One week into shelter-in-place, San Francisco businesses are making big changes to stay afloat

Key Points
  • Businesses throughout the Bay Area — from party supply companies to coffeehouses — are upending their traditional business models to combat a coronavirus-induced plunge in sales.
  • Many public officials are looking to San Francisco for signs of what shelter-in-place orders could portend for local economies across the country.
  • While some industries in San Francisco have managed to pivot, travel and tourism have been battered.
California Street, usually filled with iconic cable cars, is seen mostly empty in San Francisco, California on March 17, 2020.
Josh Edelson | AFP | Getty Images

Mike Seramin owns a party supply company in Daly City, just outside of San Francisco. Abbey Party Rents, founded in 1947, is used to booking around 20 events per day of all sizes, but he netted just two new clients all of last week — small outdoor picnics set for August.

Seramin, like others in the hospitality industry, is hoping for a tidal wave of pent-up demand once the coronavirus outbreak subsides. But, for now, his company has turned to assembling ancillary tents for hospitals to keep money coming through the door.

"Everyone is putting their lives on hold," he said.

Seramin is one of the hundreds of Bay Area business owners upending their traditional business models to combat a coronavirus-induced plunge in sales. It's been one week since San Francisco Mayor London Breed and fellow Northern California officials unveiled what was, at the time, the most stringent set of restrictions to curb the coronavirus — a "shelter-in-place" order affecting 7 million residents in six Bay Area counties. The directive shuttered non-essential businesses and mandated residents leave home only for essential needs, such as grocery shopping and picking up prescriptions. 

Since then, governors across the country have announced similar measures. Stay-at-home orders now blanket 16 states, from Hawaii to Connecticut. Many are looking to San Francisco for signs of what these shutdowns could portend for local economies across the country.

Abbey Party Rents is operating on a skeleton crew, with just six people working full-time. Typically, Seramin employs 60 to 70 people during this time of year. He's asked the salary management team to take pay cuts, laid off employees, and moved some to rotating shifts to cushion the blow.

Supplies from Abbey Party Rents deployed for drive-through coronavirus testing in San Francisco
Abbey Party Rents

"It's kind of eerie," Seramin said of his company's operations hub. "There are a bunch of empty desks, nobody floating around the warehouse and we have 12 trucks parked in the parking lot."

To keep money coming through the door amid the uncertainty, Seramin and other businesses in the events industry have deployed their expertise to supply support services to hospitals and health care services in the Bay Area. That includes tenting, generators, tables, and chairs for temporary in-patient testing centers, as local and state public health officials prepare for a surge in coronavirus patients. California Gov. Gavin Newsom said on Monday the state would need an additional 50,000 hospital beds to respond to the coronavirus outbreak.

"Getting cash in the door to sustain our operations is paramount to our survival," Seramin said.

Aiding the fight against the virus

As of Tuesday, the number of confirmed coronavirus cases in the U.S. had topped 53,000, and deaths neared 700. California had the third-highest number of cases by state, behind New York and New Jersey. The Bay Area alone registered more than 1,000 cases.

Mayor Breed announced all city playgrounds would close to further encourage social distancing. Governor Newsom followed by shuttering parking lots at all California state parks. Newsom added that, over the past week, the number of people filing for unemployment claims across the state averaged 106,000 per day. The daily average before the outbreak was just 2,500.

Restaurants and retailers have been especially hard hit already in San Francisco. In February, many started to see a moderate slowdown in foot traffic. Most found it manageable, but now under shelter-in-place, revenue has dropped precipitously. 

Dozens have laid off more than half of their staff, and several have already had to close their businesses completely, according to the city's Chamber of Commerce. This is especially true for those restaurants that relied on a sit-down service business model, and can't pivot easily to delivery or take-out.

But some have found shimmers of success.

Lauren Crabbe, co-owner of Andytown Coffee Roasters in San Francisco, has had to change how her business operates completely. When the shelter-in-place took effect last week, Crabbe shut down two of four stores in San Francisco and cut all hours for 45 employees. Twenty store managers have stayed on to work between twelve and fifteen hours a day at the two locations still open.

Kaiser Permanente Medical Center workers receive a coffee delivery from Andytown.
Lauren Crabbe | Andytown Coffee

"I had to make the call of balancing the needs of my employees to have jobs with the responsibility we have for their health," Crabbe said. "We realized that, if we completely shut our doors, we would not have been able to make payroll, pay out all of the employees' paid time off and allow them to keep their health insurance for the coming month."

Crabbe is trying to make up lost revenue by offering discounted coffee beans online and delivering coffee to health care workers. On the company's website, customers can buy coffee and food specifically for these first responders, and Andytown workers then deliver the items daily to hospitals across San Francisco. That's let Crabbe re-hire some of her hourly employees -- five as of this past weekend, and she's hoping to bring back more this week.

Still, Crabbe and others admit the path to re-opening remains unclear.

