Michelin-starred chef Gareth Byrne didn’t expect to find himself running a takeaway.

His Kilkenny restaurant, Campagne, started one last week as a way to bring in some cash. “It tides us over and pays a few bills. Nobody’s making any money out of it,” he says.

Restaurants have big fixed costs, like rent and insurance, which don’t go away during a lockdown. Many in the hospitality industry are looking for ways to keep their businesses alive by bringing in some money to cover these costs. Like Byrne and his takeaway. 

It’s clear people want normality back, restaurateurs included. However, when the news broke that restaurants would be allowed to welcome hungry customers at the end of June, some restaurateurs did not feel relief. 

Restaurants are to be permitted to reopen only if they facilitate social distancing among patrons. That won’t work for most restaurants. Because of their fixed costs, most restaurants need to be nearly-full in order to break even. Social distancing means half-full restaurants, which means serving meals at a loss.

Already the hospitality industry has been one of the biggest economic casualties of Covid-19. Around 180,000 people lost their jobs in the space of three days, according to Adrian Cummins, Chief Executive Officer of the Restaurants Association Ireland (RAI).

“Basically, our industry is ready to collapse,” he says.

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Social distancing rules will dramatically reduce restaurants’ capacities.“The issue is even if you take 50 per cent capacity, we have to have a new business model. So, if you take a restaurant like Fire, which is a 280 seater, they weren’t built for coronavirus,” says Padraic O’Kane, co-owner of Sole and Fire restaurants in Dublin.

Niall Fortune, owner of Eddie Rockets also predicts that he will be operating at a much lower capacity in June with social distancing. “When we do re-open, we will re-open to a new environment. If we get 50 per cent of our existing trade with the social distancing, we will be very happy with that,” he says.

“If we’re reducing our sales capacities by nearly 50 per cent, and it’s probably, in money terms, I’m projecting it’s going to be even more, I think average spend will be down between 20 to 25 per cent per person. We are also going to miss the international traveller, particularly the business traveller that Dublin relies on for 12 months of the year,” states Kane.

It’s quite clear that most restaurants cannot reopen or survive unless there are some forms of subsidies.

Ross Lewis

International travellers are an important engine of demand for restaurants. O’Kane says that even in the 2008 recession, the business traveller was still there. However, that is no longer the case. Tourists are gone too. 

“This summer has gone. Even if we get to open in July, the summer has gone. There won’t be any tourists anyway,” says Brian Montague, the owner of The Winding Stair, The Woollen Mills and The Grand Social restaurants.

“It’s an accumulation of social distancing, which cuts in half our occupancy levels within the restaurant, no tourists, poor consumer spending, and maybe a reluctance on the part of consumers to go to those places. It’s going to be probably the toughest environment that we’ve ever traded in,” he adds.

“We’re going to be operating at about 40 per cent max of what we previously did,” says Byrne.

Fixed costs such as rent and insurance were already taking their toll on Irish restaurants. And notoriously thin margins make the sector even more vulnerable.

“Our industry doesn’t work on such large margins that they could be absorbed by doing less than, sort of half of your normal turnover or customers,” says Ross Lewis, chef at Michelin star restaurant Chapter One.

“The thing about the restaurant industry is it is a people to people industry. So, the biggest cost in your cheque book is labour and you’re serving lots of people. So obviously, for this kind of a pandemic, there couldn’t be a worse model than this, because it’s so very painfully labour intensive and then it’s very competitive,” says Lewis.

Kevin Arundel, who runs the Chophouse gastropub in Dublin 4, agrees labour costs are going to be particularly difficult for his business’s viability. That is why he decided to change his business model so he can navigate the challenge of possibly opening in June with social distancing.

He will operate a system where customers will pre-order everything except drinks. That means he gets to keep his labour costs down. “I won’t need six chefs, I can do it with three chefs because I’ve got all of my dockets already in,” he says.

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David Barry, proprietor of Gotham and the Independent Pizza Company, believes the rules are unworkable. Operating at a much lower capacity will make it extremely difficult to pay for everything else.

“If you’ve got half your turnover, which is the sort of the broad figure that you’re looking at, you’re not going to pay your rent. The rent is the problem,” says Barry.

“You can’t just shaft landlords, so to speak, because, you know, a lot of landlords would have commitments as well,” says Barry.

Rent is also a problem for Arundel.

