‘Scary times’ for Michigan restaurants won’t end when dining rooms reopen

Knight's

Knight’s on Liberty opened for curbside service on April 30, weeks after the downtown Ann Arbor restaurant closed. (Bridge photo by Paula Gardner)

Michigan’s battered restaurant industry wants to learn when it can reopen.

But even as restaurateurs hope to rehire staff and rebuild confidence among customers scared of the coronavirus, they also say they’re bracing for the next struggle: making enough money to stay open.

After losing more than $1 billion in sales just during April, restaurant owners say their futures hang not just on opening their dining rooms, but whether they can generate the revenue to fund long-term hiring and operations.

Survival may hinge on two factors: dining-room capacity and carry-out sales. Affecting both, owners say, will be how confident customers feel about returning to their favorites eateries.

4 ways to boost survival chances for Michigan restaurants

  • More outside seating. Many restaurants hope to expand into adjacent public areas to increase capacity.
  • Industry-specific guidelines on federal loans, like the Paycheck Protection Program. Payback on the loans that start after dining room reopening will give restaurants time to rebuild cash flow.
  • Increased delivery options. Many owners hope for decreased regulations on beer and wine delivery by third-party services.
  • Guaranteed access to personal protection equipment. Items like masks, gloves and sanitizing products will be needed in high volume; disposable plates and menus might be, too. 

“When the governor says you can open up, that will be one part of the tale,” said Steve Loftis, CEO of Harbor Restaurants in Grand Haven. “[The rest] will happen in the next 24 months to see what their sustainability is.”

Some, he said, won’t make it. “We know that.”

Michigan restaurants were closed to sit-down customers as of 3 p.m. March 16. A month later, according to the Michigan Restaurant & Lodging Association (MRLA), 53 percent had temporarily closed. Two percent closed permanently, while the rest relied on carry-out business, generating a fraction of previous sales. 

For an industry with typical profits at 3 percent to 5 percent of revenue, the downsizing is devastating. 

“These are scary times for everybody,” said Ari Weinzweig, a co-founder of Zingerman’s Deli in Ann Arbor. “Small restaurants depend on tomorrow’s sales to pay the next day’s bills. The restaurant industry is not one in which margins are high, even in good conditions. I assume nearly every restaurant in the country is losing money. Probably a lot of money.”

These are scary times for everybody. .. . I assume nearly every restaurant in the country is losing money. Probably a lot of money."

Ari Weinzweig, co-founder, Zingerman's

The GOP-controlled House on Thursday passed a bill calling for them to reopen May 15 along with bars, gyms and casinos, but later that day, Gov. Gretchen Whitmer issued an executive order forcing them to stay closed until May 28.

It is also still unclear what kind of capacity limits may be set once restaurants reopen. 

Many Michigan operators say they expect no more than 50 percent of their seating to be allowed to enforce social distancing. But other states are seeing lower limits, such as Florida, where capacity is 25 percent when restaurants reopen Monday.

Whitmer’s reopening outline says decisions by industry will be based on risk factors for spreading coronavirus. Sit-down restaurants have a lot of them: high employee and public interactions; indoor workspaces with shared equipment; workers who often rely on public transportation. 

But it’s also an industry trained in sanitation processes with licenses based in part on their ability to control the spread of contamination, said Loftis, past chair of the restaurant and lodging group.

The industry’s importance to the Michigan economy means that identifying reopening protocols should be a priority, said Justin Winslow, CEO of the trade association.  Restaurants account for 8 percent of the state’s labor force, with 249,000 people laid off or furloughed as of mid-April. 

National projections also show grim numbers: 8 million restaurant employees have been laid off or furloughed, representing two-thirds of the industry’s workforce. At least $80 billion in sales will be lost by the end of April, according to the National Restaurant Association

“No one is doing as well,” Winslow said. 

The promise and limits of carry-out

Bell’s Brewery expected to launch summer with its popular series of Oberon Release Parties in March. It was part of what staff expected to be a full year of new craft beer experiences around the country. Instead, the restaurant closed and brewing dropped dramatically.

“For a beer business, we haven’t been able to pour much beer,” said Ryan Tovey, director of hospitality at Bell’s Eccentric Cafe in Kalamazoo.

But when the craft brewer decided to reopen its restaurant on April 17 with curbside pickup, staff decided to experiment with its menu. The first pasta dinners, served with beer bread, sold out, giving staff some encouragement to keep trying new things.

Now Bell’s is looking at curbside pickup “with as much creativity as possible,” said Tovey. Inspiration is coming from staff and customer input. Nostalgia prompted the first fried chicken bucket offered at the brewery. That it also travels well in containers gave it an edge.

Among Michigan restaurants, 45 percent are now open and serving carry-out meals. They see customers wanting eat-out options, and they’re adapting menus and staff. Evidence shows there is a market for carry-out in a pandemic. 

