As restaurants get organized in the face of the pandemic, they need to represent and advocate for everyone in the business.
By Juan Correa as told to Chris Mohney
We tried to stay open in March until it was inevitable that we close. Our last service was March 15 at both of our restaurants. We decided to do takeout for about a week so that we could work through our food inventory. After that week, once we had sold most of the inventory we were sitting on—and we gave a lot of the perishables to our staff—we decided it was just potentially too hazardous for everyone to come to work. We didn’t want to continue to risk anyone’s health, so we decided to stop.
We kept our management team for a couple of weeks—general managers, floor managers, and sous chefs. But unfortunately our initial expectation was that this was perhaps going to be a shorter shutdown. As weeks passed, it became obvious that we were not going to be able to afford keeping the entirety of our management on board, so we furloughed the majority of them, and retained two people to help Erik and I run the businesses.
We started thinking about ways in which we could help staff that have been furloughed and didn’t have a way of collecting unemployment. So we set up a fund with some money that we contributed. It’s a pantry program that we run where we provide basic food for all of our staff every Friday. Then we conducted an auction where we raised quite a bit of money, almost $30,000, to benefit those staff members that were not going to be able to collect unemployment. We auctioned everything and anything. Mostly our talent—private dinners, cooking lessons. We auctioned artwork. We auctioned ceramic donations from incredibly generous people that produced plates and things for us. There was an outpouring of support, and that was really helpful.
Like everyone else, we’re taking the time to think about what it is that we want to do. We started takeout and delivery at both restaurants. We struggled with that decision, because traditionally we shied away from the delivery model. We’re not big fans. We don’t like the fees that delivery platforms charge. We don’t like the way that food travels, for the most part.
Our food is not typically what people think of when they think about takeout and delivery. Takeout is Japanese, it’s Chinese, it’s Italian, it’s pizza. Peruvian or Peruvian-Nikkei is not necessarily top of mind. So we will see. We’re doing it cautiously, and hopefully there will be some response to it. We will assess like everyone else.
One element we’re going to explore is small-gathering catering. I don’t know when they’re going to let us open. We thought it was going to be June. Now it feels like perhaps August. Who knows? But I believe that people are going to be ready to conduct small gatherings at home, especially with friends that they know have been tested, or have already gotten the disease and are okay, or have been quarantining. I’m assuming most people would do this in a socially responsible way.
What we want to do is provide a catering experience that feels better than your traditional delivery, opening up a package with somewhat cold and messy-looking food. But we’ll see how it works. A lot of our menus are composed of dishes that don’t travel well. I can’t send you a ceviche because you’d get an overcooked mess. But if I find a way of sending the components of a ceviche to a customer, they could easily assemble it at home.
So there’s been a little bit of research to understand how we can deliver food efficiently and effectively, and in a way that would be interesting to our guests and our customers. It’s part of bringing some of our staff back on payroll. So that is helpful. If anything, it helps us psychologically. We can’t sit at home and continue to think about the world ending 24/7, so we need to put our energy to better use.
On a larger policy level, the Paycheck Protection Program does absolutely nothing for us. As things stand, the entire burden of the shutdown is being placed on us. All of the pain is being pushed down to the small-business owner. Landlords, banks, insurance companies, you name it, all are being protected. There is not a single piece of legislation addressing that dynamic, with certain exceptions of what the New York City Council has done.
I’ve been working closely with ROAR, and I think what they’re doing is great. It’s time for us as an industry to start getting much more organized. Traditionally, we’ve been a bunch of dispersed individuals. Everyone does what’s good for them. We don’t align. We don’t advocate for positions that we believe the industry should be advocating. And finally, we have this opportunity to be doing something.
The problem I see is that we’re still somewhat fractured. Whether it’s ROAR, whether it’s the Independent Restaurant Coalition—if I as a restaurant industry operator am confused about what organization stands for what, I can only imagine that politicians or lawmakers or city council members must think. We need to unite. We may have disagreements as to what is the right approach, as to what is the right policy we should be pushing forward, but we have to have a broader tent, regardless of our differences.
We also need to be more diverse. Where are the restaurants that represent the Bronx? Where are the restaurants that represent Harlem, that represent Queens? For lack of better words, I think we have a group that is just too male, too white. And honestly, if I were a politician, perhaps I would be thinking, “Gee, these guys are very, very successful. They’re backed by big money. Why should I be listening to their struggles? I want to see the struggles of those that are more representative of the broader population.” We need to get better at that.
