{"id":9053,"date":"2020-05-22T14:50:41","date_gmt":"2020-05-22T19:50:41","guid":{"rendered":"https:\/\/garycjones.ca\/?p=9053"},"modified":"2020-10-30T13:13:10","modified_gmt":"2020-10-30T19:13:10","slug":"covid-central-canadas-nightclub-king-scrambles-to-salvage-his-empire-as-social-distancing-pulverizes-profits","status":"publish","type":"post","link":"https:\/\/garycjones.ca\/?p=9053","title":{"rendered":"COVID – Central Canada’s nightclub king scrambles to salvage his empire as social distancing pulverizes profits"},"content":{"rendered":"
Premium content Vanmala Subramaniam, Postmedia News Published: a day ago Updated: 22 hours ago<\/em><\/pre>\n
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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.<\/p>\n
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\u2019s entertainment and clubbing districts.<\/p>\n
\u201cShocking, sad, draining, straining: I don\u2019t have a good adjective for this, let\u2019s put it that way,\u201d he said over the phone from his penthouse unit in Bisha Hotel, the company\u2019s \u201ccrown jewel\u201d in downtown Toronto that opened just two years ago.<\/p>\n
\u201cWe\u2019ve been moving very fast lately, we\u2019ve 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\u2019m sad.\u201d<\/p>\n
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\u2019ll somehow miraculously survive the coronavirus lockdown.<\/p>\n
\u201cI 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\u2019t feel so depressed,\u201d he said. \u201cHonestly, the cafe is not making money, because we have to pay for labour, supplies, things like that \u2026 but I just wanted to leave some life in the building.\u201d<\/p>\n
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 \u2014 bars, clubs, restaurants, festivals and a hotel \u2014 is bleeding out, the pandemic is likely even more crippling and far-reaching for the hospitality sector than many thought already.<\/p>\n
Khabouth\u2019s 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.<\/p>\n
He has also been innovative over the years in turning them into versatile spaces \u2014 Rebel can be a club, wedding venue, concert venue and corporate gathering spot, all in one week, he said \u2014 but they are first and foremost traditional clubs, home for those who get a thrill out of dance, loud music and closeness.<\/p>\n
It\u2019s impossible not to feel that clubby overtone even at some of Khabouth\u2019s 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\u2019s establishments.<\/p>\n
What now though in an era when two people can\u2019t be within two metres of each other?<\/p>\n
\u201cNightclubs are gone. Gone. One million per cent. Until a vaccine is found. Maybe,\u201d Khabouth said. \u201cYou cannot space people out in a nightclub. That\u2019s not a nightclub. I can\u2019t 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\u2019t work.\u201d<\/p>\n
Nightclubs are gone. Gone. One million per cent. Until a vaccine is found. Maybe<\/p>\n
Charles Khabouth
\nKhabouth won\u2019t 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.<\/p>\n
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\u2019s been fielding calls from both restaurant owners \u201chanding in their keys\u201d and landlords struggling to find new tenants to set up shop in even the most sought-after parts of the city.<\/p>\n
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\u2019s had to lay off 3,500 employees and his revenue has dropped by about 98 per cent since the start of the pandemic.<\/p>\n
\u201cIf a business like mine and a business like Charles\u2019 can\u2019t survive, I don\u2019t know who can,\u201d he said. \u201cThe (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\u2019s going to be more like 90 per cent.\u201d<\/p>\n
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.<\/p>\n
\u201cWe can\u2019t make money just with delivery. We can make some money. But that\u2019s not the experience we are here to give,\u201d Khabouth said. \u201cWe want people to come in, gather, socialize and have fun in our beautiful restaurants, bars. That\u2019s the company I built.\u201d<\/p>\n
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\u2019s 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.<\/p>\n
One summer idea percolating is turning Cabana Pool Bar, a Vegas-esque day club at Toronto\u2019s 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.<\/p>\n
\u201cWe\u2019ll open seven days a week. Everybody will book in advance, and we\u2019ll take people\u2019s information in full when they come in. Then we\u2019ll know, from 12 p.m. to 3 p.m., for instance, who is sitting at the immediate tables around you,\u201d Khabouth said. \u201cEverything will be done in a safe manner.\u201d<\/p>\n
Cabana\u2019s 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\u2019s 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.<\/p>\n
\u201cLast 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,\u201d Khabouth said. \u201cObviously, we can\u2019t do that this year.\u201d<\/p>\n
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.<\/p>\n
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.<\/p>\n
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.<\/p>\n
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.<\/p>\n
He admits there were \u201cone or two sick babies\u201d in his collection of restaurants even prior to the pandemic, and that he has \u201cleft no stone unturned\u201d in terms of figuring out which spots to keep open or which ones he\u2019ll have to hand in the keys on.<\/p>\n
\u201cYou\u2019re asking me how long we can go on for, as a business, and I just don\u2019t know,\u201d he said. \u201cIt 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?\u201d<\/p>\n
In the meantime, he has stopped paying rent on all his spaces, simply because he barely has an income.<\/p>\n
\u201cI\u2019m a tenant in all of my properties, so I\u2019m dealing with landlords,\u201d he said. \u201cSome amicably, some through legal channels.\u201d<\/p>\n
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.<\/p>\n
\u201cSome of the policies are great, and some sound better than they actually are,\u201d he said.<\/p>\n
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.<\/p>\n
Murphy has helped negotiate leases for many of Khabouth\u2019s 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.<\/p>\n
\u201cLeases are being renegotiated all over the place right now,\u201d he said. \u201cThat\u2019s going to plunge by maybe even 50 per cent.\u201d<\/p>\n
It adds up then, that after labour, rent is Khabouth\u2019s biggest cost.<\/p>\n
\u201cThree months rent could be about $2.5 million for me,\u201d he said. \u201cWhere am I going to get that with zero income?\u201d<\/p>\n
Three months rent could be about $2.5 million for me. Where am I going to get that with zero income?<\/p>\n
Charles Khabouth
\nOver 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\u2019s tough all over at the moment.<\/p>\n
\u201cMiami is not in a better place than Toronto, I can tell you that,\u201d Khabouth said. \u201cThat city relies on tourism and there\u2019s only so much money locals will spend.\u201d<\/p>\n
But he\u2019s adamant that those four Miami restaurants \u2014 Byblos and Amal are two that already have existing branches in Toronto \u2014 will open up in 2020, because Ink has heavily invested in the city, and he still sees \u201cbig opportunities\u201d down south.<\/p>\n
\u201cI checked the weather and it\u2019s 31 degrees down there right now. Look at it here,\u201d he said.<\/p>\n
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\u2019re walking into a club, including bouncers to boot. Unlike a traditional hotel bar, Khabouth has Mister C, Bisha\u2019s club-like lobby bar which is almost always noisy and at capacity.<\/p>\n
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.<\/p>\n
\u201cBisha is never closed. We have our bar, restaurant, it\u2019s a residence too and we have about 100 rooms,\u201d he said. \u201cOur 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.\u201d<\/p>\n
Then reality sets in, and Khabouth admits it might take years for any of his pre-pandemic growth plans to bear fruition.<\/p>\n
\u201c2020 is a write-off,\u201d he said. \u201cI\u2019ve never been for this kind of shutdown because Canada\u2019s (virus) numbers are not that high. I\u2019m not saying I blame the government for doing this, we have to be careful,\u201d he said. \u201cBut it\u2019s time we try to come back before we have a complete breakdown of people\u2019s mental, emotional and financial health.\u201d<\/p>\n
Financial Post<\/p>\n
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