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Like so many restaurants in the world’s most Michelin-starred city, Ginza Isomura is struggling to weather the latest crisis rocking the pandemic-battered hospitality industry.

A staple in one of Tokyo’s most expensive shopping and dining districts for decades, the restaurant has been serving carefully prepared deep-fried skewers of meat, seafood and seasonal vegetables to customers from around the world. Before the COVID-19 outbreak, international travelers could be seen rubbing elbows with Japanese office workers at the folk-themed establishment’s polished wooden counter, listening to chefs in white uniforms explain each skewered entree.

In what has become an all-too-common story since the onset of the health scare, however, sales have plummeted due to social distancing measures, travel restrictions and stay-at-home requests.

Goshi Isomura, president of the family-owned company, decided to downsize operations by closing the flagship venue and an adjacent upscale izakaya pub his firm operates last September.

“It was an agonizing decision to make,” Isomura recalls. The remaining staff were dispatched to the original kushiage (deep-fried skewers) restaurant a few blocks west that Isomura’s grandfather first opened in 1983.

While customers eventually began to return, things started looking murky as the reported number of infections soared during the winter months.

“And now, this,” Isomura says. “I really didn’t anticipate another state of emergency.”

His sentiment is echoed by many in Japan’s hospitality industry who grappled with the first so-called soft lockdown Japan announced last year, only to see another round being declared by Prime Minister Yoshihide Suga on Jan. 7. And unlike the previous decree, the current emergency covering Tokyo and 10 other prefectures has singled out restaurants and bars, raising concern that it could sound the death knell for many establishments and have a long-lasting impact on the nation’s famed culinary landscape.

“This is by far the most serious crisis we’ve faced in our nearly 40-year history,” Isomura says.

Ginza Isomura has been serving kushiage (deep-fried skewered) for nearly 40 years. | COURTESY OF GINZA ISOMURA
Ginza Isomura has been serving kushiage (deep-fried skewered items) for nearly 40 years. | COURTESY OF GINZA ISOMURA

Mixed messages

Japan has been scrambling to contain a rising wave of COVID-19 infections in recent months. Experts say year-end parties, cold weather and poor ventilation are partially responsible for the spike, especially in large cities such as Tokyo.

Until Feb. 7, restaurants, bars and karaoke parlors are asked to close at 8 p.m., event attendance is restricted and people are told to avoid going out at night. Firms are encouraged to have employees work from home or stagger their shifts.

With no major improvements seen in the number of infections, however, reports indicate the government will likely extend the state of emergency for parts of the country for around another month. The capital saw 868 new cases on Friday, bringing the total number of confirmed cases to 98,439 and deaths to 864.

In return, authorities are offering cash handouts for restaurants that follow the request. But with no legal power to force compliance, such measures lack teeth and financial incentive, particularly for larger venues and chains burdened by substantial operational costs.

Japan’s response has already been criticized as being too slow and confusing. Under the government’s subsidized Go To Travel and Go To Eat campaigns, domestic travel and dining out had been encouraged to spur the economy, a policy that sent mixed messages and which may have accelerated the spread of the virus. Both programs have since been halted, dealing a further blow to hotels and restaurants.

“We’re being flooded with cancellations,” says Akira Miyamoto, general manager of Kaneyamaen, a 120-room hotel in Fujiyoshida, a city in Yamanashi Prefecture.

Ginza Isomura, a restaurant in Tokyo's Ginza neighborhood, has seen sales plunge due to the pandemic. | COURTESY OF GINZA ISOMURA
Ginza Isomura, a restaurant in Tokyo’s Ginza neighborhood, has seen sales plunge due to the pandemic. | COURTESY OF GINZA ISOMURA

Around 80% of the inn’s guests in recent months were from the Tokyo metropolitan area, Miyamoto says. However, the suspension of the Go To Travel campaign, coupled with the state of emergency, is proving to be devastating.

