Finance Committee on April 23rd, 2020

[David Lefebvre]

That's an excellent question because as much as we work right now with programs with government and rethinking the industry, the goal is to get to something resembling normal.

What we expect at Restaurants Canada is that it's probably going to be different from province to province, and even sometimes between cities and other places, which makes the need for a specific program for food services even more important, because it's not going to be the same recovery in all parts of the country. Some places have fewer COVID cases. Some have more COVID cases, and public health authorities will probably make different kinds of decisions.

Of course we'd like to have a national program in terms of safety and hygiene and these kinds of conditions, but there's going to be a point when nobody is going to be able to wait on everybody, and we know that some people will want to start up with the proper social distancing measures as soon as it is safe to do so.

[The Chair, Liberal, Wayne Easter]

Okay. Thank you all on that one.

I would note, Mr. Kassem and Ms. Dennis, that you haven't gotten in on any of the questions yet. If you have a point you want to raise, please raise your hand and we'll get to you.

We'll turn then to Mr. McLeod, and then it's on to Mr. Cumming.

Go ahead, Michael.

[Michael McLeod, Liberal, Northwest Territories, NT]

Thank you.

Thank you to the presenters today. It was very interesting to hear everybody's presentations.

I am very happy to see Rami Kassem from Javaroma joining us here today, somebody from the north. It's good to hear that northern perspective. The north, of course, has different challenges. Our costs are higher and the issues that the pandemic is causing us are different in every jurisdiction.

Rami, the government has introduced a number of programs over the last while, programs to help businesses of all different sizes. They've tried to make them flexible and available to as many people and as many businesses as possible.

Could you tell me from your point of view what aspects of the federal emergency response plan are helpful to you, helpful to other businesses in Yellowknife, and how and where the federal response can be improved?

[Rami Kassem]

Thank you, Michael.

First of all, as you know, I have three locations in Yellowknife, two at the airport and one in downtown Yellowknife. Because the airport shut down, we were obligated to shut down our stores at the airport locations.

At the downtown location, we depend on traffic for sales. With everybody working from home, our sales went down 90%. We were looking to actually shut down even the downtown location, but when we started hearing about the funds coming from the government and the Ontario government loans, the loan from the federal government and the wage subsidy, we started looking to manage ourselves in a way where we could keep fewer employees, lay off the others and implement different ways to generate sales, through ordering online and delivery. We never, ever thought of delivering coffee to homes, a cup of coffee to your home, or anywhere. Now we're doing online orders with delivery or pickup in the stores. People seem scared to come to the store, even though we have social distancing signs and lines and a sneeze guard installed, which cost us $1,000. That $1,000 is one day of sales at that location, so it's very difficult.

I am working more than usual, way more than before. My wife works from home. I have three kids, and as you know, they are studying from home. My wife can't take care of them and review their studies, go log onto the computer and iPads and everything, and I'm spending my time at work, so we are way behind even with our kids' studies just to keep afloat.

I keep hearing from the government about funding, the loans and everything, and everything for June and July. We keep feeling that there's something coming up after June or July, but for the short term, I really appreciate what the government is doing. I know the 75% is not enough. Maybe the government could make it 100% for the subsidy.

The rent is our major problem. I sent an email and I've talked to the landlord. They promised they would get back to me and I haven't heard anything. I just see the withdrawal from my account for the whole rent. They're looking for support and we're looking support. It's stressful for everyone.

In terms of what keeps peace of mind for us here in the north, I applied for the grant from CanNor. Hopefully it's going to be approved. That would keep me afloat. I applied for a BDIC loan to keep me going because the wage subsidy didn't go through yet, because as you know, we need funds. I applied also for the federal government loan, but I haven't received the money yet.

We are afloat right now, but we have a lot of stress about the future, because since the pandemic, customers' habits have changed. They've started cooking at home. They're scared to go outside, even to go shopping. You see the stores are different. There are fewer people there. Once a week they make a big shopping trip. It's way different. Even after the pandemic we're going to get hit big time, because with six feet or two metres of distance between customers, we'll have four customers in a place for which we pay more than $10,000 in rent, just for one place. It's going to be a hassle even with the regulations and the safety procedures for the pandemic.