Domino’s Pizza reported from its headquarters in Ann Arbor that national sales grew 7.1 percent from March 23-April 19. 

The Knight family started curbside pickup at its Knight restaurants on the west side of Ann Arbor and Jackson. They also were among at least 50 restaurants across Michigan that added grocery pickup to dining menus.  Lindsay Kendrick, marketing director, estimated sales are down 60 percent. About 100 workers were laid off.

Even with those numbers, Kendrick said, the strategy generated a cash flow and let the restaurant serve customers until dining rooms reopen. Sales are increasing by the week.

“We’re probably doing better than most restaurants,” she said.

Yet carry-out comes with risks and pressures to keep from losing money. Zingerman’s Deli in Ann Arbor has earned national accolades, but its reputation isn’t enough to retain its sales during the pandemic. Weinzweig said sales, which include delivery,  are about 35 percent of pre-coronavirus times. That’s about the same as Zingerman’s Roadhouse on Ann Arbor’s west side.

Zingerman

Zingerman’s in Ann Arbor has earned national accolades, but its reputation isn’t enough to retain its sales during the pandemic. Sales, which include delivery, are about 35 percent of pre-coronavirus times. (Shutterstock)

Depending on overhead, Winslow said, a restaurant may break even if it hits 30 percent of pre-COVID-19 sales. Overhead will be reduced if staffing and supplies are managed at a lower level, but many costs — like rent — remain fixed. Some restaurants need to reach 70 percent of previous sales to keep from losing money.

For a restaurant that serves alcohol, there’s more pressure with carry-out: Most lose the high-profit sales of beer and wine served by the glass with a meal.

The issue doesn’t just affect independent restaurants but publicly owned restaurant groups like Bloomin’ Brands, which laid off nearly 2,300 of its employees at 34 restaurants that it operates in Michigan, chains like Outback Steakhouse and Carrabba’s Italian Grill. Another of its chains, Bonefish Grill, saw an 83 percent decline in sales over the previous year during the third week of March, according to its public filings.

Knight’s received a federal Small Business Administration Payroll Protection Program loan, which requires workers to be called back. That’s one reason the family reopened Knight’s on Liberty, near the University of Michigan campus, on April 30.

Some restaurants, like Bell’s Eccentric Cafe, say carry-out serves another purpose: practicing to serve dine-in customers again.

Zehnder’s in Frankenmuth tried take-out service for a week in March, but then shut down all operations, including the restaurant and nearby Splash Village hotel. Now, the lower-level cafe reopens May 1 on weekends. 

“We have to get the kitchen up and running again,” said John Shelton, vice president of marketing and sales. “It’s not like switching on a lightswitch. “

The move, he said, “will help us make that segue from takeout to in-room dining.”

Smaller dining rooms

Zehnder’s is one of two restaurants in Frankenmuth that helped to make it one of the top tourist destinations in Michigan. With the Bavarian Inn, the pair serve over 2 million chicken dinners a year, according to the city’s Chamber of Commerce.

The size of the dining rooms at Zehnder’s gives the 1,500-seat restaurant a chance to configure any number of tables the state allows it, Shelton said, and it can scale up or back as needed.

The size of the dining rooms at Zehnder’s in Frankenmuth gives the 1,500-seat restaurant a chance to configure any number of tables the state allows it, and it can scale up or back as needed. (Shutterstock)

Smaller restaurants feel more pressure, even when they agree with keeping patrons six feet apart.

Lobsterfest is a 37-year tradition every June at Ashley’s in Ann Arbor, and co-owner Jeff More is not willing to give it up.  The 38th version of the menu that draws a capacity crowd is taking shape amid questions of public health safety. More also is left wondering how many people he’ll be able to serve. 

Outside dining has 24 seats, but More  thinks he’ll have 16 to allow for social distancing. And he may get 60 seats out of the 134 allowed inside. The bar seating won’t be open, to protect the bartender. That takes him to 50 percent. If fewer are allowed, he’ll have to make more carry-out sales without the alcohol that adds to his bottom line. That’s part of what’s driving him to explore selling prepared foods through retail outlets.

Similar situations are facing many establishments in Michigan.

“It will become a very big challenge,” said Loftis. “I don’t know any business that can run at 50 percent.”

Looking to the future, restaurant owners recognize they’re making short-term decisions with long-term implications.

Asked if his calculations show that he’ll make money after reopening, More doesn’t hesitate to reply: “No.”

He’s already paying for all of his full-time workers’ health insurance while they’re off, and chose to close completely in March, avoiding what he called “death by 1,000 papercuts.”

Reopening means “I’ll have taken on more debt,” he said. But, like other owners, he says he’s hopeful. “It’s a long game. I have to ask: Can I make more money in a year or two from now?”