“We’ve received more than 4,000 cancellations to date,” Miyamoto says, adding that the hotel has decided to temporarily close on weekdays until Feb. 25 to cut down on expenses.

“While the current state of emergency is smaller in scale compared to the initial declaration that covered the entire nation, the indirect impact could be more significant,” says Takahide Kiuchi, executive economist at the Nomura Research Institute.

Kiuchi estimates that under the ongoing state of emergency, consumption will be cut by ¥2.3 trillion. That corresponds to 0.4% of Japan’s annual gross domestic product in nominal terms, with residents’ income in the capital and the other 10 prefectures, including Aichi, Osaka and Fukuoka, accounting for 60.6% of the country’s GDP.

“Despite the pandemic-induced negative growth our economy is suffering, the number of corporate bankruptcies hasn’t been as prominent as feared. That’s primarily due to government policies such as zero interest loans and subsidies that have helped firms stay afloat,” Kiuchi says. “But companies can’t continue borrowing money indefinitely. With no immediate end in sight for the pandemic, we could see many more firms opting to close up shop rather than piling up more debt.”

The emergency, Kiuchi says, could increase the number of unemployed people nationwide by 373,000, and raise the jobless rate by 0.55 of a percentage point. These figures will grow if the state of emergency is extended, he says.

According to credit research firm Teikoku Data Bank, the number of pandemic-related bankruptcies across all industries dropped last year, likely as a result of government support measures. Yet restaurant bankruptcies have spiked during that period, hitting 780 in 2020, the highest since the current survey method was adopted in 2000.

Kengo Iwata is the owner of Ibus, a whisky bar in Tokyo's Toranomon business district. | COURTESY OF PAKUTASO
Kengo Iwata is the owner of Ibus, a whisky bar in Tokyo’s Toranomon business district. | COURTESY OF PAKUTASO

Commercial response

To mitigate the damage, authorities are offering an incentive of ¥60,000 per day — regardless of the size of the business — to restaurants and bars that comply with the new monthlong restriction. For smaller establishments such as Ibus, a whisky bar in the capital’s Toranomon business district that serves homemade smoked pastrami, cheese and fish, the subsidy is a lifesaver.

Located on the seventh floor of a commercial building, the venue features a slick counter that can seat seven customers.

Kengo Iwata, the sole proprietor of the bar, says sales for a typical day before the emergency were around ¥50,000, from which rent and various other fees are deducted.

“Sixty thousand yen a day is a large sum for a tiny place like mine,” Iwata says.

While many smaller businesses such as Ibus planning to apply for the subsidy have decided to close during the state of emergency, Iwata says he is keeping his place open until 8 p.m., as requested by Tokyo.

“I’m grateful for the handout, but I’m still keeping my place open to maintain my motivation and relationship with customers,” he says. “I’m sure the situation must be even more harrowing for larger establishments.”

During a press conference earlier this month, Miki Watanabe, CEO of izakaya chain operator Watami Co., said the company is temporarily closing 83 out of around 100 restaurants in the greater Tokyo area for the duration of the emergency. That would put it in the red by ¥500 million to ¥600 million, he said.

“The amount of necessary subsidy varies depending on location, size and the line of business,” Watanabe said. “I wonder if compensation can’t be allocated more thoughtfully.”

Ibus, a whisky bar in Tokyo's Toranomon business district | COURTESY OF PAKUTASO
Ibus, a whisky bar in Tokyo’s Toranomon business district | COURTESY OF PAKUTASO

Issei Horino, president of low-cost Italian chain Saizeriya Co., warned during a news conference on Jan. 13 that high-profile industry names could falter without additional assistance. The company has seen net income plunge 80.9% to ¥250 million in the quarter ended November, prior to the most recent surge in cases. While Saizeriya has shortened business hours at all of its restaurants in areas covered by the state of emergency, Hoshino voiced his frustration during the news conference when asked about government officials suggesting people should also refrain from eating out for lunch.

“Give us a break,” Hoshino said.

