Your favorite restaurant can't survive like this
Posted May 23, 2020 8:05 a.m. EDT
CNN — Kentucky began allowing restaurants to open for limited-capacity dining on Friday, as states around the country continued to lift coronavirus restrictions heading into the busy Memorial Day weekend.
CNN talked to "Top Chef" and "Mind of a Chef" alum Ed Lee, who has restaurants in Louisville, Kentucky, and around Washington, DC, to get his thoughts on whether restaurants can survive the Covid-19 shutdown and what they'll look like in the future.
Lee has decided not to open his restaurants back up yet for in-person dining even though it is allowed. During the shutdown, he launched a restaurant worker relief program to help feed out-of-work staff with food that establishments couldn't sell and he's now pivoting to try to help small farms that supply independent restaurants.
The conversation, lightly edited, is below:
Takeout does not pay the rent
CNN: I think everyone understands that the economics of the restaurant industry are difficult. Can you help us all understand why restaurants can't just survive on curbside delivery and takeout orders?
EL: Restaurants that have dine-in, sit-down service (which are most independent restaurants) are very expensive to build -- air conditioning, lighting, usually a bar area. Rent is based on square footage and restaurants like these have a lot of square footage to accommodate a full-service dining-in experience. Usually these restaurants are in desired neighborhoods with plenty of parking or foot traffic so rent per square foot is high. You simply cannot pay the rent selling take-out food. We are selling an experience at sit-down restaurants, not just food. Take out only restaurants survive because they have very small square-footage footprints and so their rents are low.
50% of revenue, 100% of rent
CNN: States where restaurants are reopening are allowing, for instance, half capacity. Can that work to keep restaurants open? Will your restaurants reopen in Kentucky on Friday?
EL: No, half capacity will not work. Rents are based on a complicated algorithm that takes into account seating capacity, neighborhood and revenue. What business in the world could survive when you tell the business to take in only 50% of your former revenue but pay 100% of your former rent rate?
That is a simple math equation that does not add up. My restaurants will not open this weekend. We are assessing the situation and we will open when the time is right.
Farms are in danger, too
CNN: We've heard a lot of concerns about the food supply chain, which is so dependent on restaurants, and that it's begun to pivot to support individuals. Will it be able to simply pivot back?
EL: Not if the farms go bankrupt, which is a bleak reality for many small farms. Great independent restaurants distinguish themselves from chain restaurants because we use better ingredients. This is not just a slogan. We actually purchase from responsible, sustainable farms that raise animals and produce in a safe and agriculturally sound manner. If we don't have these small farms anymore, where can we buy these better ingredients to distinguish ourselves? Our next mission for the LEE Initiative is to help financially boost these small farms so they can weather this crisis.
The future of dining
CNN: What are the permanent changes you can already anticipate from this shutdown? For instance, in terms of the way we eat -- some cities are shutting down streets to put restaurants outside. Restaurants are selling liquor to go.
EL: No one knows what the future will bring. It is uncertain, that is why we are all so terrified. There is not one answer, but what I do know is that there will be a lot of fluctuation in what is considered normal.
Masks or no masks, more restrictions or less restrictions, social distancing or not. Changes to seating, take-out options. All these things will result in restaurants pivoting constantly and that is not good for consistency and not good for customer confidence.
Restaurants have always been a soothing place of escape and fun for people. If we start to become the focal point for erratic policies, then we stand to lose our purpose. Our focus needs to be on giving our customers a memorable, enjoyable experience. That will be a difficult task when our dining room looks more like a hospital waiting room than a culinary destination.
Time to rethink tips?
CNN: In terms of permanent changes, is this the time to rethink the way restaurant workers are paid with tips? Should they just make a living wage?
EL: Every restaurant will have to find their own path to what looks right for them. The restaurant world will definitely be a grand experiment for the next few years and all things are on the table. My fine dining restaurant 610 Magnolia eliminated tipping 15 years ago with nothing but outstanding results. So we are proof that it can be done.
CNN: You've done a lot of work trying to help restaurant workers who are out of a job.
EL: We have handed out over 200,000 meals in 19 relief kitchens around the country. As we see the gradual re-opening of the country, our focus is now on saving small farms across America. We are in a critical time in early summer when most small farms are at their peak harvest. This is their time to make money and demand is just not there. If they have a bad summer, they may not be able to make it through the lean winter months financially. We are creating contracts to make sure that small farms across America are getting steady revenue because we are purchasing their excess products. We will then donate these products to small restaurants who need a financial boost as they try to re-open their restaurants.
The cultural core of cities
CNN: At first there was a great national sense of "we're all in this together." Has that turned into a fatigue? Are people still willing to help restaurants?
EL: I believe yes. Fatigue is for people who only read headlines. There is a loyal and passionate population out there who understand that independent restaurants are at the cultural core of every city in America - we drive tourism, we support local charities, we are cultural ambassadors, we are the fabric of our communities. A city without great independent restaurants, coffee shops and bars is a hollow city.
Restaurants need their own bailout package
CNN: The government set aside billions to help small businesses but there's been a lot of reporting that the money hasn't helped restaurants the way it needs to. What's your experience with the Paycheck Protection Program and how should the government change it?
EL: The restrictions on the PPP needs to be reconfigured so that it makes sense for restaurants -- most importantly, the timeline of when we can effectively use it. As it is right now, it is pretty useless to most restaurants that are shut down. The restaurant industry operates on a unique set of logistics with slim margins. The PPP was set up for small business, that could mean anything from a hair salon to a gym to a church. In reality, the restaurant industry in total is a trillion dollar economy that needed its own bailout package with specific loan and grant structures specific to our industry. This didn't happen.
CNN: One big expense for restaurants is leases, but those are built around full capacity. Should restaurants be able to renegotiate leases and liquor licenses?
EL: As I stated above, yes. There are so many issues surrounding the complete failure of the government and private sector failing our industry. Insurance companies refusing to pay business interruption claims, landlords not being legally restricted to collect full rent under these extreme circumstances, tax breaks that could have been instituted but were not, clear and consistent policies on a federal level that could have given restaurants an opportunity to formulate a plan for re-opening. There are just so many things that went wrong during this shutdown. It will be a hard battle to fight our way back to a thriving industry again.
A happy thought
CNN: Last thing -- this has been a heavy Q-and-A. What's something that gave you a little bit of optimism or made you happy in the last week?
EL: The people out there are generous and kind. We have seen such an outpouring of support from our local community. We cannot wait to get back to work and give our city the dining experience it deserves, whenever that is.