The year 2020 was a bad one for Israel’s restaurant sector as a whole. Businesses were forced to close for a total of 155 days, and 4,000 restaurants went out of business. Coffee shops, chef restaurants and places built around service generally cannot switch over to a model of deliveries or take-out.
Of the 10,000 businesses that have survived so far, only 6,000 were open for pickup when it was allowed. Currently, given the more restrictive lockdown amid Israel’s record spike in coronavirus infections, only 3,000 businesses are actually open. Most of them offer Asian food, hamburgers or pizza. For these businesses, the pandemic has been a gift. Some of these places were not considered particularly good restaurants in the past, but they’re benefitting from the fact that their food is suited to delivery and their businesses can operate with low overhead.
According to data from the Restaurants and Bars Union from 2020, while the revenue of coffee shops and restaurants offering full service fell by 60% and 47% respectively, and the number of businesses decreased by 30%, fast food was nearly unscathed by the crisis – revenues dropped only slightly and the number of businesses was nearly unchanged. That said, there is a chance that more businesses could collapse once the government’s coronavirus grants end.
“In internal discussions, many restaurateurs admit that they would want the pandemic to continue,” says Barak Abramov, a senior restaurateur and the owner of the Bnei Yehuda soccer club, who owns among others the Japanika restaurant chain and the Susu and Sons hamburger chain. Japanika has annual turnover of 500 million shekels, and Susu and Sons has annual turnover of 50 million shekels. “Anyone who does well with deliveries is doing better now than before the pandemic, and if it were up to them they wouldn’t reopen the restaurants.”
“We want to open our branches for sit-down service because we love hosting, but in terms of profitability and business management the pandemic is better for us. When the pandemic began we were stressed, but then we understood that we had an advantage because we already had a strong delivery business. Japanika’s sales are up 10% from last year. It’s amazing if you take into account that before the pandemic began, half of our sales were from deliveries and the other half were from sit-down service. Now we sell more without seating anyone. The franchises have become significantly more profitable and ours has too, somewhat.”
Abramov says the pandemic pushed his businesses to expedite plans to open small branches devoted primarily to take-out, with limited seating areas. These branches cost only 1.5 million shekels to open, as opposed to 3.5 million for a typical restaurant branch, he says, and are more attractive for franchisees.
While businesses that opened shortly before the pandemic have fared poorly due to the government’s unwillingness to compensate them for their losses, Moti Richter, the owner of the Papa Johns pizzeria chain, feels like he made the best gamble of his life.
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“I bought the chain at the best possible time – four days before the pandemic began – and I’m not being cynical. I received the rights to the franchise from the U.S. company on March 11. We received from the previous franchisee three restaurants [the previous owner lost the rights after failing to meet the commitment for opening additional branches] and since then we’ve opened another three and we’re in the process of opening three more,” he says, noting that sales have increased sharply.
“We have branches that had sales of 200,000 shekels a month before the pandemic and now have sales of 300,000 shekels a month. People are sitting home and are tired of food from the grocery store.”
The pandemic has also increased demand for franchises. “We’ve encountered no small number of people on unpaid leave who decided they want to be independent and signed a franchisee deal,” says Richter. “There are lots of places that shut down and have all the equipment, and you can rent them out for a good price.”
The people who are paying for these restaurants’ success are the workers. Pandemic-time operations, which rely primarily on take-out and deliveries, require much less manpower. Some of the restaurateurs told TheMarker that they intend to continue working with limited manpower.
The owner of a hamburger chain who requested anonymity stated, “When we went back to work after the first lockdown we couldn’t find workers – they preferred to go on receiving unemployment pay. That forced us to work with half the number of employees we previously had. We suddenly realized we don’t need cooks, hosts, bartenders, kitchen managers, shift managers and more. It’s enough to have someone on the phone and half of our previous kitchen staff.” This applies to any business with a business model suited to the pandemic.
“This is a good period for my businesses, but it destroyed anyone who isn’t set up for deliveries or take-out. I personally intend to continue with limited manpower, because I believe the market will have shifted even after everyone is vaccinated. Some of the workers will keep working from home. Deliveries won’t be our entire business like it is now, but they’ll be a larger percentage at the expense of sit-down service,” he said.
“Contrary to what people typically have said, the main problem facing restaurants isn’t extensive regulation or high rent, but the growing cost of manpower over the past few years. A beginning dishwasher costs the employer 10,000 shekels a month, and you need two of them, since the workday comes out to two shifts. During the pandemic our workforce decreased significantly, so our profits increased,” states Yanir Green, the chef and owner of the Thai restaurant Tiger Lily. “All the Asian restaurants I know are doing excellently right now, even in the periphery. Generally we’re in a market with a lot of restaurants, but it’s not money that interests us most, because we love hosting – that’s why we’re in the business.”
The pandemic created opportunities not just for restaurants with existing delivery businesses, but for those who managed to adapt quickly. Sagi Razmovich, 39, has owned an Asian restaurant in Netanya, Mojo, for more than a decade. The restaurant sits in a 400-square-meter space and was therefore not economically viable during the pandemic. Razmovich says the restaurant reinvented itself during the pandemic, turning one room into a delivery center, and redoing its menu to suit deliveries. The restaurant now employs 40 people, down from 100 before the pandemic, Razmovich says.
The media has been filled with complaints from restaurateurs who say that the pandemic has forced them to shift to deliveries and therefore work with delivery companies such as Wolt and 10Bis, which charge high fees equaling 27% of the order’s total.
Abramov says that Japanika has its own delivery arm, and therefore deliveries are quite profitable. For Susu and Sons, the Tel Aviv branches work with Wolt and therefore aren’t profitable, “but Wolt took over Tel Aviv and if you’re not a strong brand, you can’t get along without them,” he says.
Other restaurateurs say that while Wolt and 10Bis have cut into their profit margins, they can live with it. “Our profitability hasn’t increased because a larger portion of our sales are deliveries, and we need to split it with Wolt. But our sales have doubled so ultimately we’re earning more,” states an executive at an Italian restaurant chain.
Meanwhile, delicatessens have been permitted to continue operating during the lockdowns, as their business has been classified as essential food businesses. As a result, quite a few restaurants have converted their business model to hot food bars.
Now that 2 million Israelis have already been vaccinated and Israel’s leaders are forecasting that life can go back to normal within a few months, the restaurateurs who did well during the lockdown are wondering how they can keep the momentum.
“It’s not nice to say, but it’s been a very good period for us and I’m starting to think about what we’ll do once it’s over. When restaurants are back to operating like usual we’ll need to find a new way to grow,” says Papa John’s Richter. “The pandemic made us see that anything can happen, and we can’t take on a risk such as a large space with high rent. Therefore all our new branches are 60 meters, as opposed to 120 before the pandemic began.”