Over its six decades in business, Barberian’s Steak House in Toronto has weathered more than a few crises in the restaurant industry. When beef prices went through the roof during both the 1970s meat shortage and the 1990s mad-cow scare, deft renegotiations of supplier contracts saved the restaurant. During the 2008 recession, the owners auctioned off investment-grade wine from their vast cellar to keep up cash flow. But the COVID-19 pandemic has pushed the venerable business to the brink.
The fine-dining industry as a whole took such a hit, in fact, that owner Arron Barberian considered closing down the restaurant, which his father Harry founded in 1959.
“Honestly, I did contemplate it. I’m in my late 50s. I’ve worked my butt off since I was a kid. I did contemplate saying, why are we doing this anymore? There’s no real end in sight,” Mr. Barberian said. But it was not in his nature to give up, he added. Over the last 18 months, the family has invested more than $1-million of their personal savings in keeping the lights on. “I decided to just plow through and do it.”
Mr. Barberian is among thousands of Canadian restaurant owners who have faced hard decisions during the pandemic. But while the effects of COVID-19 have been felt across the industry, high-end restaurants like Barberian’s are coping with added challenges.
Those include a business model that often requires tight margins; high food and labour costs; a heavy reliance on in-person dining rooms that have been subject to months of shutdowns and capacity limits; and, in some cases, debt loads that were onerous even before the general public became unusually familiar with the function of a spike protein. Add to that the more recent rise in food costs, and the fact that skilled labour is becoming more expensive and scarce.
Last month, celebrity chef Mark McEwan’s restaurant, gourmet grocery and events business was granted creditor protection. In court documents, the McEwen Group said that it needed to streamline its operations – which had been dragged down especially by a money-losing retail food hall in downtown Toronto – or it would run out of cash within weeks.
In November of 2020, King Street Food Group, which owned eight Toronto restaurants, including high-end Italian favourite Buca, filed for creditor protection as it teetered under more than $46-million in debt. While the circumstances of those two businesses are different, some in the industry say more failures could be on the horizon as government support runs out.
The pressure is building, according to Todd Barclay, president of industry group Restaurants Canada.
“The math just doesn’t work,” he said.
Vikram Vij’s restaurants were not built for takeout.
When the well-known chef built Vij’s Restaunt and My Shanti in Vancouver, he had highly social, communal spaces in mind. When COVID-19 put a stop to indoor dining, he was heartened to see just how many customers supported his businesses through takeout orders. But that was a Band-Aid on a broken limb. High-end restaurants make money by selling alcohol: the markup on a bottle of wine offsets the cost of the food on a plate.
“If you had to survive on food sales ... none of us would be in business,” Mr. Vij said.
There are a few reasons high-end restaurants can be expensive to operate. Lower-priced restaurants usually buy from the kinds of large distributors who deliver ingredients in nearly ready-to-serve shape: pre-made sauces and vacuum-packed steaks. By comparison, fine-dining restaurants do much more prep work, including butchery, breaking down raw ingredients and making stocks and sauces from scratch. More time and skill means higher labour costs, and often a larger footprint to accommodate kitchen space and refrigeration. And fancy restaurants covet downtown locations, where lease costs tend to be extremely high.
Covering all these expenses is a delicate dance. While low- and mid-range restaurants can serve large numbers of customers in short periods of time, high-end restaurants are not high-volume businesses, even if the menu prices are steep.
“If you run a fine-dining restaurant, and at the end of the year you’ve paid your suppliers, paid your wages, paid the rent, and you are left with 5 per cent, you are a damn good operator,” Mr. Vij said.
When indoor dining vanished, high-end restaurants were less suited than others to takeout and delivery orders that became a crucial revenue source.
“People at home don’t necessarily want to order in a $70 tenderloin dinner,” said David Hopkins, president of restaurant consulting company The Fifteen Group.
Federal emergency support has been a lifeline to the industry. One program that some restaurateurs have relied upon is the Canada Emergency Business Account, a loan of up to $60,000, one-third of which is forgivable if repaid by Dec. 31, 2022. In addition, the Canada Emergency Wage Subsidy and Canada Emergency Rent Subsidy together have directed billions of dollars into the accommodation and foodservice industries. Federal data show that, early in the pandemic, the food sector made up around 10 per cent of all claims on the wage subsidy. By the spring of 2021, it was roughly 20 per cent.
