COVID - Central Canada's nightclub king scrambles to salvage his empire as social distancing pulverizes profits

Premium content Vanmala Subramaniam, Postmedia News Published: a day ago Updated: 22 hours ago

Within the first 48 hours of Canada slipping into a pandemic-induced lockdown, Charles Khabouth had to close more than 20 bars, clubs and restaurants he owns in Toronto and Montreal, lay off 2,600 employees, pull the plug on multiple construction projects and cancel some of the most popular summer festivals in both cities.

He alternates between sounding stunned, dejected and hopeful when talking about the plight of Ink Entertainment, a company he founded 36 years ago that has, to a large extent, been responsible for crafting the sleek, exclusive, corporate-but-fun, ritzy-but-arrogant vibe of Toronto’s entertainment and clubbing districts.

“Shocking, sad, draining, straining: I don’t have a good adjective for this, let’s put it that way,” he said over the phone from his penthouse unit in Bisha Hotel, the company’s “crown jewel” in downtown Toronto that opened just two years ago.

“We’ve been moving very fast lately, we’ve had a lot of projects in the works and for that to come to a halt in just a few days is just sad. I’m sad.”

In an attempt to gain some respite from the dark cloud hanging over his entertainment empire, Khabouth has kept one of his properties open: French Made, a high-end coffee shop of sorts attached to Bisha that has now morphed into a takeout-only restaurant, the business model hundreds of other restaurants are clinging to in the hope that they’ll somehow miraculously survive the coronavirus lockdown.

“I wanted to keep French Made open for my mental health and just to have some sort of activity in the building where I live so I don’t feel so depressed,” he said. “Honestly, the cafe is not making money, because we have to pay for labour, supplies, things like that … but I just wanted to leave some life in the building.”

For a company whose entire identity, ethos and business model is built around mingling, mandatory social distancing is effectively a death sentence, and if a company such as Ink Entertainment that has several diverse revenue streams — bars, clubs, restaurants, festivals and a hotel — is bleeding out, the pandemic is likely even more crippling and far-reaching for the hospitality sector than many thought already.

Khabouth’s first love is nightclubs. He grew up in them, built a number of them from scratch during the past three decades, and still owns some of the most popular ones: Dragonfly in Niagara Falls, Rebel in Toronto and its summertime counterpart Cabana Pool Bar.

He has also been innovative over the years in turning them into versatile spaces — Rebel can be a club, wedding venue, concert venue and corporate gathering spot, all in one week, he said — but they are first and foremost traditional clubs, home for those who get a thrill out of dance, loud music and closeness.

It’s impossible not to feel that clubby overtone even at some of Khabouth’s restaurants, such as Patria, Kost, Byblos and Weslodge, to name a few. Some of them turn into club-like dance spots after dinner. In the pre-pandemic days, you would have to plan weeks in advance to get a Friday night reservation at any one of Ink Entertainment’s establishments.

What now though in an era when two people can’t be within two metres of each other?

“Nightclubs are gone. Gone. One million per cent. Until a vaccine is found. Maybe,” Khabouth said. “You cannot space people out in a nightclub. That’s not a nightclub. I can’t make little cubes six feet apart, get people to pay a cover charge, then tell them to go and stand in a cube. No, no, it just doesn’t work.”

Nightclubs are gone. Gone. One million per cent. Until a vaccine is found. Maybe

Charles Khabouth
Khabouth won’t fully disclose the extent to which his business is suffering, beyond that it has been a financially draining two months, but the casualties are quickly piling up in the restaurant and bar space and spreading beyond just independent or small-business owners.

This week, American restaurateur David Chang of Momofuku fame announced he had to permanently close two of his New York restaurants. In Toronto, Murphy said that he’s been fielding calls from both restaurant owners “handing in their keys” and landlords struggling to find new tenants to set up shop in even the most sought-after parts of the city.

Anthony Oliver, chief executive of Oliver & Bonacini Hospitality Inc., which owns almost 40 restaurants and event spaces in Toronto, Montreal, Calgary and Edmonton, said he’s had to lay off 3,500 employees and his revenue has dropped by about 98 per cent since the start of the pandemic.

“If a business like mine and a business like Charles’ can’t survive, I don’t know who can,” he said. “The (Restaurants Canada) data says that 70 per cent of restaurant owners say their business is not going to be able to make it through this. I say it’s going to be more like 90 per cent.”

In the five weeks ending April 7, the full-service restaurant space across Canada lost $2 billion in restaurant sales and 200 million customer visits, according to data by market researcher The NPD Group. Delivery channel orders, however, grew by 22 per cent in March, compared to a year prior.

“We can’t make money just with delivery. We can make some money. But that’s not the experience we are here to give,” Khabouth said. “We want people to come in, gather, socialize and have fun in our beautiful restaurants, bars. That’s the company I built.”

Khabouth has spent the past few weeks on various Zoom calls with his 30-odd remaining employees. He has laid off 98 per cent of his staff, but plans to begin rehiring when Ontario’s reopening plans become clearer. As of now, with a case-rate curve that is barely flattening, the province is maintaining its ban on gatherings of more than five people until at least June 2.

One summer idea percolating is turning Cabana Pool Bar, a Vegas-esque day club at Toronto’s Polson Pier, into a large, fancy restaurant. With 65,000 square feet of outdoor space, Cabana could be reconfigured to seat 450 people, each table six to eight feet apart. As a regular day club, it can house up to 3,000 people.

