Restaurants are central to New York. They are vital to our neighborhoods, to tourism, and to the cultural fabric of our cities and towns. More importantly, restaurants employ more people than any other industry in New York, almost 1 million strong.
As the largest private employer in New York, the restaurant industry here will be hit harder than any other industry in any state. Our density, dependence on public transportation, high cost of living and soaring occupancy create the perfect storm here in New York unlike anywhere else in the country. Our government has an opportunity to change that dire outcome.
Our industry is dark now, and the question we are all facing is not when to reopen but why reopen? In the wake of this pandemic, restaurants of all sizes will need to be reimagined to accommodate the new reality of costly health and safety protocols for staff, social distancing for guests, loss of event and catering revenue, increase in costs for packaging for takeout and delivery, new fees for third party delivery vendors, potential future and unknown disruptions. Best case scenario, sales are projected to drop 50% for at least the next 12-18 months without any coordinated government plan for how to compensate for that. Right now, the government is focused on safety measures for reopening, but those measures are meaningless if restaurants can’t re-open because they are currently set up for failure.
It’s a fallacy to think new businesses will emerge in their place during this recovery period because it will take time through a recession for real estate costs to adjust and access to capital to flow again. If restaurants don’t reopen, and new ones don’t replace them, jobs lost by restaurant workers will not be reabsorbed elsewhere because of the COVID-19 driven recession as well as the fact that other industries don’t hire at comparable volume and also don’t offer true entry level positions that can accommodate our employee demographics. That means sustained high unemployment, pressure on social services, people leaving our beloved city for greater opportunities elsewhere, and a lower tax base. That means empty storefronts, decline in tourism and extinguishing the vibrancy that makes New York so important.
We need an industry specific restructuring plan, and 865,800 people depend on it. Let's give our people a fighting chance.
Here’s our proposal to #saverestaurants, the fabric of our communities.
New York State Restaurant Reopening and Restructuring Plan
1. Payroll Tax Relief
- We ask New York State to suspend payroll tax the next two years to give our businesses immediate financial runway as an incentive to re-activate and sustain employment through this recovery period.
- We ask that at the end of the two year term, restaurants should pay 1% of gross sales as opposed to a percentage per employee.
- WHY: Weekly labor costs for restaurants account for on average 40-45% of total sales (30% salary and wages, 10% payroll taxes, 5% benefits. This weekly cost has increased from 28% of total sales since 2008. We have the lowest revenue per employee given how many people we hire compared to other businesses, so as currently structured, we get penalized for this high level of employment. This is no longer sustainable given we are facing a projected 50% sales decrease during this long period of COVID recovery.
2. Fair Hourly Wage Structure
- We ask for the liberty to compensate and incentivize our teams equitably as other private businesses do.
- WHY: The state regulates what we pay our employees. We are legally bound to not share the tips among all staff. This means that the front of the house (the servers, hosts, people our guests see) are paid often 2x that of the back of the house (the cooks, dishwashers, people behind the scenes) who cannot join the tip pool. This needs to change so the entire staff is equitably paid.
3. Incentivize Percentage Rent Lease Structures
- We ask that leases are restructured as a variable cost based on a percentage of sales. In order to incentivize the landlords, there needs to be a real estate tax abatement on restaurant locations if their lease is based on percentage rent.
- We ask that, in tandem, personal guarantees be waived for tenants during this COVID-19 period and perhaps a vacancy tax is placed on empty buildings so landlords are financially motivated to conduct reasonable negotiation during this recovery period.
- We ask that landlords receive mortgage forgiveness or restructuring, which requires banks to change their approach and account for percentage retail rent in loan underwriting.
- WHY: The majority of restaurant leases are negotiated on a price per square foot model, in the form of fixed monthly payments over the course of 10 to 20 years. Currently faced with a certain decrease in sales (projected to be between 30-50% for an unknown period of time, assumed to be 9-18 months), the math no longer works. Currently, occupancy costs for a New York restaurant accounts for on average 15% of total sales (12% rent, 2% utilities , 1% taxes) which will double as sales decline during this recovery. A financially healthy restaurant should never pay more than 7% of sales for total occupancy costs. We’ve reached a breaking point where restaurants that could barely pay the price per square foot they had agreed to can no longer survive coming back from closure facing such a sharp decrease in sales.
4. Protection from Private Legal Action
- We ask that the NY WARN Act be amended to state that it does not apply to any layoffs or “plant closings” that take place between March 1, 2020 and December 31, 2020.
- We ask that the legislature amend The New York Labor Law to hold that provisions penalizing employers for not giving each employee a Notice of Acknowledgement of Pay Date and Pay Rate or a technically-compliant pay stub will not apply to events taking place between March 1, 2020 and December 31, 2020.
- WHY: On March 15th, The State of New York ordered restaurants and other businesses to essentially shut-down. While the NY WARN ACT has an exception for “unforeseeable business circumstances,” that exception does not apply to the specific requirement to provide notice or relieve employers of technicalities associated with the law. Businesses should not have to defend themselves in court about reasonable notice, nor worry about the potential of 60 days’ back pay because in the panic days after the stay-at-home order was initiated, they did not follow every technicality of NY WARN ACT
- Even the threat of such claims will prevent needed reinvestment in restaurants. In fact it will incentivize many owners to simply walk away and never reopen.
5. SLA Reform
- We ask that the government maintain current State Liquor Authority (SLA) payment extensions and continue to allow for on premise sales.
- We ask for the government to require the SLA to permit businesses to open with a Temporary License in New York City while its application is going through the lengthy backlog at the SLA, like they do for applicants elsewhere in the state.
- We ask that the government extend the current lift on prior SLA restrictions which permits restaurants to sell alcohol to customers for pickup or delivery. This will provide a much needed, alternative revenue stream during the extensive recovery period.
- WHY: With strains on our operations, this high margin revenue stream is critical to weather this period of tumult, particularly as most restaurants will be left with only to go and take out operations due to social distancing requirements.
Hear our #ROAR… we are indeed #toosmalltofail.
Grovehouse Hospitality Group
Dig Food Group
Delicious Hospitality Group
NoHo Hospitality Group
Happy Cooking Hospitality
The Bowery Group
The Dinex Group
Major Food Group
Greg Baxtrom and Max Katzenberg
All Blue Hospitality
Black Seed Bagels
Wicked Good Media
Tokyo Record Bar
La Pecora Bianca
NYState Restaurant Association
Hart's, Cervo's, The Fly
Three Owls Market
Mulberry & Vine
LaLou / Fausto
Vinegar Hill House
Seamore's Brookfield Place
Baby's All right
Per Se / Tak Room
Union Square Hospitality Group
With the support of our founders, we've come together with Robin Hood and the National Restaurant Association to launch a NYC Restaurant Workers Relief Fund. This fund will directly aid industry workers experiencing economic hardship during this crisis. The hospitality industry lives to take care of us. Now, it's our turn to take care of them. Your support will make all the difference. If you can, please donate here (www.roarnewyork.org) and share this message. Thank you!