Will customers return?

Like Bell’s, restaurants as an industry started 2020 with sales gains from December and optimism about the year. Nearly half expected higher annual sales, and just over half saw more customer traffic in January, according to NRA research. Pressures came from hiring, due to the low unemployment rate. And customers continued to look for memorable dining experiences, prompting menu experimentation 

That snapshot from just a few months ago may feel like a lifetime to anyone running a restaurant in Michigan, where unemployment filings by the end of April represented more than 25 percent of the workforce.

When dining rooms were closed by executive order, restaurant owners said they’d already started to see a slowdown in customer traffic. People were already nervous about COVID-19 and reports from Washington state that it would spread across the United States.

Now, as Michigan has more than 41,000 coronavirus cases and nearly 3,800 deaths, restaurant owners face not just strategic decisions. They’re also wondering what it will take to make people confident about returning to dining rooms.

 

As criteria for reopening rolls out from the U.S. Centers for Disease Control and Prevention and state officials, dining operators say they can align their operations with whatever is requested to reduce risk. 

Most already plan new cleaning procedures and health testing for staff. Masks and gloves will be common. Disposable utensils and plates are options, too. The MRLA is working with the public on many decisions, Loftis said. “They’re going to have opinions about what is safe.”

The University of Michigan’s Survey of Consumers is tracking the decline in consumer confidence, which is driven in part of the falling economy. But, it reports, health threats are consumers’ top concern.

“The first glimmer of the restoration in confidence will not be due to an improving economy, but when consumers become convinced the spread of COVID-19 has been effectively contained,” according to an April 17 report from the group.

Restaurant operators describe themselves as optimists, and they say they’re cheered by any success story in their industry. But they’re also hearing about their counterparts’ struggles.

According to a survey for the Independent Restaurant Coalition, just 20 percent of restaurant owners in cities with shutdowns say they are at least somewhat certain that they will be able to sustain their businesses until normal operations resume. 

“We want to give everyone a fighting chance to reopen ... and be a part of the economic mix in Michigan,” said Loftis, past chair of the restaurant and lodging group.

“If you lose these small restaurants in communities around the state, you’ve lost a lot.”

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Comments

Anonymous
Thu, 04/30/2020 - 11:42pm

God bless you small businessmen and your hard work! I know you put everything you have into your businesses, employ workers, and pay taxes- I hope that people wake up soon and open their eyes to what is happening to you! You all have my thoughts and prayers and hope that our leaders will soon let you work!

TGIF Alive
Fri, 05/01/2020 - 3:32pm

"I hope that people wake up soon and open their eyes to what is happening to you!" Businesses losing money?

Alive and well
Sat, 05/02/2020 - 1:59pm

I know. I wish these people who want to open so badly would at least express some concern about testing and PPE for employees and security of customers. These posters sound so crass talking only about lost profits and jobs, with little or no concern for lives lost. You can't take it with you and God hates greed.

Anonymous
Sun, 05/03/2020 - 7:53pm

Because of the Governor's shut down orders, cancer screenings are way down, suicide rates way up, drug abuse skyrocketing, vaccination rates for diseases stopped, preventive medicine not being practiced, and alcohol abuse up. Add up all of those deaths and it'll be double what the virus might do. You're the one who has less concern for lives lost.

Gil
Fri, 05/01/2020 - 10:06am

The few lives that may be saved, is it worth the thousands of businesses and lives that will be destroyed?

Worth it
Fri, 05/01/2020 - 3:30pm

Few lives? Sorry, our lives are more important than a Big Mac.

Robyn A Tonkin
Fri, 05/01/2020 - 10:40pm

I think you should re-read what you wrote in your comment. You wrote a comment that makes you appear to be someone who thinks it's okay for some people to die so that everybody else can eat out. I doubt you really think that way.

Wish you were right
Sat, 05/02/2020 - 1:40pm

Robyn, you are very generous, but no, they people stand behind their words which reveal what is in their hearts, stones.

Revere
Sat, 05/02/2020 - 2:09am

Gil,
We need to preserve the lives of the grandparents (who have been cast into "nursing homes" like trash) for a few more months than they would have lived without coronavirus so the stasi pigs who sent them there can feel like they did something good.
Don't worry, all of these stasi sympathizers are going to be either starved to death or deported to china in the next decade.
We will take this country back.

Be gone, Satan!
Sat, 05/02/2020 - 1:37pm

Revere, anyone reading comments in any section will see you clearly don't care about human lives. You also imply that you sell guns and have never respected the state orders from the beginning.