“We’ll open seven days a week. Everybody will book in advance, and we’ll take people’s information in full when they come in. Then we’ll know, from 12 p.m. to 3 p.m., for instance, who is sitting at the immediate tables around you,” Khabouth said. “Everything will be done in a safe manner.”

Cabana’s only real competitor in Toronto is the much smaller Lavelle, which sits on the rooftop of a downtown Toronto condo building and has been converted into a day club of sorts. There’s a reason for that lack of competition: the profit margins on day clubs are razor thin, given that they are only open for four months of the year, at most.

“Last year, we spent $1 million to reopen Cabana. Everything gets beaten up by the snow and the ice, so you have to fix your wood, redo your pools. I bring all my plants in on an 18-wheeler from Miami because we really beautify the space with the best greenery,” Khabouth said. “Obviously, we can’t do that this year.”

In normal times, the festivals and concerts organized by Ink Entertainment would more than offset the cost of running a vanity project such as Cabana. Khabouth said his company rakes in tens of millions of dollars each year from sponsorship money and festivals (VELD, Dreams and Solaris are a few of the big ones), creating thousands of both permanent and temporary jobs in the process.

But festivals, along with nightclubs, are perhaps the last entertainment options that will return in the foreseeable future. South Korea had the counter-productive experience of allowing nightclubs to open up as soon as it believed it had the virus under control, only to discover one super-spreader, who visited five different clubs in a night, had infected close to 11,000 people.

The only real source of revenue companies such as Ink have for the next few years will come from restaurants, even though they will operate at less than capacity.

Khabouth is somewhat okay with that idea, given his portfolio of properties has over the years moved towards the high-end restaurant and bar space and away from nightclubs.

He admits there were “one or two sick babies” in his collection of restaurants even prior to the pandemic, and that he has “left no stone unturned” in terms of figuring out which spots to keep open or which ones he’ll have to hand in the keys on.

“You’re asking me how long we can go on for, as a business, and I just don’t know,” he said. “It depends on so many things. How much is the city going to help us? Are they going to be lenient on taxes? Are landlords going to be nicer?”

In the meantime, he has stopped paying rent on all his spaces, simply because he barely has an income.

“I’m a tenant in all of my properties, so I’m dealing with landlords,” he said. “Some amicably, some through legal channels.”

Ink Entertainment does not qualify for the Canada Emergency Commercial Rent Assistance (CECRA) program announced by the federal government in April because it generates more than $20 million in annual revenue. It is a point of annoyance for Khabouth, who otherwise approves most of the other government support programs, especially the wage subsidy.

“Some of the policies are great, and some sound better than they actually are,” he said.

For the hottest neighbourhoods in downtown Toronto, commercial rents have skyrocketed of late, said Stephen Murphy a longtime realtor and investor in the restaurant and bar industry.

Murphy has helped negotiate leases for many of Khabouth’s restaurants and estimates that rent in the most lucrative intersections (for instance, the clubbing heart of King and Portland streets) prior to the pandemic could be as much as $100 per square foot per month.

“Leases are being renegotiated all over the place right now,” he said. “That’s going to plunge by maybe even 50 per cent.”

It adds up then, that after labour, rent is Khabouth’s biggest cost.

“Three months rent could be about $2.5 million for me,” he said. “Where am I going to get that with zero income?”

Three months rent could be about $2.5 million for me. Where am I going to get that with zero income?

Charles Khabouth
Over the past few years, Ink has also expanded internationally, including four restaurants in Miami that were all about to open before the pandemic hit. One possible avenue for companies such as Ink is to move away from jurisdictions that are slow to reopen or struggling to gain control over the pandemic, but it’s tough all over at the moment.

“Miami is not in a better place than Toronto, I can tell you that,” Khabouth said. “That city relies on tourism and there’s only so much money locals will spend.”

But he’s adamant that those four Miami restaurants — Byblos and Amal are two that already have existing branches in Toronto — will open up in 2020, because Ink has heavily invested in the city, and he still sees “big opportunities” down south.

“I checked the weather and it’s 31 degrees down there right now. Look at it here,” he said.

Nevertheless, his heart is set on expanding the Bisha Hotel brand, which he calls a lifestyle hotel. Indeed, two imposing golden lion statues flank the entrance of the hotel, which feels like you’re walking into a club, including bouncers to boot. Unlike a traditional hotel bar, Khabouth has Mister C, Bisha’s club-like lobby bar which is almost always noisy and at capacity.

He tells a rather amusing tale of how his staff simply could not figure out how to lock the towering gold and black doors of the hotel when they were forced to shut down, because those doors had literally never been closed since it opened two years ago.

“Bisha is never closed. We have our bar, restaurant, it’s a residence too and we have about 100 rooms,” he said. “Our revenue in that building is split 50-50 between food and beverage and the hotel itself. So I want to expand that concept, build out the Bisha brand.”

Then reality sets in, and Khabouth admits it might take years for any of his pre-pandemic growth plans to bear fruition.

“2020 is a write-off,” he said. “I’ve never been for this kind of shutdown because Canada’s (virus) numbers are not that high. I’m not saying I blame the government for doing this, we have to be careful,” he said. “But it’s time we try to come back before we have a complete breakdown of people’s mental, emotional and financial health.”

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