I'm also looking the other way. I come from Lebanon, where my brothers are not working, everything is expensive and there are no funds from the government, no support or help from the government. I feel fortunate that I live in this country. I'm working very hard with my family to make it through. I wish everybody success.

I am very appreciative that I've been invited to this meeting to share my feedback. I also greatly appreciate Restaurants Canada and CFIB for keeping in touch with us and keeping on top of things. Thank you so much.

[The Chair, Liberal, Wayne Easter]

I'm sorry, Michael. We'll have to end it there.

We will now turn to Mr. Cumming and then Ms. Dzerowicz.

Go ahead, James.

[James Cumming, Conservative, Edmonton Centre, AB]

First, thank you to all the witnesses. There's no question that this sector has been hit harder than probably any other sector we've heard from in these meetings so far. It is quite distressing, and we all get the calls.

I want to start with Mr. Staniloff. I want to hear from you about how the banking industry has been behaving. We've heard from both the finance minister and the Governor of the Bank of Canada that they've been buying bonds and creating greater liquidity in the banking sector.

I would like to hear if, either through your franchisees or through those hotels you own, you are seeing banks stepping up to the plate, negotiating on the terms of those loans and trying to help out these assets, which are at—whatever you said—10% occupancy and are really struggling.

[Marc Staniloff]

Thank you, James.

I guess it's twofold. As soon as this started to happen, as soon we got into this, we went very aggressively to every one of our banks—we have mortgages on all of our properties—and they did give us a deferral. They gave us somewhere between a three-month to a six-month deferral. The problem with this part of it is that for the deferral you're going to have to pay for it. As for what they didn't do, they haven't set up the terms of what we have to pay and when we have to pay.

I talked to one of my franchisees yesterday and he said it's great. His mortgage payments are $150,000 a month on a very big property in Montreal. After three months, that's $450,000. He got the deferral. What he hasn't got from the bank is when they are going to start asking for it back. He says that if they start in October, giving him the six months, his mortgage payments are going to be $150,000. The deferral part, which they only wanted to say is for a year, adds $40,000 a month. He says, “I'm going to be so under water at that point that it doesn't matter.”

Banks aren't talking about any kind of abatement. They're only talking about deferral, which is really causing stress for my franchisees. If they had sat down and said.... I have some retail tenants, and some tenants as well, that I'm giving deferrals to, where I say, “Here's the deferral and, starting January 1, 2021, if the balance of the term of your lease is five years, I'll take that deferral and amortize it over the balance of the five years.” It doesn't hit them as hard. I'm trying to see if the banks are going to do the same thing. I haven't seen that yet. They really haven't come up with a program on that side of it.

With respect to the government assistance, it's threefold. The $40,000 assistance, which is great, I have to tell you.... You get $40,000 and it helps you pay for rent and some staffing and whatnot, and you only pay back $30,000. That seems to be coming very quickly. I'm talking to different guys. They do the application and it's a very quick turnaround, which is great.

The problem is that for the two other loans, one being the COVID working capital loan, which EDC has capped at $2 million, as I said before, it's a very tough process to qualify. It is based on need, but they're looking to tack it on to the existing mortgage you have. It just makes it too tough. We're kicking the can down the road, which I've said. On the $6.25-million loan, I'm hoping—and I know that Susie Grynol from HAC was very passionate about this—to get it set up so that it's on a per property basis versus a corporate need basis. I have franchisees who own 10 hotels. With $6.25 million as a cap, it doesn't go a long way. Again, the problem is qualifying for that. We feel that has to be 100% guaranteed.

That's my issue with the banks, James.

[James Cumming, Conservative, Edmonton Centre, AB]

Thank you.

[The Chair, Liberal, Wayne Easter]

This will have to be a fairly quick one, James.

[James Cumming, Conservative, Edmonton Centre, AB]

I'll go to Mr. Oliver.

