Surviving the Food Industry in New York's Economic Crisis

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1 Whipped by storm, food businesses persevere Hundreds were shuttered. Some lost everything. Here are three survival stories. BY JEN GELLER OCTOBER 25, :14 A.M. When Superstorm Sandy struck a year ago this week, the restaurants, delis and grocers that make up the food industry here were some of the city's hardest- hit businesses, not least because they're so ubiquitous. There are approximately 24,000 food businesses in the city, according to the New York Restaurant Association, which employ about 300,000 people, making the industry the third- largest employer in the five boroughs, just behind government and health care. Restaurants and grocery stores in flood zones saw extensive damage to expensive equipment and infrastructure. Even those that were not flooded suffered from power outages that ruined perishable goods and shuttered businesses. In lower Manhattan alone, the Downtown Alliance estimates, more than 320 stores and restaurants were closed for over a week. Three food- related businesses in hard- hit areas of the city exemplify the challenges faced by so many of their peers and their surprising resilience. Fairway lost its Red Hook, Brooklyn, store to flooding, but the sizable company had strong insurance and other locations that offset losses.

2 Stone Street Tavern in lower Manhattan relied on loans from groups like the Downtown Alliance to help it rebuild. Tiny Surfside Bagels in Rockaway Beach, Queens, might not have recovered at all had it not been for a white knight. Devastated by Sandy, Fairway's Red Hook outpost sustained $20 million in damage a total loss, because building a new store typically costs as much. But the grocer, with more than $660 million in sales in fiscal 2013, had a few things in its favor: The building structure was intact; the company was well covered through Lexington Insurance, a unit of AIG; and it had several other stores in New York, said President Bill Sanford. "We didn't miss a beat," he said. "We have business- interruption insurance that took care of our employees when we were out, and we were able to retain all 400 employees who work at our Red Hook store. Once things got up and running, we got buses that took them to other Fairways every day while we recovered and rebuilt." Rebuilding the supermarket even allowed Fairway to make needed upgrades, including better café seating and reformatted aisle flow. "We got a lot of ideas from customers that we put into place," Mr. Sanford said. The past year has been a busy one for the grocer, which went public in April. It opened three new stores: two in Manhattan and a Rockland County location in Nanuet. It has more in the pipeline, including one at Hudson Yards in Manhattan. Vital insurance Although Fairway doesn't break out sales by store, Mr. Sanford said, Red Hook's sales were up from where they were before Sandy hit. In Fairway's first earnings release this past August, it reported that its fiscal first- quarter net sales rose 21%, to $187 million, in the period ended June 30. Second- quarter results will be released Nov. 7. Mr. Sanford remains worried about another storm. He said the company is working hard on a flood- prevention plan that includes building retractable structures that can help withstand storm surges. The most important lesson Mr. Sanford learned is the need for good insurance. "Business- interruption insurance is so important to a company like ours," he said. "It's expensive, but it proved to be worth it." Companies that didn't have the resources of a Fairway frequently turned to the New York Restaurant Association and agencies like the Downtown Alliance, which manages the business improvement district there, for help. The restaurant group worked with many of its affected members, helping them fill out insurance claims and giving guidance on how to get the best settlements and apply for small business loans. The Downtown Alliance created a $1.6 million

3 "Back to Business" grant program for ground- level retailers located in flood zone A. Stone Street Tavern was among the businesses that received aid. During the storm, water came up through the drains and flooded the tavern's basement, destroying everything in its wake. Power came back after two weeks, and the tavern was able to clean up, restock, buy new equipment and reopen, but that didn't mean that everything was back to normal. Many of lower Manhattan's buildings remained empty. Coming off a strong October 2012, Stone Street's business virtually stopped just as the all- important holiday season was about to begin. Sales were down 70% in the first four weeks after it reopened, and Stone Street was forced to lay off several of its 35 staffers in what is typically the busiest time of year. "It was brutal. We're still trying to get back on our feet," said Croine O'Halloran, who has owned Stone Street for the past seven years. Andrew Mosel, a spokesman for the restaurant association, said stories like Ms. O'Halloran's are all too common, even for those who had disaster plans. "Sandy was such a huge event, and its effects were so far- reaching, that it was nearly impossible for many businesses in New York to prepare for it," he said. Mr. Mosel added that the nature of the disaster has changed the way people view insurance. "Basically, I tell people now, if you are within one mile of the water, even if you can't see the water from your window, you have to get flood insurance," he said. "There's no getting around it." Surfside Bagels in Rockaway Beach, Queens, with just seven employees, faced even higher hurdles in the storm's aftermath. Scott Edwards and Tim Keenan, two New York City firefighters, opened the shop in 2008, just as the financial crisis hit. "It was really hard at first, but I figured if we were able to make it through that, we were good," explained Mr. Edwards. "Then Sandy hit." The neighborhood was decimated by flooding that washed away the boardwalk as well as hundreds of nearby stores and homes. The bagel shop was inundated with more than four and a half feet of water. Equipment was destroyed or stolen by looters. Messrs. Keenan and Edwards had insurance and savings, but they were skeptical that they would be able to recover.

4 Then a miracle of sorts happened. Surfside received an from a company that wanted to help a business hurt by Sandy. The partners assumed it was a scam, but with nothing to lose, they responded. They soon connected with FrontStreet Facility Solutions, a building maintenance and repair company based in Bohemia, L.I. Then- CEO Joseph Scaretta had been so moved by the devastating images he saw throughout the region, particularly the Rockaways, that he wanted to lend a hand. FrontStreet donated time, effort, workers and supplies to Surfside Bagels, including the installation of drywall and electrical work, and secured a charitable donation of tables and a freezer from Meals- on- Wheels of Greenwich, Conn. The partners took out loans for about $20,000 and received about $10,000 from insurance for other kitchen equipment as well as a new HVAC system. Not counting the in- kind donations from Front Street, the total cost of the recovery was $125,000. Surfside Bagels reopened on Feb. 11 with a ribbon- cutting and much fanfare. But when the crowd left, according to Mr. Edwards, it felt worse than when it first opened in "It was a ghost town here. I was worried." Slowly, word of mouth spread that Surfside was open, the only store in the neighborhood for a while, and patrons began to return. A new customer base also emerged: construction workers and contractors helping to rebuild the area. Vacancies persist Mr. Edwards said that although many businesses have reopened and residents have moved back, there are still many vacancies throughout the Rockaways. Portions of the boardwalk have been rebuilt, but only around city- run concession stands. There doesn't seem to be much movement on building more of the boardwalk, which, Mr. Edwards said, is hurting businesses and morale. Front Street's relationship with Surfside continues one year later through mentorship, marketing and networking. Front Street even helped find a new revenue stream for the shop, turning excess dough into bagel chips and expanding product offerings. Mr. Edwards said that sales are still down a bit from where they were about $100,000 a month before the hurricane but the summer wasn't nearly as bad as he had expected. He said he's seeing an influx of new buyers and developers, giving him hope for the future of the Rockaways and his business.

5 "Rockaway has come a long way since the storm," Mr. Edwards said. "Recently there have been a few new first- time businesses that have opened here. There's almost a sense of renewal in the area." Correction: Jen Geller is the author of this article. Her surname was misstated in an earlier version of this article published Oct. 25, A version of this article appears in the October 28, 2013, print issue of Crain's New York Business. ###