The True Cost of Keeping a Restaurant Open During a Pandemic

COVID-19 , Industry News ,

Source: Eater

San Francisco chef and restaurateur Pim Techamuanvivit breaks down COVID-19’s effects, and the difficult decisions she’s had to make

T“This is a time that you look around at the people, the makers, the restaurants you care about and you support them because you want them to be here. It’s a matter of extinction,” the chef and restaurateur Pim Techamuanvivit said when we first spoke in August. Outside of her apartment in San Francisco’s Dogpatch neighborhood, a throat-burning blanket of smoke hovered over the city as wildfires tore through the surrounding region.

In March, when the COVID-19 pandemic hit the Bay Area, Techamuanvivit was forced to close the original location of Kin Khao, the critically acclaimed Thai restaurant she had opened in 2015 at the Parc 55 Hotel in Union Square. She kept her second restaurant, Nari, open, turning the six-month-old space in Japantown’s Kabuki Hotel into a takeout operation.

Now, as summer waned and restrictions relaxed enough to allow outdoor dining on sidewalks throughout the city, Techamuanvivit was readying the Kabuki’s driveway to accommodate dinner service and waiting for the go-ahead to launch Kin Khao’s new Dogpatch location. The Union Square address remained on indefinite hiatus while she continued to pay its rent.

Techamuanvivit is a friend of mine, and what began as a phone call to catch up turned into a two-part conversation about the true costs of closing versus remaining open during the pandemic. As we spoke, she broke down its effects on her restaurants, explaining how she’d made difficult decisions and their financial and human costs. “I don’t understand why it’s up to me as a small-business owner to search my conscience every month to decide whether or not to support my employees,” she said at one point. “Where is the conscience of this government, of this social system to support people? Where is the conscience of the country?”

The second time we talked, at the beginning of October, she was driving from Kin Khao’s now three-week-old Dogpatch location to Pacific Heights, where Nari had just started serving diners outdoors. “It’s good. It feels good,” she said. “It’s going well, or at least, we’re not making a profit but I know I can make rent.” What follows is a consolidation of our two phone calls, edited and condensed for clarity.

Eater: I thought we would start with Kin Khao. Could you tell me how you raised the money for the original location at the Parc 55 hotel?

Pim Techamuanvivit: Well, because Kin Khao is my first restaurant project, I bootstrapped it; I really just opened with a lot of my own money. I had one partner who I grew up with in Thailand and the two of us got into this together because I had a very clear concept of what I wanted Kin Khao to be, which is really a different kind of Thai restaurant.

So instead of going out to raise a lot of money for a big splashy project, I kept looking until I found a space that really wanted us to be there. [The landlord] helped us with a big chunk of the costs of redoing the space. So it was possible to open a restaurant in San Francisco, downtown, including capital and everything, for under $1 million.

When you closed that space, how much money were you bringing in a year, or how much approximately were you taking in monthly — for example, before the pandemic, maybe January?

Kin Khao does between $4.5 million to $5 million a year as far as sales. It was about $350,000 in January.

Looking at Kin Khao, I want to get a sense of how much it costs to close a restaurant — in terms of money that you have to lay out to close it, but I’m assuming there are also costs that aren’t monetary.

Well, it’s a lot of things. Almost everything that we buy is on 15- or 30-day revolving credit. So, when we order meat today, we have that many days to pay for it. And the way that things work, even when we have the money to pay for it, we still use that credit because it makes things run smoother. We do pay cash to some vendors at the farmers markets, but that’s about it. So when we had to close, we had basically 30 days of products and costs to pay for.

Cost of goods on the last couple P&L [profit and loss] periods before the pandemic varied between $80,000 to $100,000; that’s about how much we lost on products and goods when we closed. The financial loss was mostly in the fresh goods from the first month of closure. Another way to look at the damage is it’s that much money every month that we are not spending on or buying from the farmers, purveyors, and companies we do business with. That’s how much the closure of Kin Khao took out of the food economy. And that’s not counting the wages we pay to our staff who then turn around and spend into the economy.

When we were first told that we had to close down the dining room, I didn’t let go of my salaried employees. That’s about $50,000 a month, collectively. Nari is a bit less. We were lucky that we were not a hand-to-mouth kind of an operation — up until we closed, we were still doing 200, 250 covers on a Saturday night. We could anticipate what we were bringing in, so we had some money filed away. I didn’t want to let go of my entire team, because if you do that, then when you have to reopen the restaurant, that will cost you a lot too, because a management team, especially one that you build, [has] really valuable corporate memory.

