the actual personal consequences down the road that are very possible as we all are trying to avoid the anxiety and the uncertainty that comes with that. But really just, like, not sitting in our hands, not sitting idle, getting to work, helping our community, and then also doing our best to save as many jobs as possible in our industry.
Jordan: And we’ll get to what you’re doing to save those jobs and what kind of help you need. But first, why don’t you just tell me how the situation unfolded for you at your restaurants while this virus spread. I mean, when did you first start seeing it? What were the ramifications? When did you realize, Oh crap, this is going to get bad?
John: Yeah, I guess the beginning of March we started to see reports of, you know, it being in other countries other than China and spreading around and getting bad in Italy and Iran. And then we said, Oh, wow, like this could really affect our society. And if it does that well, it’s gonna destroy our business before anyone else’s. And so we started really thinking hard about that. And then, by the second week of March, we saw our sales start to drop precipitously. I probably did about 50% of our normal sales at all of our locations that second week of March. And by the end of that week, we’d come to the conclusion that the right thing to do was to close. That our staff didn’t feel safe. We didn’t feel safe serving customers. No matter what protocols you took, everyone seemed to be at risk if you were in the same room. So after March 15th, I believe it was a Saturday night service, we made the decision to close all of our– within 12 hours– close all of our locations. Sales had also just like disappeared, like we were dropping reservations like crazy. So it didn’t make financial sense to be open, but it also didn’t make sense in terms of the safety of our staff and our customers to be open either. And then 24 hours of reeling from that decision and what do we do, by Monday the 16th or 17th, forget what day that was, we laid off all 97 of our employees. That was a difficult day given that we’d been in business for over 15 years, and we’ve had some employees with us just as long. We’ve never laid off anybody. Yeah, it was very trying times. And I got home that night and that Monday night and kind of, you know, commiserated with my partner and I said like, I don’t know what to do here. And what is government going to do to help us? And who knows? And I kinda got in touch with a couple of friends of mine who are close to government, they’re lobbyists, they work in that world. And I said, what are you hearing? And they said, they’re hearing that nobody knows what to do. That government is all ears, that they’re listening to industry for– looking for solutions. That these are very uncommon times. And he said like, put down your asks in a letter and send it to me and I’ll put it in the right inboxes. So I started along that process.
Jordan: Can you explain, for me a little bit and for other people who aren’t familiar with the industry, how the business model for independent restaurants works? And how the margins are? And why this crisis is so bad, particularly for independent businesses in the hospitality industry?
John: Yeah, I’m glad you asked that because a lot of people say, Oh, well, the government’s giving 75% wage subsidy, and they’re giving you $40,000, you know, loans that you don’t have to pay all of it back later. And our answer to that is that unfortunately, neither of those initiatives fit our problem as a solution. And as you said, the reason being is that our business model is unique in the sense that our margins are very, very small. And we have very, very high costs. So we are a cashflow business. If the cash stops flowing, there’s no way to recover. I’ll give you an example. At our restaurants, we have well over 50 vendors that we pay every month for products or services. That includes food, drink, coffee, wine, beer, alcohol, grease trap removal, linen companies, pest control companies, cleaners, window washers, HVAC maintenance, fridge maintenance, like, you name it, beer, gas guys, you name it. We have someone we pay. On average, 95 cents of every dollar that enters a restaurant leaves in the form of a payment to someone else or into the government in taxes. So when your margins are on average, less than 5% it doesn’t leave you a lot of room for cash reserves. Like, the owners basically live off of that like 5% margin in restaurants. The smaller the restaurant usually, your margin may be a little bit higher, but the smaller the profit and the smaller the income. Our business model is that, you know, we pay everyone first and then if there’s something left, we pay ourselves. Unlike other businesses, we don’t have cash reserves. We don’t make 30%, 40% margin on our incoming dollar. We generally have much higher rents given our income, than other than other businesses, because we need to be customer facing on main street in cities and towns to take, take advantage of the traffic. So we’re stuck with very, very high fixed costs, which is different. Some small businesses can be in a unit in the suburbs, or in an office building where office rents are a fraction of what, you know, retail rents are. And in addition to that, we employ more people than any other business per dollar earned. So to make $1 million a year in the restaurant business, you need to employ just under 15 people. To do that in the next most intensive labor sector, for example, like retail, it’s less than half that. It’s like six and a half people per million dollars of income. So right away you see that we spend way more on labour. We spend way more on rent. We spent way more on product costs. We do this because we have a passion for it. We love what we do, we love serving people, we love making them happy, we love cooking them, delicious food, pouring them amazing drinks and interesting wines. And when the tap gets turned off, you know, we’re used to taps being slowed down. Like, you know, business slows different times of the year, or with different snow storms, whatever. But when tap just gets turned off for a long amount of time like this, there is no plan to address this. Our business is never designed to shut down. We’re always open. We’re always going. Our job at savehospitality.ca is to inform the government of our business model, because many of them were not up to speed on it. Explain to them what our fixed carrying costs are– even though we’re closed, we still need to pay insurance, we still have to pay our internet and our phone bills, we still need to pay our rent, we still– you know, there’s so many costs still associated with just having a space with no income. And our, whatever cash we had in the banks is depleted, like to most of us, zero. After we’ve paid our staff for full two week payroll before we laid them off, and plus their vacation pay, and then they’re, you know, we had already reduced revenues the week before we closed. We just don’t have any money to come in. So we are uniquely positioned to fail in this. And we’re asking for the government to feed our economic ecosystem from the bottom up. Our solution is very simple. Give us some money now so that we can pay our vendors and keep them in business and so they don’t go bankrupt. We can keep our landlords whole, as our landlords are our partners and we’re interested in keeping them paid. And then we can maybe bring on some staff after, you know, some time, right before we open, to get ready to open, and have some ramp up cash. Otherwise, you’re going to see an immense amount of restaurants just say, forget it. I don’t have the money to do this. I can’t go into more debt. Bankruptcy now is better than bankruptcy later with more debt. And we’re just going to hand in her keys to the landlord.