It's along the same lines, Andrew, on the rent abatement or the discussion around these commercial terms with landlords. Landlords are a bit hooped, because they can't afford to see you guys go under. They need the tenancy, so they need an active, busy restaurant. They should be negotiating with the banks on extensions.

Have you seen any of the flow-through when a landlord comes to you and says, “Listen, Mr. Oliver, we'd like to do a blend-and-extend and give you three months, four months or five months, but we want to extend your term by six months or a year or whatever the case may be”? It strikes me that we're all in this together, and that includes landlords, banks and restaurants.

[Andrew Oliver]

Just quickly on the banking side, we bank with one of the large guys and from my conversation with them, they've stepped up hugely. I think their number one reason for not doing more right now is that until they see a path for success for our industry, they're literally handcuffed from doing more. Again echoing, the BDC and EDC loans are just too prohibitive.

With respect to landlords, we were very fortunate to get deferrals from almost everyone. I talked to the largest landlords and the biggest pension funds down to a mom-and-pop shop owner, and all have a different ability to do something. We had some bad apples. We had landlords who were trying to take advantage of us, and unfortunately for us in Ontario, there's no freeze on eviction, which I know is a provincial-level issue that I'm lobbying hard on, but every landlord I talked to said they just wish the government would impose rules so it's an even playing field. One pension fund doesn't want to give a better deal to everyone than another pension fund, because they'll look bad to everyone else.

We need leadership in government that understands that a total collapse of the real estate market will happen if 30%, 40% or 50% of us don't survive. It is in their best interests to have a plan like what was suggested, which is a complete end of payments until we get back to some sort of normalcy, backstopped by the government, because paying rent is extremely important. A lot of those landlords are going to be willing to take a 25% or 33% haircut as long as it's backed by the federal government, because that is the best credit you can get right now. Everyone, all of our communities, will be better off if we get leadership from the government with a plan like that.

[The Chair, Liberal, Wayne Easter]

Thank you all.

We'll try to get the last four in. We'll go to one question from Mr. Ste-Marie, one from Mr. Julian, one from Mr. Poilievre and one from Mr. Fraser.

Gabriel, go ahead.

[Julie Dzerowicz, Liberal, Davenport, ON]

Mr. Chair, am I not speaking next?

[The Chair, Liberal, Wayne Easter]

Sorry, I skipped over you, Julie. I'll be in trouble.

You're next, go ahead. My apologies.

[Julie Dzerowicz, Liberal, Davenport, ON]

How could you forget me?

Anyway, I want to say a huge thanks to everyone. This has been an absolutely excellent presentation, and I really appreciate hearing from each one of you.

I think all of you have alluded to this: We're going through an unprecedented time here in Canadian history. You've all also alluded to the fact that the federal government has acted fairly quickly. We've introduced a whole bunch of support programs. We've tried to get money into the hands of as many people as possible as quickly as possible, and we took the motto of “perfect can't be the enemy of the good”. Obviously, we have a lot more to do, and I think we're starting to get a much better sense of how things may unfold.

I call it three phases. First is that we're still trying to get past the surge phase, so we're still in the immediacy of the whole situation. The next phase is what I call the interim phase. It's the phase right before we get to the vaccine. We can't go back to the new normal until we get some sort of vaccine, so how are we going to operate in this interim period, which most see as around a year to a year and a half?

A number of you have mentioned a number of really great ideas: the 100% rent abatement; the easier to access loans, more of them forgivable; imposing more unanimous rules, particularly around rents and getting money to grow as fast as possible; and a number of changes that we need to make with our banks. I think that's been heard loud and clear, so I wanted to mention that to you.

I wonder if I can get some advice or some input into how we start looking at this interim phase. As a number of people have mentioned, restaurants might be able to go back 40% to 60%, but it's going to have to be under strict public health rules. Even once we get into the vaccine, it's going to be a new normal. The world will change there as well. Food prices will be different. How we staff will be different. Behaviour in society will change, and I think one of the panellists mentioned something about travelling far more in Canada and how we can promote that.