Among those hardest hit by the emergency measures may be the nation’s ubiquitous karaoke parlors. Even before the current round of restrictions, many venues were forced to shutter as customers steered clear of small, enclosed spaces for fear of indoor transmission.

In a desperate attempt to lure guests, Karaoke-kan, one of Japan’s largest karaoke chains, launched a promotional campaign until Feb. 7 that offers rooms free of charge under certain conditions. For up to two hours on weekdays and one hour on weekends, customers can use any room the chain operates in areas covered by the decree for free as long as they order drinks.

“Karaoke boxes have been stigmatized as being dangerous despite never being the source of clusters,” says a spokesperson for B&V Corp., the firm that runs Karaoke-kan. Sales have slumped to half of pre-pandemic levels, he says, adding that the ¥60,000 per day subsidy is a mere drop in the bucket considering the expensive rent it pays for its properties.

The situation has led some to defy calls to close early, questioning the rationale behind the move.

Kozo Hasegawa, CEO of Tokyo-based restaurant chain operator Global-Dining Inc., said in a statement in January that it would be impossible to maintain business and employment if the firm’s restaurants closed at 8 p.m., and said shortened hours weren’t effective in controlling infections.

“We plan to continue operating as usual,” Hasegawa vowed.

Karaoke parlors have been severely hit from the most recent state of emergency. | RYUSEI TAKAHASHI
Karaoke parlors have been severely hit from the most recent state of emergency. | RYUSEI TAKAHASHI

Opportunities elsewhere

The pressure on the hospitality sector is already impacting the restaurant real estate market as establishments in urban centers are pushed out of business.

The number of properties on inshokuten.com, a website listing restaurants and bars available for rent, has swelled by around 20% over the past year.

Hikaru Hosokawa, a manager at Synchro Food Co., the firm that runs the service, says properties in Tokyo’s business quarters conveniently situated near stations — those that have been considered good locations for restaurants — have seen a strong uptick in availability.

Demand for cheaper spaces under ¥300,000 a month is growing, he says, while more expensive spaces in city centers commanding up to ¥500,000 a month are going vacant.

“That means many larger operations are closing up shop,” Hosokawa says.

And in what could signal a fundamental change for the capital’s hospitality industry, Hosokawa says inquiries are growing for properties in suburban areas outside of central Tokyo.

As working from home becomes commonplace, many companies are opting to reduce office space. That’s simultaneously hurting restaurants that relied on office workers as their main clientele.

“Restaurant space in neighboring prefectures such as Chiba, Saitama and Kanagawa where many Tokyo office workers commute from are seeing demand,” Hosokawa says. “It looks like many operators are avoiding Tokyo.”

People walk in front of Shimbashi Station in Tokyo on their way to work on Jan. 7. | KYODO
People walk in front of Shimbashi Station in Tokyo on their way to work on Jan. 7. | KYODO

High rental prices in the city center have always been a problem for restaurant owners.

When the nation’s first state of emergency was announced last spring, Isomura, the owner of the kushiage restaurant in Tokyo’s Ginza neighborhood, sought zero interest bank loans and furlough subsidies for his employees under the government’s relief program.

However, as his businesses are located on prime real estate near the Kabukiza Theater in Ginza, the monthly rent for the two restaurants alone cost him ¥2 million.

“Considering the rent and personnel expenses, I decided it was in our best interest to concentrate resources on our other establishments,” Isomura recalls.

While the suburban migration of restaurant businesses could be temporary, the shift has led restaurant owners in the capital to seek secondary sources of income. Many are offering takeouts and food deliveries. Chefs are being dispatched to prepare restaurant-quality meals in home kitchens.

Ibus, the bar in Toranomon, operates an e-commerce site through which it sells handmade smoked foods.

Isomura, meanwhile, is planning to venture into an entirely different field: fashion.

“I’m thinking of launching an apparel brand on the side,” he says. “There’s a limit to what we in the restaurant business can do at this point in time. That said, there must be opportunities elsewhere.”

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