Jordan: So tell me what it looks like when the government announces aid packages for small businesses, et cetera, and you go to them and say, look, this is nice, but it won’t keep us going. We need cash. What is that conversation like, first of all, and what’s the response been?
John: The response is, well, what do you mean we’re doing all this? We’re giving you a 75% wave subsidy. We’re giving you $40,000 in cash. And our response is, well, the $40,000 loan, first of all, we don’t have the resources later to pay back these loans, as are our margins are too small to take on more debt. Secondly, $40,000 for the average hundred seat restaurant in this province is like a drop in the bucket. It’s nothing. For many, many of the restaurants signed on as signatories to our letter to government at savehospitality.ca, $40,000 does not even cover one month’s rent. Like, you know, for example, in our company, we have four properties, and our rents range drastically, from a small 38 seat restaurant to a large 110 seat restaurant downtown on King Street West. So $40,000 just doesn’t cut it. And then if you take into account, like, all the other bills you need to pay, and the payroll, like, you know, we have an in and out at our smallest restaurant, in terms of cashflow of well over $100,000 a month. So a $40,000 loan doesn’t even get you through two weeks. And then the 75% wage subsidy, first of all is just an announcement. They haven’t detailed how that money will be fed to us in terms of how that subsidy is implemented. And they’re telling people to call their employers to ask for your job back. For us, that’s very irresponsible advice, given that we don’t have any money in the bank to hire anyone back, even if they do like backdate the subsidy to March 15th. We have no money now to foot the bill for that subsidy in the meantime. So maybe at a later date when the subsidy is implemented, it will be of help. But that is assuming that anyone has any employees left and that people haven’t already just closed their businesses, because there’s no certainty, there’s no positive prognosis on their future, so they’re just gonna throw in the towel.
Jordan: But what is the reaction then when you’re asking government for this and they’ve already done all this kind of stuff? Like what do they say?
John: Their reaction is that they are working very quickly at lightning speed to implement changes and programs. And our response to that is that in our world, in restaurants, you’re lightening speed is a snail’s pace, and that what you think is lightning speed is not even close to fast enough to save the businesses that are in peril. And that you need to think outside the box. You need to think more boldly. You need to not try to lean on the normal tools and levers that you normally implement in tough economic times, as this is a new world, and we have to be thinking in wartime measures here. So their response is, well, look at what we’re doing! And our response is, none of that applies to us, think again. And people are listening. We know that they care. We know the bureaucracy is working very, very, very hard behind the scenes. But we know that every day that ticks by, more and more people will just close their business. That is income that, when those businesses close, they are not coming back. No one’s just going to walk in and open up this restaurant, like, that someone closed down, next month. Those people don’t exist. There’s no money for it.
Jordan: How much of that has happened already? We’ve been self isolating now for almost a month. Let’s say, this somehow, through some miracle that Donald Trump’s probably talked about, this ends next week. How many of the restaurants that have closed now would not be able to reopen? Like what’s the, the attrition rates so far? I guess.
John: So Restaurants Canada has done a survey and they say 10% already. And by the end of this month, they’re saying another 18%. That 10% was as of April 2nd. Like after April 1st went by and the province hadn’t implemented any rent relief or moratorium on evictions, we’re thinking another 18%. So we’re talking about close to 30% of restaurants closing for good by May 1st. And this is going to go on longer than that. So if the government doesn’t act before May 1st, we’re talking about a catastrophic collapse of this entire sector. This sector that employs 1.2 million Canadians, that support industries employ another 300,000 Canadians, that’s responsible for $30 billion in tax revenue a year. The first thing that needs to happen is the province needs to implement– all provinces– need to implement a moratorium on commercial lease evictions. People need to put a pause on rent obligations immediately. Right now we are in violation of our leases. So by April 15th if a landlord is so chooses, they can go and lock the doors and chain it up on us and just take our business away from us. In this kind of environment, you cannot just rely on the good graces of people and landlords to do the right thing. Many of them are doing the right thing. Many of them were working with their tenants because they’re smart and they know they want to, they want a business to come back and be their tenant on the other side of this. Others are taking advantage of this opportunity, saying, Oh, well, you know, I can get more rent if I close you down and bring someone else in. Or they’re just not thinking clearly and they’re threatening their tenants saying, no, you have to pay you have to pay. When there’s no money to pay. So people are saying, fine, I’m done. Here’s your keys.