I’m personally trying to reach out to the network of Peruvian restaurants across the five boroughs, the network of Ecuadorian restaurants across the five boroughs, to bring them into the organization so that their points of view and their voices can be heard as well. It’s not about diversity so that we can check the box. It’s diversity because we need to hear what they are struggling with. What is their experience? How is their experience different from ours? And what is it that they would like to see us advocate for?
Overall, step number one is we need an immediate modification of the PPP. I don’t know that it necessarily needs to be through a new package. It just needs to be a modification of the guidelines specific to the restaurant industry, so that we can use those funds through the end of the year, at least. Then lift the 75/25 percent rule, which I think is ineffective, particularly in jurisdictions where rent is a significant and large component of your operating expenses.
We need to restructure our contractual obligations with our landlords. I’m struggling with both my landlords right now. I mean, I have good relationships with them, but I’m struggling to find a middle ground that makes sure I can manage my liquidity as a business and have enough firepower to survive the whole duration of this crisis. We really don’t know how long this is going to be. We really don’t know how many stops and starts we’re going to have. We really don’t know what capacity we’re going to be asked to operate with.
And importantly, one topic that’s often overlooked is that we’re going to be hitting a deep recession as we jump into the latter part of 2020 and into 2021. How impacted are consumer confidence and consumer discretionary spending going to be, and how is that going to impact our restaurants? We need to find ways in which our lease contracts are structured as a percentage of revenue.
I think the New York City Council has taken a very good first step, which is removing the personal guarantee so that at least landlords are incentivized to come to the table and have constructive discussions with us. But in parallel to that, we need legislation that accomplishes two things. One is some form of mortgage payment forgiveness, so that the entire burden of lost revenue is not placed necessarily on the landlord, and then perhaps some form of property tax abatement that allows landlords to avoid pushing destructive agreements with us.
Landlords are not demons. They also have bills, and they have mortgage payments. It’s important to find some kind of contract that divides the burden of the shutdown between lenders and landlords and operators.
I was reading Jeff Katz’s interview about his involvement with the Business Interruption Group—ending that insurance company business interruption escape clause. I’m 100 percent on board with that. Don’t even ask me about my dislike for insurance companies. That’s a topic for another day. We’re still paying full premiums, you know? And I’m sure they will go up. Unfortunately, that may take a longer time to litigate. We may end up seeing the result of that by the time most of us are out of business.
My perception is that the government needs to do something in order to bridge the crisis—either additional funding to a modified PPP, or some form of stabilization fund, which is what the Independent Restaurant Coalition is proposing. I’m not fully up to speed in how it would work—on how $120 billion would be split among the millions of restaurants that operate across the United States. How much would that help each of us? I like the idea, of course, but I’m not sure I understand it entirely. Apparently there’s not that much appetite, at least from the Senate end of things, for something larger and specifically meant for the restaurant industry.
The delivery business—it’s really low-margin, when you think about your food costs ranging between 25 to 30 percent, and your staff costs, then the 20 percent fees for delivery platforms. You have to do a lot of volume in order to absorb those costs. There are businesses and types of cuisine much more geared towards delivery which are going to do much better than others.
For us, it’s going to be a little bit of, “Let’s try the market and see how it works and what is the activity for what we have.” I mean, we tried it at Llama Inn back in 2016, the year that we opened. It really didn’t justify the effort of putting your food in a container to go. One of the troubles we’ve had historically with delivery services is that, as a Peruvian restaurant, it’s really hard to find us. If you go to Caviar.com, you don’t have a category that says “Peruvian.” We’re buried in the thousands of restaurants under “Other.”
In New York City, every neighborhood is different, and every borough is different. In the West Village, where Llama San operates, you walk around the streets and the city is deserted. I live in a building there with 95 units, and there are 10 units occupied currently because everyone has migrated upstate or to the Hamptons or wherever they decided to go. We are not expecting to see that flow of people come back into the city at least through September. So for us, it’s going to be interesting to see who our customer is, and where our customer is, and how far away they’re willing to get delivery from.
As for reopening eventually or changing the restaurants, there’s too much noise, too much emotion to make a rational decision. I see a lot of news clips and news releases about people changing their business models and going from full sit-down to takeout and fast casual. I think that that’s a little bit of a rush decision. We want to wait a little bit more and see how things evolve over the next few months before we make any decision about our business model. It’s just too complicated.
I think ultimately I have to be optimistic that we are going to revert back to some form of normalcy. And yet the level of concern the general population has about their health and about what could potentially happen to their loved ones—it’s magnified.
We’re very, very focused on trying to get the support we need from our elected officials. Without that support—I have pretty successful restaurants, and I run them with a very effective cost structure, but I don’t think I can keep them open. We have to keep pressure on the politicians, and we need the general public to know what we’re going through. We have to keep being louder and louder.