Silver Linings
Posted by estiator at 10 May, at 05 : 36 AM Print
COVER STORY
Restaurateurs share stories behind Covid openings.
By Michael Kaminer
The pandemic has produced “a baby boom,” according to The New York Times. But the newspaper of record wasn’t referring to infants. “Restaurants and food businesses have been born during the pandemic at a rate that almost no one predicted a year ago, when dining rooms across the United States were ordered to close,” the Times reported.
As the paper noted, people who opened restaurants said that pandemic conditions actually gave them some advantages. “Like start-ups competing with legacy companies, they may have lower overhead costs and the agility to adapt to a shifting environment,” the Times said. Ironically, the challenges that killed so many restaurants became the same factors that helped birth a new generation of eateries.
According to data from Yelp, new business openings increased 14 percent in year two of the pandemic to 521,926, up from 457,236 in year one of the pandemic, and were generally in line with the year prior to the pandemic— down by only 1 percent.
“Everyone was running for cover, but there were silver linings to Covid if you were opening a restaurant,” says Stratis Morfogen, the longtime restaurateur who launched a second location of his popular Brooklyn Chop House in March. The upscale hotspot opened in a former Buffalo Wild Wings location on an ultra-prime midtown Manhattan block with high tourist traffic.
“I never would have had the opportunity to get 25,000 square feet in the heart of Times Square,” Morfogen says. “Before the pandemic, you would have had to be a public company to get this much space in this kind of location. You’d have to guarantee $5 million to $10 million minimum just for the lease. But in May 2020, as a little guy, we were able to do the deal.”
Even better, Morfogen tells Estiator, “we were able to get 20-year leases” for Brooklyn Chop House and for Pappas, the splashy destination restaurant set to open in Manhattan’s West Village this summer. “We also got seven-figure TI [Tenant-Improvement Allowance] checks, are our guarantees are under $100,000.”
Through the pandemic, Morfogen also expanded his Brooklyn Dumpling Shop automat franchise, with 100 franchises set for the Middle East alone. Customers control the ordering and pickup experience through an app, with minimal contact. “We designed it before Covid, for efficiency and economics, not for safety, but that ended up aligning,” he said. “It appeals to the TikTok generation—they don’t want to talk to anyone, never mind a cashier.”
That said, Morfogen also faced serious challenges related to pandemic conditions. “Costs around every aspect of building a restaurant— everything from sheetrock to LED lighting to cement—has doubled or tripled, and that’s if you could even find the supplies,” he said. “I never imagined I’d have to wait nine months for shipping containers from Taiwan with the compressors for our walk-in refrigerators. PreCovid, that was three to five days.” Because Morfogen’s new venture was “pretty wellfunded, we could pay a premium to jump the line. And that’s what we did on everything.”
Ultimately, Morfogen estimates, building out the new Brooklyn Chop House cost $2.5 million, “with the landlord picking up much of that.” Pre-Covid, though, “it would have been about $1.7 million.” The Brooklyn Chop House bet is paying off: “We’re still in soft mode, with just two of our five floors open, and we’re at capacity every night,” he says. “We have 1,500 requests for reservations every night, and we have to stop at 400.”
Likewise, Boston restaurateur Demetri Tsolakis made a high-profile bet in April with Hecate, a high-style cocktail bar tucked beneath his acclaimed Krasi restaurant in the busy Back Bay neighborhood. “Hecate was supposed to open in 2020, at the start of the pandemic,” Tsolakis tells Estiator. “As an intimate, 24-seat European-style cocktail bar, with small spaces centered around our bartender, we couldn’t open in the middle of the pandemic. Patrons and staff would be too close to each other.”
But the delay became an advantage, Tsolakis says. “We built it over time, in stages, and it gave us more time as a team to make it perfect. We made the cocktail program even stronger. We were able to present a venue with no flaws.” Hecate’s original staff was reassigned to Tsolakis’ other restaurants, keeping them employed through the pandemic. “We never went through staffing issues,” he says.
A cooperative landlord helped Tsolakis keep Krasi healthy—and Hecate on track—during 2020’s forced restaurant closures. “Our landlord gave us no rent. Our business never suffered. We didn’t apply for, or take, funding assistance. We thought that should go to people who really needed it.”
Though its mysterious, alluring concept would make a splash anywhere, Hecate’s opening in April created a sensation in Boston. The venue promised mystery and drama in contrast with a nonstop parade of quick-service concepts, salad emporia, and to-go kitchens. So the delayed timing ultimately proved an advantage for positioning. Hecate “is spinning some myth and magic,” raved Boston.com. “People just want to be back out,” Tsolakis says. “They’re less concerned about paying higher prices. They just want it to feel normal.”
The caves of Santorini were a huge inspiration for Hecate, which is infused with Greek DNA, Tsolakis said. “Krasi has the biggest Greek wine list in the country, and Hecate is now the Greek cocktail bar,” he says. According to a press release, Hecate’s “subterranean space celebrates the underworld, and is encapsulated in stone and adorned with a single source of light alongside the flickering elements of fire.” “An 8-seat bar is the focal point where Hecate’s spirit guides transcend all boundaries with Rites + Rituals (10 signature cocktails), Dry Spells (3 non alcoholic beverages) and Fermented Grains (3 beers, 3 Greek wines),” the press release said.
None of this, of course, minimizes the misery caused by Covid-19. As Estiator readers know, the pandemic caused many restaurants across the country to shut their doors permanently. About 90,000 restaurants and bars had closed as of May 2021, according to the latest data available from the National Restaurant Association.
And while restaurant sales are expected to increase, restaurant employment is shrinking. The trade group projects sales this year to reach $898 billion and employment to increase by 400,000 jobs compared with 2021, totaling 14.9 million jobs, according to the organization’s 2022 State of the Industry report. Those projected totals would be an increase from $864 billion in sales in 2019—but a half a million decrease in jobs from 2019.
According to the National Restaurant Association’s 2022 State of the Restaurant Industry Report, more than half of restaurant operators said it would be a year or more before business conditions return to normal. Food, labor, and occupancy costs are expected to remain elevated, and continue to impact restaurant profit margins in 2022.
Nearly all operators surveyed said they experienced supply delays or shortages of key food or beverage items in 2021—and these challenges will likely continue in 2022. To compound the issues, 51 percent of adults say they aren’t eating at restaurants as often as they would like, which is an increase of 6 percentage points from before the pandemic.
Despite it all, the report says, consumers’ pent-up demand for restaurant services remains high. And, says Morfogen, opportunities await operators who can stomach the risk. “This is a once-in-a-lifetime moment. It’s like buying Apple stock for $5 in 2008,” he says. “There are people who from away from a burning building. I’m the guy who runs in.”