But also, it’s a bloody pandemic. You can’t let people go without health insurance. At the time, I was assuming we would only be closed for a month, two months, three months. I thought, I can do that, I can take that hit. It was, I believe, between $12,000 to $14,000 a month in benefits for each restaurant that we decided to keep paying our employees’ insurance. That’s 35 employees who were on our insurance plan, for just Kin Khao.

It was the same with Nari. We kept everyone who was eligible for and had health care through us. That’s 45 people. There were a bunch of people who hadn’t signed up yet and were still eligible or had just become eligible and we made them sign up when we closed so they had health care in this pandemic.

I talked about the importance of the experience and some training for your management staff. The same goes with our hourly employees — our servers, line cooks, prep cooks, butchers. If we’re not open, we don’t have monies to keep employees working, basically. But even carrying their health insurance, it’s a lot of money and we’ve been doing it for six months, and depending on how Kin Khao does, when we open in Dogpatch, we may or may not be able to continue. [Techamuanvivit was able to pay for everyone’s insurance through the end of October, and now covers only those who are working again, including the almost 30 employees she brought back to work at Kin Khao’s Dogpatch location.]

Is it the same team that you had before? How many people were you able to retain over the course of the six months you’ve been closed?

So, Kin Khao, for the first month after COVID, as I explained, we kept all of the salaried employees, which is eight people. And at Nari we have seven people. We basically merged the operations of Kin Khao and Nari and moved everybody to Nari, because Nari is a much bigger space, much newer build, and a much better HVAC system. We created a safe schedule where not everybody worked altogether at the same time. And we started doing takeout. We opened all afternoon, six days a week.

And we did that until the second stay-at-home order was extended at the end of April and became more restrictive. We decided to close down even more, to only have five people working, down from 13 (two of the original 15 chose not to work for personal reasons). We had one front-of-house person, four people in the kitchen — and then went down to five days.

We did that for a while, until things were looking much better in San Francisco. So, we brought back a few employees. We were able to bring back two dishwashers who weren’t getting government assistance and that was great.

For comparison and a fuller sense of what’s at stake when you close, or when you semi-close, I want to get into the economics of Nari. You invested the profits from the first Kin Khao into Nari, but this time, you also raised outside money. How much did Nari cost all told, and where did that money come from?

Nari cost about $5 million to build.

That’s basically more than five times as much as Kin Khao.

I wanted to do something that takes a bit more refinement, to do dishes that I couldn’t do at Kin Khao because of the limited space. I felt like I’d sort of proved myself and could run a profitable restaurant. I was confident enough that I could ask people to invest in me. We raised about 30 percent from investors and also received help from the landlord. We were putting a lot more money in, but there’s also much bigger potential here than at the tiny space at Kin Khao.

You opened in August last year and then got all of this critical acclaim. When did you start seeing a profit, or had you gotten to the point where you had? Because the restaurant was just six months old when COVID came.

It depends on how you look at profits, right? We haven’t really been not-profitable in that we haven’t made back the money that we invested, but we were operating cash positive, basically. That means each month it costs me less [to operate] than my sales. At Kin Khao, truly we were cash positive very quickly, [but] at Nari, it took a bit longer. But by the fourth and fifth months, January and February, we had $75,000 positive cash flow at Nari, which was not bad for a new restaurant.

No, not at all.

When we had to close, we still hadn’t finished paying for construction because, of course, we projected construction to cost a certain amount, and it never does cost that. So it was over [budget] on all these things… We’re not done paying for Nari, basically. So it was really scary when the [lockdown] order came down. The problem with Nari is that we didn’t have a lot of cash in the bank before COVID hit. We don’t have any extra cash left at Kin Khao either because we’d use it all to build Nari.

It’s not that we were short. We weren’t running negative, but nobody has enough to basically take a restaurant through six months of closure. We are still trying to find a way. Right now, when we look at numbers, we’re not looking at what returns we need to make, what margins. I’m not thinking in terms of profit. The way I’m running both Kin Khao and Nari is to kind of hobble along enough that I can pay to support my teams, keep their jobs, and, you know, keep people eating, really. And then when we go back to whatever semblance of normal we have at the end of this, I can still have this team and these restaurants.

You told me that keeping the restaurant alive in no matter what capacity, even if you are losing money, is actually an investment in its future success. It’s something that obviously not every restaurant is in the position of doing. But when you have a restaurant you’ve invested that much money in, it actually makes more sense to keep it alive than to close and try to reopen something after the pandemic. I don’t know if I’m getting that right but maybe you can explain it.

