Finance Committee on April 23rd, 2020

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

One thing I've been hearing through my office is that there are many people falling through the cracks when it comes to the general programs. CEBA is a good example. We've had people saying that they opened their business or restaurant in December. CEBA needs 2019 payroll, so they're falling through the cracks. Sole proprietors, many of whom have family-owned restaurant businesses, are paying themselves in dividends. They'll fall through the cracks because they don't have the payroll.

You commented about the federal government adopting a national strategy and working with other levels of government. I'm wondering if you can comment on what specific types of economic measures your association would like to see.

[Shaun Jeffrey]

We feel that collaboration is key for the success of our industry post-COVID-19. We need to get together and have a unified approach.

Obviously, there is a lot of municipal, federal and provincial collaboration happening, and it's evident today that you have a lot of knowledgeable levels of our industry available to you at this time. Having that availability of multiple levels of information, feedback and knowledge and being able to bring them together to collaborate to find the best solutions would be best. Having a national strategy and having regular feedback and regular collaboration from leaders in our industry would be significant, whether it's here in Manitoba, nationally with Restaurants Canada, with local operators or with national operators. Being able to collaborate with the best of our industry would have the end result of a unified approach on what is required as a whole from the federal government.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

As we see ourselves coming out of this, I think the restaurant industry is going to look different. There will probably be a number of different measures imposed by different levels of government in terms of operations.

Do you have some thoughts on what a safe dining experience will look like post-COVID and how the industry will adapt?

[Shaun Jeffrey]

We have worked on collaborating and composing a post-COVID structure and what restaurants will look like. The reality is that post-COVID-19, patrons and staff are going to be well aware of social distancing guidelines far into the future, for years to come. The restaurant industry as we know it will have to change the way we interact daily, whether in the restaurant, at the front counter, in the kitchen or with our suppliers. It's all going to have to change, because that awareness is there, and we need to respect that awareness and those guidelines.

Our industry has been working with our local provincial government and with our health protection units to create a program whereby restaurants can open in a socially distanced situation and can operate in an effective manner while respecting those guidelines and having a unified approach to what those guidelines look like. The significant fact is that we will be operating at anywhere between 40% and 60% of our dining room capability. Based on revenues drawn during COVID-19, it's key to realize that this is going to be a significant deterioration of our industry as a whole.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

You have mentioned some specifics, though, such as the deduction of restaurant expenses for business purposes. As well, an interesting concept that I don't think I had heard before was around social distancing in restaurants and a subsidy program for that kind of thing.

Around industry-specific assistance, can you touch on what types of specific measures you have in mind?

[Shaun Jeffrey]

Yes. There are three large components we're looking for.

The first is the federal rebate program for the commissions we pay out to third parties. We have had to endure significant commissions from third party delivery services because of the closure of dining rooms. The result is that restaurants that already have a very low return on investment will see it even lower. Now we're having to pay those commissions out, and that's because we are unable to foster revenue inside our restaurants, which usually accounts for about 80% in full service.

The next would be business meals. We want to activate people's ability to go out and feel comfortable in a dine-in experience, because that's where the majority of our revenue is situated. Because of that, we want to be able to entice people into coming out. I feel that by working with the Canada Revenue Agency to change the deductions you can currently get for business meals to 100% deductible instead of just the 50% you get for dining with somebody, we'll be able to activate people to come out. The reality is that everybody's sitting at home, and they will want to get out. We're wanting to meet with people we haven't talked to for some time, and that will really activate a large influx of revenue into our industry.

The last one is the change within our industry. We were the first to self-close through this process and we know what we need to do to keep our staff and patrons safe in the future, but those measures come with costs. We need to be able to look to our government to help us implement benefit programs, federal rebates or stimulus packages to assist with the cost of taking a pre-COVID-19 restaurant to post-COVID-19 while factoring in social distancing guidelines and respecting our customers' and our staff's ability to participate.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

I have one last quick question—

[The Chair, Liberal, Wayne Easter]

Thank you both. We're quite a bit over time.

I would like to ask for a point of clarification, Shaun. I don't quite understand the commissions you pay to a third party. Can you give me an example?

[Shaun Jeffrey]

Sure. For every dollar earned through a restaurant's use of a third party delivery service, the restaurant pays anywhere from 20% to 30% of that dollar to the third party delivery service.

[The Chair, Liberal, Wayne Easter]

Okay, now I understand it. I'm glad I asked the question.

We'll turn to Ms. Koutrakis and then on to Mr. Ste-Marie.

[Annie Koutrakis, Liberal, Vimy, QC]

I wanted to begin by thanking all the witnesses who presented so passionately and eloquently the challenges that the hospitality and restaurant industry is facing right now.

I grew up as a daughter of a restaurateur. In fact, my father ran his business for many years in the riding of Vimy in Laval, which I am now fortunate enough to represent, and I know first-hand the challenges for a small business owner in the restaurant industry in years that are really great, so I can't even begin to imagine what it must be like to be in this situation today.