The wage and rent subsidies are set to expire on Oct. 23, though the Liberal government has the legal authority to extend them another four weeks, to Nov. 20, without further parliamentary approval. Restaurants Canada is pushing for subsidies to continue as long as restaurants are subject to public-health restrictions, such as capacity limits.
“It will be catastrophic if these supports don’t continue,” Mr. Barclay said.
Not all of the industry’s woes can be pinned on COVID-19. Larger restaurant groups that were expanding quickly before the pandemic may face added challenges.
“Myself and our restaurant group have always been paranoid and thrifty,” said chef David McMillan, a co-owner of Joe Beef Group, which owns four restaurants in Montreal. “We’ve always owned most of the buildings that we put restaurants in, so we don’t have to sign leases with heavy rents ... and never built out a restaurant for more than $100,000. We’ve weathered the pandemic somewhat well, but I do worry for some of the people in the industry who took on a great deal of expansion right before the pandemic.”
Mr. McMillan said he has seen some restaurant groups open 10 restaurants in as many years, while tripling their debts.
“They’re always in blue-chip locations with extremely high rents, and I’ve been wary of that model even prior to the pandemic,” he said.
Building new restaurants can be very expensive, said Carl Korte, a co-owner of Toronto fine-dining fixture Scaramouche.
“If you were to build a top-quality restaurant on a leasehold, you’re probably spending, now, close to $400 a square foot. So it can cost you $3.5- to $5-million dollars to open a restaurant,” he said, speaking generally about the industry.
Because restaurants are a risky business, owners who go looking for financing sometimes face more onerous lending terms than other types of entrepreneurs.
King Street Food Group, for example, signed a deal with a private equity firm, Third Eye Capital, in 2015 to fuel its expansion plans. The group borrowed millions at a base interest rate of 12 per cent. Under the terms of the agreement, the rate had the potential to increase to 22 per cent if certain conditions were breached, according to court documents.
By the time KSF Group filed for creditor protection last year, it owed Third Eye Capital nearly $35-million – more than three quarters of all the debt it owed creditors.
Though pandemic restrictions are still in force in many jurisdictions, diners have begun coming back.
Following a surge at the beginning of September, when restaurant patronage actually topped 2019 numbers, demand has cooled slightly to 87 per cent of regular business, according to restaurant-booking platform OpenTable.
“My assumption is that, barring any extra lockdowns or wider outbreaks, we’ll continue to see this slow and steady growth, essentially back to pre-pandemic levels,” OpenTable Canada director Matt Davis said.
But while customers may be returning, not all staff members are. Therese De Grace, an industry consultant who was formerly a chef and restaurant owner, has seen colleagues leave the business, exhausted by long hours, low wages, and punishing hierarchies that make kitchens difficult places to work.
“Now, in retrospect, I cannot believe some of the stuff I had to tolerate to get to where I got. I also can’t believe some of the stuff I facilitated in my younger days because I felt that was just the way of it,” Ms. De Grace said.
Workers have slowly gained leverage to demand better wages and conditions, she said. And the pandemic has led to a labour crunch as some have left the industry. Restaurant staff who were making $18 per hour pre-COVID can now demand $25 to $28, restaurant owners say. Even with higher pay, many restaurants are short-staffed, leading to shorter opening hours and slimmed-down menus.
Food-cost inflation is also eating into restaurants’ bottom lines. Ingredients are more expensive. Some cuts of meat have increased in price by more than 50 per cent in the past year, Mr. Barberian said. Pre-pandemic, his menu price for a 32-ounce Porterhouse was $82. Now, it is $125.
That means the economics of fine dining could be set to change significantly.
Mr. Vij is spending time in his kitchens rethinking ways of using ingredients to chip away at food costs. Carrot and vegetable peels that were discarded in the old days might now be used in a vegetable paté, chicken skins might be used for fried rice, and perfectly carved dauphinoise potatoes are becoming a little less precious. “With a classically French-trained chef, you might get a 30-per-cent yield on a potato. I need 80 per cent of that potato,” he said. Inflation may mean higher menu prices in some cases, but Mr. Vij said he is also looking at lowering prices where he can.
“Fine dining is going to completely change. It’s going to become casual fine dining. ... I just had a management meeting, saying we have to be more accessible to people,” Mr. Vij said. “Allow them to come to the restaurant maybe once a month instead of every three months, or we won’t survive.”
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