We're trying to get to the immediacies. You've made some great recommendations, now I'm trying to ask how we get through the next phase. What's the group of people? Do we need to form a panel, a committee? Do we need to have the developers come or the bankers come together? Do we need to bring all the restaurants together, or federal and provincial governments? What's the right grouping of people to help set a plan for what happens over the interim period? How can we craft some new plan moving forward, once we have a vaccine in place?

I'm not sure who wants to take that. I'd love to hear from someone from the restaurants, someone from the hotel industry and maybe someone from tourism, if someone wants to take that.

[The Chair, Liberal, Wayne Easter]

We'll start with Mr. Oliver, then if somebody else wants to raise their hand, we'll go to them.

[Andrew Oliver]

Yes, just quickly, I think you guys have done a lot in the last 40 to 45 days. Now getting into that very industry-specific part to save the capital that we have, which you guys have to dole out, is super important.

I genuinely believe that we don't have a crisis just in hospitality right now. Let's face it: We have a crisis that you guys have to deal with. I do not envy you whatsoever. You have to deal with and become experts in every single industry all at exactly the same time. I do not think that is feasible for you to do in a timely manner.

My recommendation to you as far as how we do this, whether it be in the short term, in the ending of the short term right now, to the medium and long term, is to bring in operators and groups like the guys you're talking to here. Set up specific committees to determine how we talk to industry experts as opposed to making assumptions of what might be needed for specific industries.

You can go from the broad-based approach that we're looking at right now, to getting sector specific to look at what is going to be needed. Whether we find a cure or a vaccine at the end of the day, I think that needs to be paramount to the success of any plan.

[David Lefebvre]

I think the question is very interesting because it's been the thing we've been presenting in the few webinars to our members: We're right now in between phases. We're in between the phase of emergency measures, and moving to what the industry's going to be in terms of the confinement measures and those kinds of things.

Definitely, Restaurants Canada will raise our hands to be on any kind of panel to think about how things are going to move forward. We have contacts with a lot of operators, so it's definitely something we're willing to work on.

We also started, I would say the second week of March, even before most of the restaurants were closed or forced to close, to think about what the situation would be. It's going to be one thing to be able to reopen and to have some kind of social distancing. It's going to be another thing to build back the consumer confidence. Those two different things might require different kinds of involvement from governments but also from the industry. It's so much better if we can work together.

[The Chair, Liberal, Wayne Easter]

Julie, you have time for one more quick one, because I near stole your time.

[Julie Dzerowicz, Liberal, Davenport, ON]

No, it's okay. That was my main question. I don't know if someone from tourism wanted to come in as well or if anyone else wants to respond to that.

[The Chair, Liberal, Wayne Easter]

Does anybody else want in on that? Do I see anybody? I don't.

[Julie Dzerowicz, Liberal, Davenport, ON]

I think we're good.

[The Chair, Liberal, Wayne Easter]

We'll go on then to Mr. Ste-Marie.

If we could have four fairly quick questions, we could get everybody in.

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

Thank you, Mr. Chair.

Mr. Lefebvre, you mentioned in your statement that your organization recently conducted a survey of its members. You said that three-quarters of respondents were very, if not extremely, concerned about their level of debt.

Can you share some of the other key findings from that survey?

[David Lefebvre]

Thank you very much for your question, Mr. Ste-Marie. I appreciate the opportunity to highlight the survey results.

I would say three key findings emerged.

First, 10% of restaurant and food service operators have turned off the lights for good. It's over.

Second, 50% of respondents—so 40% more—indicated that, without significant help to address fixed costs or transition to recovery, they'll have a very tough time staying in business over the next three months.

The last finding provides important information about the health of the industry overall. Of course, some of our members offer delivery. Some are in a stronger financial position and are able to stay open. However, 96% of restaurants experienced a drop in sales from April 15 to 21, 2020 over the same period last year. That doesn't hold a candle to prior worst-case situations, whether in 2000, 2002 or 2008-09. That means 96% of all establishments, including bars and restaurants, have had a decrease in revenue. Across the industry, that amounts to carnage.

The reason we are before you today is to appeal to you for help.

Thank you.