You often hear that restaurants have razor-thin profit margins, but what does that really mean? It means that when guests sat down for a meal at Palo Santo, the Pan-Latin restaurant I’ve owned in Park Slope, Brooklyn since 2006, about half their bill went directly to the people that work there. It paid for the wages of the cooks, wait staff, and manager. Most of the rest went to pay the vendors we source our high-quality, sustainable ingredients from. A large cut also went to pay the mortgage on the brownstone that houses Palo Santo, which I own, but labor costs are by far our largest expense. Then there are other expenses, such as utilities, licenses, insurance, and marketing, not to mention taxes. What’s left? In good times I am lucky to make a 10% profit. I’m not sitting on a lot of savings. I don’t have investors or deep-pocketed people to float us through this pandemic, so the last two months have required me to make changes I never anticipated having to make to our business.
A big driver of Palo Santo’s success over the last 14 years was the environment we cultivated here. I liked to tell my team, imagine our customers are coming to a neighbor’s house for a dinner party. That’s the feeling we created. In New York, most people live in such small spaces, they need additional living space to be comfortable. I wanted Palo Santo to be a place where our customers could linger--someone could feel comfortable getting an order of tortillas and avocado and a beer and staying for a couple of hours. A regular who does that a few times a month for several years is just as important to us as the couple that comes once for a big-deal dinner. I wanted everyone to feel valued and comfortable at Palo Santo.
For a related reason, we never offered delivery. Not only was our environment integral to the Palo Santo experience that couldn’t be replicated at home, but delivery, with all its disposable takeout containers, always seemed wasteful to me. Also, the food that we are known for--for instance, fresh seafood and grass-fed steaks--doesn’t translate to delivery well. In the restaurant environment, our customers are happy paying $29 for four ounces of diver scallops, four ounces of butternut squash puree, and an ounce of pumpkin seeds, but a lot of perceived value is lost when the same food is packaged to go.
And yet, on March 15, when the Mayor closed New York City restaurants and bars to all but takeout service due to Covid-19, I was forced to begrudgingly change course. I had been blindsided. Up until that day, we heard radio silence from the New York City Department of Health regarding how to operate our restaurant during the pandemic, which was negligent because they are responsible for issuing guidelines all restaurants are to follow. I’d been instructing my team of about eight to use hand sanitizer, wear face masks and gloves and to increase the general cleaning and disinfecting. I relied on getting the latest recommendations through Gothamist, WNYC, the New York Times and the BBC. We were operating cautiously, without the official guidelines from the NYC DOHMH we all needed to protect our customers. Until, suddenly, we weren’t.
We shut down completely for four days. I sent my team home with as much food as I could and froze the rest. A couple of staffers decided to stay home and collect unemployment, which I can understand. I knew I needed to do something though. I had staff that needed employment and I needed money to pay the bills. So I thought, let’s give delivery a go. When I opened Palo Santo at age 27, all those years ago, I had such passion for cooking and hosting guests, and I still have that passion, but I needed to adjust to change.
To be competitive in delivery, we had to increase our serving sizes and decrease our prices. To offset those costs, I needed to reduce the hours for my server, manager and assistant manager, and switch them to hourly instead of salaried employees. I was transparent and shared the big financial picture with my team, so they understood the cuts I had to make. They see how much money is coming in now, and it’s a fraction of what it used to be. It’s obvious I can’t pay them what I used to.
We now offer a well-edited menu of taco dinners and family-style dinners that changes daily, as well as wine, beers and sangria. We’re selling enough to stay in business. Still, there is no new learning or way of doing that I would choose to continue when the restaurant is open for table service again. I’ve invested so much time into this new temporary system of to-go and delivery, all the while hoping we won’t need it very long. It was like opening a new restaurant. It’s allowed us to stay in business, and my staff is grateful to continue to have employment.
When restrictions are lifted in New York City, and table service is allowed, reopening Palo Santo will be just as difficult as the closing. We keep a list of the things we changed in our business because of the pandemic, so we can undo them when we’re able to welcome diners again. Changes to our website, our Google listing, our credit card processing. All that needs to be reverted. If we can only return to half capacity or 25 percent capacity at first, we will deal with it. Labor is my biggest expense, so if we seat fewer people, we'll pay less for labor. Still, private events were a big part of our revenue, and who knows when they will return.
If you’re wondering how to help your local restaurant and healthcare workers, you could buy a gift certificate, or you see if they’re working with a charity to send meals to hospitals. Our team at Palo Santo has delivered hundreds of meals a week to local hospitals to feed healthcare workers through donations from Operation Feed Brooklyn and other similar organizations. That income has been so helpful to us, and we feel good about it.
And if your local restaurant is trying a different approach to business right now, be open to it. It might look like an entirely different restaurant, but be patient. With your support, they’ll hopefully be able to see you inside soon. That’s our hope at Palo Santo.