Jordan: And there’s not exactly businesses lining up to get in those places now.
John: Well, that’s why I don’t think smart landlords would do that, because like you say, we don’t think there’s businesses lining up. We think that when these businesses closed, they’re gone forever. It takes so much capital to start up a restaurant, even if it’s already built for you, in product, in training, in so many incidentals that you need to spend, to get a restaurant going. Again, we estimate that it’s somewhere between one and 2% of annual sales of the restaurant. So if you do $1 million in sales, you need about $20,000-$30,000 just to open the doors.
Jordan: Well, we’re going to have to see whether or not a provincial governments around the country are willing to up their game for what you need. But before I let you go, I want to pick your brain as somebody who runs restaurants. Because what I’m really curious about is whenever we ramped down social distancing, what kind of thought you’ve given to what your restaurants look like when they reopen? Because I kind of think about it, and I can’t wait to go back to a restaurant and eat a lovely meal, but I’m also not going to rush back into like a crowded dining room, you know? Like I’m a little gun shy of that.
John: Agreed. Agreed. And so we’re kind of, in my opinion, we’re looking at a double edged sword. So there’s going to be a wide spectrum of people’s anxiety as we come out of this. Some people will be Gung-ho, I’m going to go to the bars, I want to go out to eat, I want to have fun, get me out of my house. Other people will be very gun shy and very cognizant of the risk that still is there in a pre-vaccine world, and they’re going to not want to be in a crowded room. The problem is that we don’t make money if the room’s not crowded. We don’t make money on 50% capacity. As you’ve heard, like our business model is a 5% margin when we are running at proper capacity. If we are all of a sudden a 50% capacity, we’re losing money. And then the other part of the equation is, we have to make an estimation of what people’s ability to spend money is on the other side of this.
Jordan: Oh, that’s a good point too.
John: How many people are at home getting the CERB, making 50% less than they normally make, and just won’t have the disposable income, are going to be looking for that kind of cheap and cheerful option? So the double edged sword is that you’re going to have less people probably going out, and they’re all going to want to be spending less price point, and that just destroys our business model. So, you’re going to have to retool, rethink. I think people are going to be doing a lot more prepared foods in the style of their restaurant, and designing them to be executable at home with family and groups that are not in a public gathering setting. But to be honest, like we’ve been discussing it ad infinitum and we don’t have a crystal ball. We don’t know. You know, maybe people will be happy to spend money for that really special experience, as long as they’re not sitting right beside someone else. Or maybe they just want a quick bowl of pasta and a glass of wine at the bar, and they want to get out as quickly as possible. But they’ve got, they went out and they had their fun, and now they’re going to go home for their final drink. You know it, it’s going to be a different world. We’re not sure already how many people are going to be able to survive this storm. So in order to save our industry as a whole, we know we need to mitigate the losses. There will be losses, there will be closures that never come back. But the effect that will have on Main Street on the streetscape of our cities and our towns, lack of eyes on the street law, much less safer streets as less businesses are operating between, you know, 6:00 PM and midnight, less disposable income in your community as the people who had those jobs making cash tips and good money on a nightly basis are no longer able to go out. The knock on effect is pretty atrocious to think about. So we’re doing everything we can to mitigate that loss and keep everything going. We really need the government aside to help us to do it.
Jordan: Thanks for talking to us about this, John. I hope you get what you need.
John: I appreciate the opportunity. Thank you.
Jordan: John Sinopoli is a restaurant owner, and for now at least, an unlikely lobbyist. That was The Big Story. Allow me to list all the places you can find us if you want more episodes. We are at thebigstorypodcast.ca. If you want to chat, we’re on Twitter @thebigstoryFPN. If you want other podcasts from Frequency, you can find them at frequencypodcastnetwork.com. And of course, you can find all of them in your favourite podcast player, whether that’s Apple or Google or Stitcher or Spotify or something else. But if you want to tell us what you’ve been up to while we’ve all been locked down, you can do it by using the voice recorder on your phone or just by taking a video and emailing it to email@example.com. We are off for the long weekend. I hope you virtually get to gather with your family. Take care. Thanks for listening. I’m Jordan Heath Rawlings, and we’ll talk Monday.
Manny: Hi Jordan. My name is Manny. I’m from Brampton, Ontario, and I listened to your podcast every single day. In fact, I patiently wait for it until 4:00 AM when I could download into my phone and listen to it immediately. So keep up the great work. I’m very, very fortunate to be one of those Canadians who still have a job. And that’s because I’m a fuel hauler. I am in– me and my company, the company that I work for are in the business of providing fuel, mostly diesel fuel, to those semi-trucks and supply chain management company fleet that replenish all the products and supermarkets for Canadians. So, I believe we’re doing a great job here. My heart goes out to all the Canadians who are facing challenges in these testing times, and I truly hope that things get better sooner rather than later for all of us. That’s all I have to say. Again, keep up the amazing work that you’re doing on the podcast, and I’m looking forward to your next podcast, to be released on Monday. Thank you.
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