Having said that, I have two questions, and they're for anyone on the panel who would like to answer. I'm asking about what we're going through in the short term and then focusing on the future.

I would like to begin by discussing access to supports that are included in the COVID-19 economic response plan. Can you give us a sense of how your members and your employees are or will be benefiting from the various programs, including the CEWS, the CEBA, the CERB and the CECRA that is soon to be rolled out?

The second part of my question deals with looking into the future, because as you eloquently explained, Mr. Jeffrey, after the recovery, the business is not going to look the same, and different choices and set-ups will be needed. With that in mind, what is your industry doing to adapt in the short and medium term to the new reality we are in and create a safe environment to bring back employees and clients as we restart the economy in phases? Also, how are you innovating to bring out new and different products and services to meet the new demand?

[The Chair, Liberal, Wayne Easter]

Could we start with Restaurants Canada? That group really represents the broad industry as a whole.

[David Lefebvre]

Yes, I have no problem with that.

Ms. Koutrakis, I think you nailed it. You really understand very well the fact that we're moving from a phase of emergency measures into something that is more medium or long term.

Right now, unfortunately, you have a lot of laid-off employees. They have access now to the CERB and they're able to take that. Some people will also be able to have the wage subsidy. Some companies and even some people will be able to work a few hours and still have the subsidy and make sure they remain on the payroll.

This is a way whereby industry benefits from the programs put in place by the federal government. There are some problems here and there in eligibility, of course, and we've mentioned a few during our presentation, but they are definitely steps in the right direction.

Moving forward, this is why the rent program is so important as a tailored solution for the food service and restaurant establishments, because, to the point Andrew made, you have 80% of the independent operators operating on only 20% of revenues. I think we understand that there's a new phase, that the COVID and the self-confinement situation is moving into a multiple-month process, and definitely help is going to be needed.

To the point of my colleague in Prince Edward Island, definitely June 3, in terms of the wage subsidy, is probably a little too short a time for it to be fully effective, but everything done so far has been positive and are steps in the right direction. We just need to tweak things here and there, and of course create a 100% program for rent subsidies.

That would be my outreach to the federal government. It would be to make sure that the work on rent relief is also done with the provinces, because after all, a lot of those contracts are under provincial jurisdiction. However, federal leadership would definitely be appreciated here.

[The Chair, Liberal, Wayne Easter]

Could we go to one of the folks from the hotel industry, such as Mr. Staniloff or Mr. Oliver? I think their solution is a little different from what the restaurant industry wants.

[Andrew Oliver]

I'd love to go. I'm actually in the restaurant industry, but I'd love to speak on this if you would permit me.

[The Chair, Liberal, Wayne Easter]

Sure, go ahead.

[Andrew Oliver]

I think you guys did a great job with respect to getting money to our employees who had been laid off, and I think that we heard overwhelmingly that it went well. On reopening, we might have issues if tipped employees are going to be better off staying on that program than coming back to work, and we're hearing that. We'll address that in the coming weeks and months as reopening happens.

With respect to the CEBA program, the $40,000 program, fundamentally, math doesn't lie. To think that a program that represents.... As an example, you now qualify with a $20,000 payroll, all the way up to $1.5 million. To think that a one-size-fits-all option can work is nonsensical to me. On the one side, the $20,000 minimum threshold if you're on the lowest end is two years' worth of payroll. On the flip side, at the high end of $1.5 million, you get less than two weeks' worth of payroll, which is a 7,500% delta and catch-all net. It is absolutely mind-boggling to me to think that a company of a larger size that is 75 times higher in payroll would only qualify for the same loan program as someone with a $20,000 payroll, and then, on the back end, there are all the companies that don't qualify.

With respect to the rent relief, as Restaurants Canada mentioned, it is the number one problem facing our industry. Our industry pays super-high rent. It's 10% to 12% of our sales, and given that there are huge numbers of people who have zero sales or 75% less in sales and because we have all these other fixed costs, anything short of a plan like the one in Denmark, where they covered 100% of rent and fixed costs for the following three months....

As much as I think again it's a step in the right direction for the government, you might actually have an unintended consequence. If you don't have a catastrophic category for those whose sales are down 90%-plus, whereby they don't pay any rent but are asked to pay, let's say, 25% rent, you might actually have a wave of restaurants saying, “I'm out. The government doesn't understand my business, and I cannot hold on any longer, considering we're only only a week away from May 1."

If you look at the numbers that Restaurants Canada put forward, you see that by the end of April, we're looking at potentially close to 30% destruction and permanent job losses. I'm highly hopeful that the governments are working and really thinking two or three steps ahead at this point to ensure that we don't try to change this plan in two or three weeks, because once these businesses close, they are closed for good. Those payables that they owe—the oyster farmers and the mussel and clam farmers—are never getting paid. Instead of putting out a fire by just dousing the fire and having it limited, you're allowing that fire to continue to spread and the contagion to spread.

