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Thursday, May 19, 2022

Restaurants Take Another Bite at Profitability

To open or not to open – for restaurant owners, that’s the question.California has lifted its most controversial pandemic restriction, namely the ban on commercial outdoor dining. But Valley restaurateurs, including The Stand in Encino and Casa Vega in Sherman Oaks, must balance the costs of reopening versus the revenue potential of operating at limited capacity.

Gov. Gavin Newsom last month ended his statewide emergency order that in early December banned restaurants from serving patrons at outdoor dining areas, freeing up L.A. County to roll back its own such restriction. Patios and al fresco zones are now allowed to operate at 50 percent capacity, with tables 8 feet apart, and no parties larger than six.Outdoor dining has become one of the most hotly debated issues of the pandemic’s regulatory environment. Industry groups such as the California Restaurant Association hail it as a “lifeline” for struggling restaurants. Many local owner-operators saw the ban as an arbitrary political move that unfairly scapegoated their industry. Several filed lawsuits to fight it, as did CRA.

State and city officials argue the ban became necessary to prevent people from gathering without masks amid a deadly coronavirus surge this winter.

While the effectiveness of the outdoor dining ban is hard to measure, its impact on the restaurant industry is devastatingly clear.“It’s staggering,” said Murray Wishengrad, founder of The Stand, an American fare concept with eight locations in the L.A. area, including Calabasas, Woodland Hills, Northridge and Pasadena. The flagship on Ventura Boulevard in Encino boasts a 2,200-square-foot garden patio.

Because restaurants make their money in the margins, Wishengrad said, any interruption to their ability to operate at full capacity for an extended period is financially ruinous. Even with outdoor dining, many aren’t able to cover their costs, never mind turn a profit.

Some, including Casa Vega, the longstanding Mexican restaurant in Sherman Oaks, temporarily closed down when the county’s outdoor dining ban came down in November, unable to justify staying open with such low sales.Compounding the sector’s financial woes is the on-and-off nature of L.A. County’s restaurant regulations.

Costs of complianceAccording to Wishengrad, transitioning from outdoor dining to a takeout-and-delivery-only business model – and then transitioning back – is expensive.“It costs us so much to open the restaurant and to turn on the switch,” he said, referring primarily to human capital.“We have to staff accordingly,” he said. “It takes lots of time and energy and human resources – hours and hours of our staff in preparation, getting things turned on again.”Many restaurants weren’t able to open immediately when the ban ended.

Wishengrad said if a restaurant had laid off service staff and emptied their refrigerators to hunker down during the ban, it could take “10 days or more to restart the business.”Casa Vega announced it would take until Feb. 22 – more than three weeks after outdoor dining’s return – to resume operations.

The restaurant’s owners summed up the challenge of reopening in a social media statement: “We ask for your patience as we take a few weeks to recall our staff, review/implement all the safety guidelines, set back up our kitchen, cook everything from scratch, open up our restaurant/bar and two outdoor patios. Unfortunately, you can’t just flip on a switch and open a restaurant.”Wishengrad said his business is hurting and wondered what will happen when landlords come to collect on months of back rent payments. Nonetheless, he’s pleased the restrictions and virus activity are both “moving in this direction.”“We are highly concerned here about the safety and protection of our employees and customers. Commerce has to fall behind that,” he added.

Did it work?The L.A. County Department of Public Health last month said the Stay at Home order including the outdoor dining ban was no longer necessary because regional capacity at hospital intensive care units was projected to rise above 15 percent, indicating a reduced strain on the health system.

According to a Feb. 8 press release from the department, the city confirmed 2,741 new cases of the virus that day. While the number of new cases remains higher than the roughly 1,000-a-day the city saw last fall, it’s a significant drop from the worst days of December, which saw more than 4,500 new cases a day. The numbers show the region’s “progress in reducing the number of daily new cases and slowing transmission,” the press release said.

But how much of that drop is the result of the outdoor dining ban?A lack of clean data means it’s hard to say for sure.

According to Dr. Carl Fichtenbaum, a professor of clinical medicine in the Division of Infectious Diseases at the University of Cincinnati College of Medicine, eating a meal with someone is “one of the most common ways people transmit.” “You have people not wearing masks that are within close proximity of each other. Most of us make a false assumption that the friend or family member I have chosen to dine with … does not have COVID-19,” he said, adding the wind isn’t always strong enough to dissipate infected respiratory droplets.

The rate at which the virus spreads in restaurants is difficult to quantify, partly because of the logistical challenges of contact tracing.L.A. County’s Public Health Department hasn’t disclosed a broad dataset illustrating where people are catching COVID-19. The department did not respond to the Business Journal’s inquiries by press time.

Ventura County’s Health Care Department was only able to track 14,000 of the region’s 71,000 confirmed cases, according to its Ventura County Recovers website. As of Jan. 27, just 327 cases could be linked to the food service industry.

Fichtenbaum said the exact role on-site dining has played in the pandemic isn’t the best way to look at the question, and that mitigation measures only work when employed together.“There was some nice data from the U.K. where they did some staged mitigation measures. Each time they implemented one factor, it made zero difference. It wasn’t until they implemented all the factors together that they started to see a decline in the rate of transmission of this virus,” he explained.Fichtenbaum said he’s empathetic towards struggling small businesses, but lifting restrictions and allowing a free-for-all of consumer behavior won’t help the economy.“People often try to make this dichotomous assessment, either we save lives or we save the economy. It is not an either or. By sacrificing human beings and families, our economy is disrupted. … What matters most is leadership on the federal and state level that helps to guide for us and provide in a terrible time,” he said.

To that end, a group of senators earlier this month introduced the Restaurants Act into Congress, proposing a budget amendment to establish a restaurant relief fund in the next stimulus package. The legislation, which has bipartisan support, would earmark $120 billion in forgivable loans for independent restaurants and small franchises with fewer than 20 locations.

“We will have an economic recovery,” Fichtenbaum added. “We always do.”

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