Andrew Chau, co-owner of San Francisco-based Boba Guys, laid off 400 employees and temporarily closed down all 17 locations across California and New York. Chau and his business partner are trying to forecast how many weeks the business can survive.

"It's as bad as 9/11 or worse," Chau said. "The 2008 crash has nothing on this one."

Over the past week, Chau has spent his days filling out small business loan applications and negotiating with landlords and vendors over payments. He and a few co-workers have also donated straws and milk to local food banks to assist city residents in need.

Like many small businesses, Chau is emphasizing e-commerce now more than ever. He has brought in more money through gift cars than all past holiday seasons combined. He's also weighing whether the shutdown, if prolonged, could force the business to go all-delivery for a year.

"Shelter-in-place has effectively cut the entire market in half," Chau said.

Boba Guys donates its remaining inventory, nearly 1700 pounds of Straus organic milk, to the SF-Marin Food Bank
Boba Guys / Andrew Chau

Travel, tourism sectors feel the heat

Many businesses have not been able to pivot.

Tourism is the lifeblood of the San Francisco economy. A record 26.2 million people visited the city last year, spending $10.2 billion. That sector employs 90,000 people and contributes roughly $800 million annually through taxes generated by visitors, according to San Francisco Travel.

But tourism has ground to a halt — gutting hotels, taxis and tour companies. 

"It's devastating," SF Travel CEO Joe D'Alessandro said. "We've recovered from earthquakes, wars, and other issues much differently. This is the total shutdown of the city, in terms of visitors...and it will fundamentally change the industry."

D'Alessandro argued that San Francisco was better positioned to bounce back than other U.S. cities because of its large corporate presence. 

For now, though, business travel is also at a standstill. The city's largest convention center has seen 14 cancellations or postponements, costing hotels an estimated 252,000 room nights. Occupancy rates have dropped below 10% at some city hotels, down from 80% just a few weeks ago. 

San Francisco Chamber of Commerce President Rodney Fong told CNBC that some businesses in the hospitality industry had seen revenues fall as much as 70%, even before the shelter-in-place order was enacted. 

"Since the order came down, the name of the game has changed," Ted Egan, the city's chief economist, said. "We need non-essential businesses to close and to ensure that there's compliance. We have moved from trying to guess how bad it making sure it is bad as it needs to be to deal with this public health crisis."

Relief in sight?

To limit the damage, the San Francisco mayor's office has announced new measures to support businesses, including deferring quarterly taxes and licensing fees. A relief fund will also provide up to 100 businesses with $10,000 each. The city has announced a moratorium on commercial evictions for small and medium-sized businesses.

On the federal level, lawmakers reached a deal early Wednesday on a massive $2 trillion relief bill that includes a $350 billion fund for small businesses to mitigate layoffs and support payroll. According to a draft letter by Senate Minority Letter Chuck Schumer to colleagues, the deal also includes $10 billion in SBA emergency grants and up to $10 million of emergency relief per business.

A man wearing a face mask walks across the street in San Francisco.

But Bay Area companies — many of which are already loaded up on debt — say these measures may not be enough given the uncertain revenue picture over the next few weeks and months.

"The government should be giving small businesses the same amount of monetary attention as they're giving Wall Street," Crabbe said. "They need to be giving us straight-up bailouts."

Jay Cheng, public policy director at the San Francisco Chamber of Commerce, said businesses are pushing for relief from unsecured property taxes, delays to payroll and sales tax collection, and grants to hire back employees once they get back up and running.

Boba Guys' Chau is urging the state and federal government to pass laws freezing commercial rent and mortgage payments.

"If they do that, the landlords will ease up, and then the tenants will ease up," Chau said. "If they get rid of that, most small businesses would at least breathe a bigger sigh of relief."

Last week, a chorus of San Francisco business leaders and industry activists — including heads of the Chamber of Commerce, Hotel Council, and several restaurant groups — wrote a joint letter to Mayor Breed, calling on the city to tap unused funds from a health care program to support hospitality workers. The program, Healthy SF, pools money from businesses to pay for uninsured employees' health care, and the surplus is held by the city. The signatories are asking the city to use the money to pay wages lost by restaurant, bar and retail workers during orders to shut down.

In response to a request for comment on the plan, the Mayor's office said that "all options for supporting businesses and workers are currently under consideration," and detailed the initiatives currently in place to support local firms.

Anna Weinberg, managing partner at the restaurant group Big Night, is one of several restaurateurs backing the Healthy SF initiative. Weinberg told CNBC she spoke to representatives for San Francisco County Supervisor Gordon Mar, and the supervisor's office has requested a proposal on how to potentially distribute those funds. Edward Wright, legislative aide to Mar, confirmed to CNBC that the excess funds from Healthy SF was one of "a number of different initiatives" the Supervisor was examining to offer further support to small businesses.

"That amount of money could help our employees pay the rent and roll them through if we actually do open again in May," Weinberg said. "My focus is getting as many people back to work as quickly as possible once it's safe. The narrative has to switch to re-opening."