“If we’ve got half the seating and we’re still paying 100 per cent premium rent, it just wouldn’t be viable. So it’s going to be a big push for everybody, you know? And then that puts pressure back on the landlord,” says the chef.

“If I got a rent reduction of 50 percent, yes, it would be viable to open just about,” he adds.

Rent is not a financial burden for Montague. 

“We’re in the fortunate position, unlike most restaurant groups, that we own most of the properties that we trade out of,” he says. He planned to do a sale and leaseback of his properties before Covid-19 but that has now been put on hold.

Debt and taxes

A concern for Montague is the Vat rate, which has been a point of contention for the restaurant sector since it was increased by two per cent in 2018. Many closures from this year have already been attributed to the rate rising to 13.5 per cent.

Montague says that the problems with the Vat rate, especially now, were not properly addressed by the government recently.

“The big thing that is absent from their policy is the definitive position on Vat. I pay 23 per cent of Vat on every glass of wine I sell. I pay 14 per cent on Vat on every meal I sell. If I’m serving half as many customers and I’m trying to get people in by being more competitive in pricing and changing menus that just will not be sustainable,” says Montague.

Many restaurateurs will need to pay their suppliers the moment they re-open. If they are feeding less people than they did before the spread of Covid-19, they will not have the same amount of cash flow.

We have detailed negotiations with 25 landlords. Some are being very reasonable. Some are being complete bastards.

Niall Fortune

“Most of us stop paying all our suppliers the day we closed. The priority was to retain cash because none of us knew how long this was going to last. Our cash is the main thing that will get us out of this,” says Montague.

“It’s fine for the government to indicate that there will be cheap loan schemes. But frankly, for a lot of businesses that have spent all the cash anyway, I think it’s going to be very challenging to imagine, that even with low interest rates, taking on debt is going to be the right way to go,” he continues.

“Just closing your doors doesn’t stop your bills from coming. You have those creditors when you close. And then we’re going to have to pay upfront for services when we do open because we’ll be asking our suppliers, who we owe money to, to start supplying us again,” he says.

Cash burn is a huge issue for the restaurant sector at the moment, according to Adrian Cummins. “People are burning cash to try and sustain their business. And the solutions that have been put forward aren’t sector specific for us and we have different needs,” he says.

“The other thing is that we need to be able to compensate businesses for debt that has been built up. And that that has to be part of the conversation. There has to be debt relief,” he adds.

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Declining consumer confidence

Although social distancing will allow businesses open, it’s not clear if people will actually want to mix restaurants and cafes by the end of June.

“On the face of it it’s not economically viable but you have to give a go and see how it’s going to turn out. Will the demand be there? Will people come out? We don’t know,” says Byrne.

Fellow restaurateurs share Byrne’s view. Social distancing may create more problems for the struggling restaurant sector. “Even with the social distancing the jury is still out as to whether people will be comfortable coming back into enclosed spaces. We just don’t know. There is a view that the Irish people will be mad to get back, but there’s no doubt there will be a level of caution,” says Montague.

Montague adds that when restaurants open, it won’t just be the threat of getting infected with Covid-19 that will deter people from eating out. People will be a lot more cautious about spending money as we hurtle towards a predicted recession. Again, this is bad news for the hospitality sector.

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Some restaurants are in a better position than others because of their business model. For example, Camile Thai had a successful takeaway service before the pandemic spread and placed some emphasis, but not a huge amount, on the dining in experience. Yet, its founder Brody Sweeney says that it will be tough to re-open in June with social distancing measures in place.

“We want to re-open our dine in, and are planning for it at the moment, but we are realising it will be extremely difficult for us,” says Sweeney.

“For example, we have four separate parties using the same front door. Dine in, collection, takeaway customers and drivers. Each of the four have different issues in terms of queueing and waiting. How can we manage it for all safely, as well as our internal staff,” he adds.

Others are staying optimistic and are looking forward to re-opening in June with social distancing in place.

I get really annoyed because I’m very much pro-European, and Ireland is very pro-European, but they’re asleep at the wheel. Where are they? What have they done? Nowhere to be seen.

Adrian Cummins

“We wish to reopen as soon as the government deems it safe to do so. We are fortunate to have a local and very loyal clientele and we know from our interactions with them during the closure, that many of them will return to dine with us immediately,” Honor Byrne, Commercial Director for Cliff Townhouse, a seafood focused restaurant on St Stephen’s Green in Dublin.

