It’s a terrible time to open a restaurant. Here’s why some owners are pushing forward

Last summer, Adam Weisblatt signed a lease on a historic saloon in Pioneertown, California. Then the world changed.

In March, states and municipalities began ordering restaurants to close their doors. Since then, many eateries have relied on delivery or takeout to stay afloat.

Those that have opened their dining rooms are serving a fraction of the customers they’re used to because of capacity constraints designed to allow for social distancing indoors. They’ve invested in plexiglass shields to separate customers from each other and staff, hand sanitizing stations, outdoor seating and technology to keep up with new requirements and help make customers feel safe.

Overall, from March to May, eating and drinking place sales were $94 billion below expected levels, according to a survey by the National Restaurant Association.

Since the abrupt closures in early spring, the sector is showing signs of improvement. The National Restaurant Association said last month that sales grew in May and June. Still, they warned, “overall spending in restaurants remained well below normal levels,” adding that “the road to recovery will be uneven.”

So this may not seem like the best time to open a restaurant. But Weisblatt and his partner Holly Fox feel they have no choice.

“We have exhausted our resources to do anything other than open,” Weisblatt told CNN Business. “We’re not in a position where we can just indefinitely pay rent.” The Red Dog Saloon will finally open to the public, with outdoor seating, by September. “We do not want to lose this project,” he said. “We do not want to lose the opportunity we think we have here.”

Weisblatt and others in similar situations are forging ahead with plans to open restaurants, even as the pandemic continues and uncertainty about the future remains high.

Some restaurant operators must take the risk in order to pay their mounting debts. But others see this as an opportune time to launch concepts they think will do well during the pandemic.

‘Can’t sit on the sidelines forever ‘

In his role as a principal consultant at Last Word Hospitality, the company he founded and runs with Fox, Weisblatt advises clients to push for a lease agreement that allows restaurant operators to hold off on paying rent until they open, or one year into the contract, whichever comes first.

Those terms, which don’t require restaurants to retroactively pay for the rent-free months, give restaurant operators time to sort out permits or make any other changes or improvements to the space before starting to pay rent — something landlords may agree to because of the added value to their properties.

For Red Dog, “that year just went by,” Weisblatt said. Faced with rent and other fixed costs, Weisblatt, who owns two other restaurants along with Fox, decided to go ahead and update his concept to be pandemic-friendly.

“We went out and bought all these cheap Home Depot chairs and tables,” he said, to set up outdoor seating.

By “pure, dumb luck,” his team had installed an order and pickup window, Weisblatt said. Originally, the idea was for the Red Dog Saloon to be able to serve breakfast and coffee through the window in the mornings. Now, guests will use it to pick up cocktails, tacos and Tex-Mex sides prepared by a skeleton crew.

Some restaurant operators can afford to walk away from projects they’ve committed to, Weisblatt noted.

“If you’re a super-well funded group, or you have backing that is significant or a personal fortune of your own, then no problem — burn some money and wait it out,” he said. “But for those of us that do not have access or don’t have that kind of capital on hand, we’re forced into a situation where we have to be super-creative and find a way to open and get cash flow going.”

Andre Neyrey, owner of Blackwood Hospitality, a restaurant consulting and brokerage firm, said that at the start of the pandemic, some restaurateurs were waiting for the situation to stabilize. But as the crisis stretched on, they had to make a move.

“They can’t sit on the sidelines forever,” Neyrey said. “If you own a restaurant, what else are you going to do? You’re gonna have to try to open it up and try to make money out of it.”

Once the Red Dog Saloon opens this summer Weisblatt expects it to break even and have enough cash on hand for unforeseen expenses, but he doesn’t expect to turn much of a profit. “To try to make money, it’s almost futile,” he said. “It’s just, can you survive?”

But some restaurants that are opening now are betting on success even before the pandemic ends.

A waiting game

A number of large restaurant chains have seen their sales soar during the pandemic.

At Papa John’s, sales at North American restaurants open at least a year jumped 28% in the three months that ended on June 28. During a similar time period, sales at Popeyes’ US restaurants open at least a year grew 28.5%.

Vegan chef and restaurateur Matthew Kenney owns about 30 restaurants around the world. Some have been performing well, he said.

“We have a few places that are actually up over last year,” Kenney said. He called out one of his restaurants in particular: Double Zero in Venice, California, which serves plant-based pizza. “It leans toward being very delivery-friendly,” he explained.

Kenney had about five openings planned between March and April. Some of those have done so, while others have been delayed, he said. And since the pandemic hit, Kenney has developed more concepts and planned more openings.

Sestina, a plant-based pasta bar, will open in New York City this week. It has outdoor seating and will offer pasta-making kits to go. Kenney is also planning to open a vegan drive-thru in Costa Mesa, California, which could be especially appealing to those interested in plant-based diets and convenience.

One big advantage to developing new concepts during the pandemic, he said, is better deals on rent.

“There are more favorable conditions in the commercial real estate market right now,” Kenney said. “We’re being obviously very careful with terms and making sure that our leases have clauses related to Covid,” he added. “We at least have that insight in terms of how we set up the business model.”

Because the landscape has been so brutal for restaurants, those that make it through may be rewarded with reduced competition at the other end.

“I think that people are going to come flying back out, whenever there’s a true celebration of the end of Covid,” said Weisblatt. “It’s really a waiting game.”