Dining Out
Down the Line

written by
Pam McElroy

San Francisco restaurant investor and owner
Laurie Thomas discusses what the new normal for dining
out could look like in San Francisco.

What started as a personal love of food and a side business venture as a restaurant investor turned into a full career for Laurie Thomas, owner of Nice Ventures, which owns and manages Rose’s Café and Terzo, in San Francisco. Thomas is also the executive director of the Golden Gate Restaurant Association, serves on the board of SF Travel and as an honorary board member for Meals on Wheels of San Francisco, and is a member of the newly convened San Francisco Economic Recovery Task Force.

Thomas sat down with SF Apartment Magazine to discuss the future of dining out in San Francisco. Our exclusive interview, edited for space and clarity, begins below.

Q. What are the biggest challenges owners of commercial spaces face in the coming months?

A. The ability for the commercial tenant to pay the rent. This means negotiating rents with tenants is key. In San Francisco, restaurant tenants aren’t allowed to do anything but takeout and delivery until June 12 when restaurants will then be allowed to open to seat patrons outside only. As of May 28, San Francisco announced that city restaurants will not be allowed to seat inside their restaurants until at least July 13! This is devastating news for both landlords and tenants.

Once the restaurants can open, they will experience a significant decrease in revenue, because we expect that, due to social distancing constraints, they will only be able to seat about 30% - 40% of their seats—resulting in revenue losses of 60% - 70%. Entertainment venues and bars may have to stay dark until at least mid-August. Restaurants downtown—SOMA, Moscone, Union Square— who depend on tourism and the daily workforce, are talking about not even opening until late fall or January 2021. To add to this, we are hearing that some first quarter conventions are looking to move their dates out until later in 2021, which will only worsen the problem.

A recent survey by The Bay Area Council indicates some tech companies are planning to let most of their employees work remotely indefinitely, or they plan on bringing back only limited staff for a long time. This will severely impact restaurants who rely on corporate catering and lunch business.

I’d hope that landlords of commercial properties would consider their commercial tenants as their business partners right now and work together to help ensure they will continue to have their existing tenants occupy the space.

Q. What are the biggest challenges restaurant owners specifically will face in the coming months?

A. As of right now, San Francisco restaurants cannot open for inside seating until at least July 13. Restaurants have already lost a lot of revenue. Most are still completely closed. A restaurant that stays closed, opens to 30% capacity, or even opens to 75% capacity, all will face significant financial losses. They face cash negative positions where previously agreed upon rents won’t be payable, and if not negotiated, will contribute to the restaurant owners considering filing for Chapter 11 bankruptcy restructuring. Once this filing is made in the court, it immediately freezes any lease payment obligations.

Other big challenges are the wellbeing of staff and their ability and willingness to come back to work.

Q. What major physical changes will restaurants legally have to consider or make before reopening?

A. On June 11, San Francisco published official guidelines for outside seating with the requirement that diners will need to be spaced six feet apart. Removing tables and chairs, or staggering the seating of customers will allow compliance, but will result in financial losses. Other ways to achieve a safe space could be impermeable partitions between tables, utilizing more outside seating, adding meal kit options to the menu, and continuing to offer take-out and delivery options. San Francisco has recently announced the “Shared Spaces” program to expand the ability for restaurants to add outside seating, and the applications were posted on June 9. Some restaurants might need outdoor structures, will want to add seating in parking spaces and/or private lots near their locations, and some will want to seat in streets or park areas. All of these options will certainly require some dividers for ADA compliance and ABC compliance, and there are many outstanding questions that need to be ironed out.

As far as inside, I don’t believe buffet-style dining will be allowed period. And bar seating and usage will probably also be prohibited for a while, but may be allowed if partitions are permitted.

Q. What best practices do you suggest restaurants put in place before reopening?

A. I think disposable paper menus are a must, or QR codes to view menus by cell phone. If a restaurant decides to go with laminated menus, then the menus will have to be cleaned and sanitized between each use.

The California Department of Health and San Francisco Department of Health have implemented plans for reopening to prevent the spread of COVID-19 in restaurants. Some of the steps include: not pre-setting tables, changing table coverings between diners, and no longer sharing condiments. Of course, all restaurant staff will most likely be required to complete questionnaires before each shift, wear masks, increase frequency of washing hands, and use sanitizer. Nightly cleanings will probably now include new cleaning practices, like electrostatic cleaning. Restaurants might take guests’ and employees’ temperatures, though this is not yet clear.