“Health and Safety measures for both staff and clients are being compiled and tested every day by our management teams across the group, who are all working in various project teams in order to ensure we are ready and well-practised in all new measures prior to reopening,” she added.

Ordinarily Cliff Townhouse could host 200 diners at small tables and there could be various events happening in one night, from anniversaries to birthdays. However, this will not be possible with social distancing in place.

Fergus O’Halloran, the general manager at The Twelve Hotel in Barna, Galway is also looking forward to opening again but agrees that it will be tough to do so.

“Every premises and business is different. We will use our space, creativity and resources to make the best possible experience for our guests whilst remaining economically viable and maintaining strict health and safety guidelines. It will be challenging but we are always up for evolving and adapting to difficult situations. We opened in 2007 just before the financial crash so we know what it takes to stay going in challenging circumstances,” he says.

One metre or two

The big question for the restaurant sector right now is exactly what the social distancing rules will specify. Will they impose a one metre, or a two metre social distancing rule? 

There are conflicting thoughts on what would be best practice. The World Health Organisation (WHO) maintains that a one metre social distancing rule is safe. Whereas the HSE have been implementing a two metre rule between people since the beginning of the lockdown. 

“With regards to the viability of a business, whether it’s viable as open with two metres, a metre and a half or one metre. That conversation hasn’t happened yet with government,” says Cummins.

We’ve analysed other jurisdictions on their criteria. There’s different criteria in different areas. So, for example, in Norway, the distance between tables is one metre and in the likes of Liechtenstein or Switzerland it’s two metre,” he adds.

They’ve hung us out to dry at the moment at the moment,

Adrian Cummins

Obviously, from a business point of view, one metre would be preferable. “If it’s going to be two metre, that’s going to be incredibly difficult, if it’s going to be one metre that’d be more palatable,” says Lewis.

Restaurateurs agree that there needs to be more clarity on just how much social distancing will be happening on their premises. “It’s all going to hinge on whether it’s going to be one metre or two metre. But with two metres, I don’t know a single restaurateur who’s crunched the numbers and has come back with a positive result. One metre is a lot more feasible,” says chef at Michael’s seafood restaurant in Dublin Gary Smith.

“It doesn’t seem feasible, not being able to have guests on your premises, on your own terms,” he adds.

Arundel agrees two metre may be too much and would prefer to see one metre social distancing enforced as well as good social practice.

“The two metre, I think is a bit much. You don’t think it is that far, but it’s actually a long way,” he says.

If the two metre social distancing rule is in place, Arundel would have 28 guests in at one time which is a massive reduction on his usual capacity.

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Although Smith does have concerns about how social distancing may impact his business, his biggest fear is someone contracting the virus at his restaurant.

“We’ve tried so hard to protect our customers and our staff, I’m terrified of having customers back on site again, because if you’ve a bad bit of luck, it could end up costing you your business. Just from pure, bad, rotten luck of getting the case within the premises. So that terrifies me more than social distancing to be honest,” says Smith.

“After all the hard work of doing the takeaway, if we reopen as a restaurant and then get associated with a case, it’s game over, all of that hard work is done, and someone’s going to fall on their sword and I don’t want it to be me,” he adds.

O’Halloran says that the Twelve Hotel will continue to keep the take out option running as for those who would still prefer to dine at home even when restaurants are permitted to open.

“I think we just need to have a grown-up conversation about this. We need to work with the medics. We need to come up with viable solutions that they can be happy with into the future,” says Cummins.

Help needed

Cummins believes a lot more needs to be done at government level to help the hospitality industry. “They’ve hung us out to dry at the moment at the moment,” he says.

Cummins was not satisfied when Heather Humphreys, the Minister for Business, Enterprise, and Innovation announced that sectoral support for hospitality will be a matter for the next government.

Humphreys stated that the Vat rate, for example, could go back to 9 per cent but this requires legislation and therefore can’t happen until the next government is formed.

I’m terrified of having customers back on site again, because if you’ve a bad bit of luck, it could end up costing you your business. Just from pure, bad, rotten luck of getting the case within the premises.

Gary Smith

Cummins stresses that a new government could be anywhere from a few weeks to two months away.

“I know they’re trying to work as hard as they can, and there is a lot of work going on behind the scenes,” says Cummins.