My hope here is that we can come and work together, as Shaun has suggested. My hope is that industry and government can sit there and frame something that is the most economical solution for the government. We realize that there are limited resources, but how do we spend that money appropriately? There are those who are actually winning because of COVID financially, so how do we ensure that those who need the money can survive and create those jobs?

[The Chair, Liberal, Wayne Easter]

Sorry, Andy, but we're going to have to end it there.

I will say to witnesses that if you have a point you want to make, you aren't all up on my screen. I have to flip back and forth, but if you have a point that you really have to make, wave your hand. I can't guarantee I will see you, but I might see you and I'll let you in.

We'll turn to Mr. Gabriel Ste-Marie and then to Mr. Julian.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

Welcome to all the witnesses. I'd like to thank them for their presentations.

To start, I'd like to comment quickly on what the witness just said. I believe it was the second witness who answered Ms. Koutrakis's question.

Indeed, a $40,000 loan isn't much for a larger business, but loans of up to $6.25 million are also available through the Business Development Bank of Canada and Export Development Canada. The loans aren't interest-free, but the rates are low. Although the loans are repayable, businesses who need more help have access to additional liquidity.

Mr. Lefebvre, thank you for your remarks. One of the measures you recommended was rent assistance commensurate with decreased revenue. You said the loans wouldn't be enough.

This is my first question, then. Percentage-wise, how much do you think would be enough for the restaurants you represent?

I'll throw out my second question, while I'm at it.

The government announced that it would be introducing a rent assistance program soon. If that assistance came in the form of a loan that was only partially repayable—similar to the $40,000 emergency loan, which allows for $10,000 in loan forgiveness—would it be enough to help your members, or would they need more than that?

[David Lefebvre]

Mr. Ste-Marie, thank you for your questions.

Under the model we are envisioning, businesses could pay a portion of their rent in line with a percentage of revenue. A program like that would address some of the needs Mr. Oliver talked about. Those in more trouble who need more help would be eligible for more assistance. For example, a 50% decrease in revenue would give rise to a 50% rent subsidy. Various models would need to be considered.

Also important is the point at which the business's situation is considered to be normal again. We think the return to normal point should be when the business reaches 70% of its revenues. That would be consistent with the basic rate for the wage subsidy, in other words a 30% loss in revenues.

A loan guarantee program, where a portion is forgivable once the loan is repaid, is better than nothing. When it comes to rent, though, we are looking for subsidy-type assistance, something that would not be repayable. We want to make sure as many restaurants and food service operators as possible remain viable. Obviously, that means businesses that were viable before the COVID-19 crisis, because there has to be some fairness across the various restaurants and service providers. It's important to understand something: if federal support is limited to payment deferrals and loans, watch out.

When it comes to rent, reaching agreements with the provinces is essential. Many of these private contracts are under provincial jurisdiction. Saskatchewan and Quebec are two provinces that are already working on the issue, and we encourage everyone to do so.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you.

The Minister of Finance has highlighted how many meetings he's had with his provincial counterparts to come up with a proposal as quickly as possible.

I fully understand that it would be better to have direct support in the form of a rent subsidy, since rent is the highest fixed cost for your industry. It would be better than a credit, even if that credit were only partially repayable. Your point is well taken.

You talked about how important it was to keep the measures going until the economy recovered, and you proposed a threshold of 70% of revenues.

How long might that take for a restaurant? Can you give us an example to illustrate it for us?

[David Lefebvre]

Let's say I own a restaurant called David Lefebvre Pizza. If I had $200,000 in sales before the crisis, as shown by my tax returns and accounting statements, my business would be eligible for the wage subsidy until my level of revenue had returned to $140,000.

The government considers businesses that have lost 30% or more of their revenue to be in a difficult situation; at that point, they qualify for the wage subsidy. Similarly, we feel that a return to 70% of pre-crisis revenues represents somewhat of a return to normal, although it does not mean that the crisis is completely behind us. We think it's a reasonable threshold when you compare the 70% we are proposing with the 30% provided for under another federal program. Throughout the situation, the business owner would receive support until things returned to normal. It could be a percentage based on losses. A system like that could be put in place.

Keep in mind that, not that long ago in the industry, some business owners had lease agreements where rent payments were pegged to revenues. It worked. It's not completely new to the industry. It's just a practice that was dropped along the way.

We have to start working on certain things again to be sure that the recovery does happen and that as many restaurants as possible survive.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

If I'm not mistaken, the hotel industry—

[The Chair, Liberal, Wayne Easter]

Be very quick, if you can, Gabriel. I believe Mr. Staniloff wanted in on the first exchange. We'll finish Gabriel's question and then go to Marc.

Go ahead, Gabriel.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

I'll end with this comment, then.

I think we heard from hotel industry representatives who made a similar suggestion, in other words, supporting the industry until it returned to 70% of its revenues before the COVID-19 crisis.

Thank you, Mr. Lefebvre. That was very clear.