I think the mandatory guidelines cover the bases. At the local level, most of these practices have already been put into place for food prep and delivery.

Q. Are there any non-mandated changes that you think restaurants should make before reopening?

A. I think the next steps will be figuring out how to earn customers’ confidence.

Q. Some New York restaurants have gotten positive press for comically sitting mannequins at tables in empty dining rooms. Have you seen a creative response like this in San Francisco? Or any example of a local restaurant doing something to win diner confidence?

A. Not yet as indoor seating is not yet allowed in San Francisco. Same for consumer confidence—we’ll have to see what happens once we can resume seating inside. We might start seeing additional practices put in place as the outside dining will be permitted June 12.

Q. Do you predict design or style trends to emerge after restaurants adjust to life after COVID-19?

A. Yes, outside seating areas are going to be a hot commodity—and should increase the value of a restaurant space lease. I also expect new locations to consider building in more “separated” dining areas—perhaps dining “cubbies” of some sort. Additionally, restaurants will design a separate entrance area and exit area for to-go/delivery. Take out windows might become common, even in full service restaurants. Of course, if larger footprints could become more affordable lease-wise, you will see larger kitchens and dining rooms.

Q. Restaurant and retail business owners in Italy have complained that guidelines to reopen are unclear. Do you think the same is
true locally?

A. Yes, it has taken awhile. The GGRA provided a reopening document to the San Francisco Economic Recovery Taskforce on May 21. We have also offered our staff to help with producing the items we are requesting. Guidelines were posted on June 11.

Q. Do San Francisco restaurants face any unique challenges or benefits, compared to other major cities?

A. San Francisco restaurants are often in small, tight spaces. Having to adhere to six-feet spacing is going to result in only 30% seating capacity in many restaurants. This will be financially devastating. In most San Francisco kitchens, social distancing is not even possible. In these cases, kitchen staff will have to be diligent about wearing face masks and gloves, and frequently washing and sanitizing hands.

Another challenge we face in San Francisco is our climate. While our weather is mostly pleasant, in the evening it’s cold (and in the summery foggy) out! This, of course, poses a challenge for expanding capacity with outside seating. Some kind of protection from the wind and cold will be needed. I am hopeful that the fire department might agree to allow free standing outside heaters, so long as nothing flammable is close by.

Q. What type of commercial renter or restaurant is most likely to succeed going forward? What businesses face the biggest struggle?

A. It is tough to say. I think neighborhood restaurants will have a better chance than those downtown or in SOMA that depend of Moscone conventions, tech and other office workers, and tourists for business. I’m concerned that our traditional business model just won’t work any longer when restaurants are operating at a significantly reduced capacity. Especially considering how high the cost of doing business is in San Francisco. There is hope though: people seem to want to get back to socializing together again eventually.

And, unfortunately, larger restaurant groups and chains are probably better set up to handle this big setback financially. This would be case-by-case by neighborhood though, as San Francisco restaurant groups with more than 11 locations are prohibited by formula retail bans.

Q. What advice do you have for commercial property owners at this time?

A. Please negotiate with your restaurant, bar, and retail tenants. Ideally, some kind of rent forgiveness for March and April, and then a percentage of the existing leases going forward. What it comes down to is many restaurants and bars just won’t be able to pay full rent. Any forgiveness or sharing the pain would be so helpful.

For example, if you are only seeing 30% - 40% of normal revenue, a lease that was 9% of your P&L could become up to 30% or more of your P&L. This is not sustainable. The goal should be to keep tenants in operation. Remember, they can always file for Chapter 11 bankruptcy or reorganize, which freezes most leases as soon as it is filed. Nobody wants it to come to that. And, commercial landlords should realize there will not be many restauranteurs looking to start a new operation until COVID19 is no longer an issue—meaning everyone is vaccinated and/or there is herd immunity.

Another thing to consider is that all recent indications are that it will take the tourism sector two to three years to fully recover.

Q. What advice do you have for commercial renters at this time?

A. Figure out your numbers and try to negotiate with your landlord. If the numbers don’t make sense, you will know it. Look for all forms of financial relief that you can find.

Pam McElroy is the editor of SF Apartment Magazine.