“I just think that all politicians haven’t really stepped up to the plate at all on this,” he adds.

On a larger scale there has been little input from the EU on this matter, states Cummins.

“I get really annoyed because I’m very much pro-European, and Ireland is very pro-European, but they’re asleep at the wheel. Where are they? What have they done? Nowhere to be seen,” he says.

Restaurants will only be able to re-open when  an agreement has been made on support to help those in the hospitality sector, states Niall Fortune. “Everybody has to take some pain”, for this agreement to happen, he says.

“I think the government is moving towards something nice. We have detailed negotiations with 25 landlords. Some are being very reasonable. Some are being complete bastards,” says Fortune.

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For Barry, the big issue is the fixed cost of rent. He says the government should intervene.

“It’s been reported that in the likes of France and I think Italy that the government have stepped in and, on a short term basis, I think you’re looking at a scenario whereby they’re paying 60 per cent of rents with the landlord taking a 20 per cent hit and then the tenant paying 20 percent of what they would normally pay,” says Barry.

“There’s going to be just an extraordinary number of closures, that’s what I would think,” he adds.

Many establishments are paying high rents while they remain closed for the duration of lockdown. The most recent high-profile casualty of high rents was Bewley’s Oriental Café. The cherished Dublin landmark was forced to cease trading when management was unable to reach an agreement about rent with landlord Johnny Ronan.

Most of us stop paying all our suppliers the day we closed. The priority was to retain cash because none of us knew how long this was going to last. Our cash is the main thing that will get us out of this.

Brian Montague

Bewley’s owners were paying €1.5 million in rent a year to Ronan Group Real Estate. Covid-19 was the final straw, and it could no longer keep up rent as lockdown went on.

Stuart Fitzgerald, managing director of Leon restaurants, says there needs to be an overall focus on the flexibility of the restaurant sector’s cost base, rather than individual issues it faces like rent. 

“There’s only so far the cost base can flex and a lot of the costs within the restaurant business are fixed like occupancy cost, like rents and rates. It’s not fair on the landlord to have to pick up the bill. And certainly, the tenant isn’t going to be able to, in a lot of cases, to meet their obligations. So, there’s going to have to be some support from the state if it’s going to work to allow that flex,” says Fitzgerald.

Fitzgerald explains that state supports are going to be required during a period of low activity and without them it’s going to be very difficult not just for restaurants, but across the hospitality sector.

“It’s quite clear that most restaurants cannot reopen or survive unless there are some forms of subsidies,” says Chapter One’s Lewis. 

Honour Byrne also echoes this and says “viable business should be supported in order to protect our hospitality industry.”

“Vat, rates, insurance and other supports need to be addressed for 2020 and 2021. Hospitality has always shown its resilience and with the correct supports and structure for the next 12 months it will adapt to survive,” she says.

Barry is not confident that the restaurant trade will go back to normal anytime soon.

“To use the old quote: ‘the past is a different country.’ We’re probably not going back to what we had before, no matter what happens. Even with government assistance or whatever,” says Barry.

“Until there’s a vaccine that’s mass distributed, are customers going to come into a restaurant or a pub and sit reasonably close by or even two metres close to somebody else because they still have to be served by a waiter,” he continues.

Montague is not actually convinced that restaurants will open in June, despite the government’s Covid-19 recovery road map.

“I’m not going to claim that we’re going to be the hardest hit because. But we would be the last to open up,” he says.

“Frankly, I think we will be at the end of the production line when it comes to who opens. And that means that a lot of the policies that the government announced are just simply too short term,” adds Montague.

Montague predicts that the fallout of Covid-19 is going to impact the restaurant industry for at least 18 months.

Basically, our industry is ready to collapse.

Adrian Cummins

“My view is it will be next summer, if the tourists return, that this thing will start to be a distant memory. It will be next summer before we see anything close to normality,” he says.

No matter when restaurants can open, there must be a plan in place, says Niall Fortune. 

“We won’t be able to re-open unless the major stakeholders, that’s the government, the landlords, the bankers and everybody else realises that the whole landscape has changed and the world has changed. It’s just not going to work,” he says.

“We have to sort the whole business out before we can start opening business. There’s no point opening with a short term deal and a loan here or a loan there, because in six months time you’re going to be broke,” adds Fortune. 

For now, the timer for restaurants is set for June 29.