Coronavirus crisis: What does it cost a small business to stay open in the Bay Area right now? A lot

ByAlix Martichoux KGO logo

Monday, April 6, 2020

What does it cost a small business to stay open in the Bay Area right now?

Two local businesses that have committed to pay employees as long as possible told us how much it's costing to keep doors open.

SAN FRANCISCO (KGO) -- When the novel coronavirus landed in the Bay Area, it changed the way we work, if we were lucky enough to be able to work at all. A statewide shelter-in-place order forced the closure of all non-essential businesses. Even those that were permitted to stay open have been struggling to make ends meet.

"After the shelter-in-place order, our sales probably dropped by 40% and then at one point even dropped by 60%," said Frank Nguyen, who co-owns Academic Coffee in downtown San Jose with his wife, Kathy.

Academic looks less like a cafe these days and more like a market. When they saw coffee sales plummet, Nguyen turned to the cafe's wholesale suppliers to see what they could sell customers instead. He had to completely change the cafe's business model to stay afloat.

"I was going through the list every day and seeing what people need and what we can get. I started getting toilet paper, eggs, bleach, broccoli, asparagus, potatoes. ... we probably sell more produce than coffee right now, to be honest."

The most important thing for Nguyen throughout the last chaotic month was finding a way to serve the community while also keeping their eight part-time and full-time staff fully employed. In a time when many businesses have laid off or furloughed employees, Academic is doing everything they can to avoid cutting hours.

So far, they've managed to keep everyone on payroll, but running a business in San Jose is no cheap endeavor. Nguyen estimates rent, payroll, utilities and insurance add up to $20,000 a month in overhead.

"Before people would always see our cafe busy and full of people hanging out on the weekends and they would say, 'Oh you must being doing so well.' I'm like, well you know it's a packed house but a cup of coffee is $3.50 and we still have all these other expenses. Now we don't have that anymore. We just have a lot of expenses."

Third Culture Bakery in Berkeley found itself in a similar situation last month. Eighty percent of the bakery's revenue disappeared overnight, according to co-owner Wenter Shyu.

Meanwhile, the cost of doing business stayed just about the same. Rent for the business's Berkeley location is about $20,000 a month. Their newly opened Colorado location is an additional $5,000. Plus, there are insurance and taxes, which make up another $5,000 a month.

Then there's the cost of goods. The bakery spends about $12,000 a month on butter and $8,000 on eggs -- and that's just two of the ingredients that make up their mochi muffins and donuts.

The biggest monthly expense is payroll, at roughly $55,000 a month for their 22 full-time staff in Berkeley and 10 in Colorado. Health care and 401k contributions add another $4,000 monthly. Before the coronavirus pandemic, Shyu said everyone on staff was full time, making over $20 an hour with benefits and pooled tips.

"We went from a $3 million company to now a $300,000 company overnight."

With such a large drop in revenue, Third Culture was forced to cut back on staffing in the short-term, though they committed to continue paying employees' benefits through the crisis. The bakery was also forced to improvise, setting up online orders and now shipping their famous mochi muffins nationwide. As business picks back up, they're able to start adding hours back to employees' schedules, said Shyu.

"Many of (our production crew) are in the middle of an immigration process," explained Shyu. "Many folks in that group didn't feel comfortable or were absolutely terrified of taking any government assistance. And so we said 'OK, we need to take care of these people."

Shyu and co-owner Sam Butarbutar have chosen to forego their salaries in favor of keeping as many retail and kitchen staff on the books as they can.

The Nguyens are also foregoing their salaries for the foreseeable future in order to keep the business running. They may have to move in with their parents, said Frank, but he acknowledges that's not even an option for some of his employees.

"The protections in place are just rent deferment. It's not like that rent is forgiven. Eventually you're going to have to pay up," said Nguyen. "If someone goes on unemployment or disability ... that's not enough to make it in San Jose."

Hear more from Nguyen and Shyu about how they're trying to take care of their employees in this unprecedented crisis in the video at the top of this story.

Academic Coffee is accepting online orders for coffee, pantry staples and pizza for pick-up. Third Culture is delivering mochi donuts and muffins on Uber Eats and shipping mochi muffins nationwide.

Get the latest news, information and videos about the novel coronavirus pandemic here

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