Covid leaves Japan’s restaurants with few appetising options

Noritsugu Saida opened a lavish seafood restaurant on the Yokohama waterfront in late 2019, just in time for his customer base to get quarantined as Covid-19 ripped through their cruise ship, the Diamond Princess.

After a year of pandemic, however, cruise ships pose only a minor problem. Government restrictions make it difficult to run a profitable restaurant in Tokyo, but tough lease terms in Japan’s real estate market make it prohibitively expensive to close them down.

Saida’s predicament demonstrates how Japan’s service industry has borne the economic brunt of the government’s Covid-19 strategy. The sector has neither customers nor adequate compensation for compulsory closures.

The resulting stress on the industry has created cracks in Japan’s famous social solidarity, prompting one large restaurant operator to defy government requests to close and sue the city of Tokyo for violating his rights under the constitution.

Japan lifted a nationwide Covid-19 state of emergency last month, but restaurants are still asked to shut at 9pm because the government thinks they are the main source of infections.

“The busiest time for people to go for food and drink in Japan is on their way home with colleagues,” said Saida, the co-founder and president of Luckbag Group, which operates 10 restaurants in the greater Tokyo area.

“Nine pm is a bit better than 8pm. But the people who wouldn’t come out under the state of emergency are still not coming out now. Employees at big companies are afraid of getting into trouble.”

After a year of relying on voluntary compliance, Japan recently passed a law allowing it to fine restaurants that did not shorten their hours when asked. The city of Tokyo immediately issued 27 warning notices, 26 of them to restaurants run by Global Dining, the operator of Gonpachi, famous for its appearance in Quentin Tarantino’s film Kill Bill.

As with an increasing number of restaurants across the city, Kozo Hasegawa, the founder of Global Dining, had kept his venues open in defiance of requests to close. He is crowdfunding a legal challenge to what he regards as an unconstitutional attempt to target him.

“Last year, our sales fell 46 per cent and we made a record high net loss,” he said. “Altogether we increased our debt by ¥1.3bn ($11.8m) on top of our old debt.” Hasegawa denied there was a severe health risk from Covid-19, and regards staying open as a matter of business survival.

That is partly because of limited government support. Japan’s subsidy for restaurants during this year’s state of emergency topped out at ¥600,000, which was helpful for family-run cafés but had little impact at large restaurants with dozens of staff.

Saida said he had applied for the cash but it had not yet been paid out. He understood Hasegawa’s decision to stay open: “If you go bust then that’s it, so it makes sense to do what you must to survive.”

As it became clear that neither weddings nor corporate dining would recover any time soon, Saida realised he needed to close some restaurants — but in Japan, that is easier said than done.

“There’s a situation where you want to close a restaurant but you can’t,” he said from the small apartment where his headquarters staff have retreated to cut costs.

In the best scenario, he must give six months’ notice and pay ¥20m to restore the premises to a skeleton. In the worst, he is locked into a seven-year lease with no break clause.

To make matters worse, so many restaurants want to close that renovation contractors are charging double normal prices.

Saida has found some hope from an online “restaurant rescue” platform called Taikyo Navi, which aims to parachute new eateries into existing premises. It has found a taker for one of the restaurants Saida needs to unload.

“The exit cost is zero. We don’t have to pay anything for dilapidation and we get our full deposit back,” he said. “Just getting back that ¥20m deposit is a huge help to our cash flow.”

Standard contracts for commercial real estate in Japan are rigid and include large deposits and brokerage fees, before the costs of outfitting a restaurant are taken into consideration. Under Taikyo Navi, new tenants offer to take over the existing contract and fittings

“Before Covid-19 we had 600 members for this service — our core users. In the months since the pandemic began we’ve reached 3,000,” said Manabu Shintani, chief executive of Actpro, the consultancy that started the service.

The restaurant Saida has managed to offload is in a residential area, but he is still struggling to find a solution for two city centre eateries that rely on renting private rooms for weddings or corporate clients. If he can survive until more of Japan gets vaccinated, however, he believes the opportunities will be dramatic.

“The Tokyo restaurant market is the most competitive in the world,” he said. “With so many closures due to coronavirus all the competition will be gone.”

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