Well, because a restaurant is not just the building or the tables and chairs and decorations that you put in — it’s not just the stuff in the kitchen, right? A restaurant is a team. It’s all the people that you spend time training and working with so that you can have a functional restaurant with a functional team. And I like keeping people who work well with me for a long time, and creating opportunity and space for them to grow.

If I close Nari today, it will cost me less than keeping it open. But I’m keeping it open because I need this team when we can open again. And also, these are the people that have worked for me for many years. They need to make a living. So it’s important for me to keep this running so that at least we can keep some of these people employed.

In terms of doing takeout, do you make any money off of that?

No.

Do you lose money doing that?

Week to week, it’s different, but remember I told you we were $75,000 cash positive when we had to close for COVID?

Yeah.

We got $220,000 in PPP [Paycheck Protection Program loan], and as of last period, I was $300,000 in the hole, so we’ve lost basically $80,000 in the six months that we’ve stayed open, assuming that we qualify for forgiveness for PPP. And doing takeout alone is not going to do it anymore. Because we used to do maybe $15,000 a week from takeout, which is not a lot. It’s less than what we used to make on a Saturday night.

And we’re not even doing that right now, because there’s a lot more restaurants opening for takeout, and outdoor services, so people are not that interested in taking things home to eat. So we’re going to open outdoors. Luckily we have the driveway, so people won’t be sitting on the streets, and we can make it a little bit nice, [and] space out the tables so it’s so safe for everyone. [Although Techamuanvivit subsequently reopened Nari for limited indoor service and brought back a number of its employees, she has since closed its dining room to comply with San Francisco’s November 13 shutdown of indoor dining.]

You have to spend money on preparing that space, too, right?

We ended up renting everything — the partitions, the pergolas, and the heaters. The propane heaters alone cost $2,000 a month to rent, and after the fire department told us we could no longer use them, we had to spend $3,000 buying 10 electric heaters. But we saved money by using tables and chairs from the hotel’s breakfast room downstairs that weren’t being used. So we ended up with a really nice space that didn’t cost us a lot.

We spent money buying a mobile hand-washing station outside our front door so the servers don’t have to run all the way to the back of the restaurant to wash their hands. That was a few hundred dollars. We bought a few trays, to limit touch, so servers can carry plates on those instead of with their hands. We’re lucky because the space is quite minimal.

For Kin Khao [in Dogpatch], even though we took over an existing restaurant, we still had some costs for setting up outside: tables and chairs, umbrellas, lights, heaters, lots and lots of compostable takeout containers, which are astonishingly expensive, and we have to use really, really good ones because a hot curry will destroy anything. For example, for just one order of khao soi, which has so many parts we have to keep separate, I’m in for over $2 in containers.

It’s so unfair that restaurateurs have been put in the position to figure out what “safe” means — and then have to shoulder all the expenses ensuring that safety, and follow whatever protocol the local government has put in place, which is constantly changing. How much has government assistance actually assisted you in all of this?

No one is very clear about how PPP works, or no one can exactly tell you that it’s going to be forgiven or not forgiven. So basically, you’re using it thinking you’re still going to owe this money at the end of it, because at this point in time, in 2020, you basically just expect that the worst thing that can possibly happen will happen.

I haven’t paid myself from either restaurant this year, period, because at Nari, I’m supposed to be paid quarterly, and the time to pay me was when we had to close, and I’d rather keep that cash to operate the restaurants right now.

I keep thinking about mom-and-pop restaurants, and how for them, there wasn’t a solid financial infrastructure to begin with, so staying open wasn’t even a possibility — and then all the people who lose jobs and salaries because of that, and it’s no fault of the owner. There’s just not enough there. Because as you said, if it’s a hand-to-mouth operation, you don’t really have anything. When hard times strike, that’s it. You’re gone.

Yeah. And if I hadn’t used all of the money from Kin Khao to open Nari, Kin Khao could close, I could keep paying people for probably six months, and [we’d] be fine reopening. I mean, it’s still going to hurt because it’s less money, but we’re going to be fine reopening. It’s just because, yeah, we’re trying to expand and this happened at the wrong time.

I don’t know if we’re going to make it, frankly. It’s still a day-to-day thing. It depends on how long it goes and what happens, because we’re going to run out of money at some point.

One thing I have to say is, we’re in a much luckier position than a lot of restaurants. I mean, I hear landlord horror stories from everyone, and we are working with landlords who see the value that we bring to their properties, that if and when they reopen their hotels, we’re still a lively, delicious, fun, buzzy restaurant, in that space. It’s still going to be more profitable for them than basically trying to bleed blood out of a crab. So I’m lucky.

Read the article at Eater here.