Mary Sue
Thu, 05/07/2020 - 10:38pm

Gil, it isn't a question of lives being saved by the forced business shutdowns- it's a question of how many more lives will these orders kill. Putting people under house arrest and using the police to shut down businesses and destroy jobs does not save lives in the long run- the curve flattens, but the same number of people are under the curve. So lives are not saved. On the other hand, the destruction of these orders is extensive and many thousands more are going to die because of them. Or at least that's what the data is now showing. Halfwhit doesn't care about that though- this is all about power and nothing else.

The Queen's Ego
Fri, 05/01/2020 - 4:28pm

All you restaurant owners who lose your livelihood, make sure you thank the Governor. She alone is the one doing this to you.

Love Big Gretch
Sat, 05/02/2020 - 1:42pm

Otherwise be grateful for all the government subsidies on the federal and state level given out to help you and kick yourself in the pants for voting for Trump who is incompetent. Thank Big Gretch you have you and your loved ones are still alive.

Anonymous
Thu, 05/07/2020 - 1:07am

As Obama would say, business owners and entrepreneurs didn't build anything themselves- the government takes full credit for building all businesses, and the serfs who work for the King should thank him for the opportunity to work in his kingdom.

John Q. Public
Fri, 05/01/2020 - 5:53pm

I'll be going to restaurants at about 5% of my prior rate. It has been a real eye-opener eating at home every meal. Restaurant dining is a downright horrible value. I'm absolutely sick about how much money I've been wasting all these years, and that's after paying retail for the food and beverage. If I could get prime steaks, fish and wine wholesale, I'd be paying about $20 for what costs more than $100 dining out.

Self Sufficient
Sat, 05/02/2020 - 1:47pm

I know and it's really dangerous to eat in restaurants. Besides paying top dollar does not mean they use top ingredients. We can thank the plague and YouTube for so many people learning how to finally cook. Carefully with the meat, the underpaid sick undocumented workers have no healthcare and the working environment is filthy at best.

Arjay
Sat, 05/02/2020 - 10:27am

Take out / carry out only slightly lessens the loss incurred, but it does keep your presence in front of the customers. Inside dining at 25% capacity will not pay the bills because the real profit is made on all the extras like the bar, desserts, and even the coffee, tea, or soda drinks. Inside dining at 50% is a marginal break even, some will just pay the bills, some won't. You need 80% capacity to approach a profit. It will be a long road back for some restaurants.

Keep your germs!
Sat, 05/02/2020 - 1:49pm

It really doesn't matter. Most people will not go to restaurants. Just the "brave" fools who attend rallies and protests, but it doesn't look like they have much more than gas money from their parents.

Malarkey
Sun, 05/03/2020 - 2:03am

I think I read the state is set to lose $850 billion in tax revenue...I have to wonder if the folks on the left understand the implications of losing so much revenue. Do you guys think the money that funds our state grows on trees? I wonder if the roads will be fixed in 2021...or even if there will be money to fund police departments. I'm not sure what your point was, but it shows you're grossly uniformed...keep kowtowing, but this will have ramifications for years to come

Steve
Sat, 05/02/2020 - 1:45pm

I've always enjoyed dining occasionally at my favorite restaurants. However, as a senior citizen, I have to be wary. I suspect it will be a long time before I'm comfortable going into any public area. Restaurants will likely stay on my no-go list for the foreseeable future. None of them have food good enough to make it worth the risk.

I mean honestly...
Sat, 05/02/2020 - 5:24pm

The point of the stay home order was to flatten the curve and mass spreading of the virus so as not to overwhelm the healthcare systems, and to give our leaders time to react. It was NEVER intended to prevent death, just minimize the number of deaths, and it certainly wasn't to eradicate the virus itself. So how long do we stay inside? Now we're being told its to prevent a second wave, but if the scientists are right, we will be dealing with the virus for the next 18-24 months.Staying home and closing dine-in eating doesn't make covid-19 go away.The virus will still be here in a few months...all it is doing is laying in wait until we emerge from our homes.The hardship many small business owners and their staff are facing is very real.To paint them as greedy or not caring for human life because they don't want to lose their business and livelihood is cruel and unfair.

Robyn A Tonkin
Sun, 05/03/2020 - 9:58am

People working an antiviral drugs, and on vaccines (the two are not the same) need time to do their work, which is progressing at an astounding pace. No one ever thought sheltering at home was going to lower the virus to trace levels. Flattening the curve was the best practice a blue ribbon panel set up by George W Bush could come up with. Flattening the curve saves lives during the pre-anti viral and pre-vaccine time period--that's all, less death. Also, simply opening the society and saying people can go to restaurants doesn't mean people will go to them. I don't think people will resume dining out at pre-pandemic levels, maybe ever. To think that opening society will return restaurants to solvency is simply--wishing. Lots of restaurants will never reopen, lots of others will struggle and ultimately fail. My husband and I never eat out, and we are very financially comfortable. Dining out was a pointless habit we never acquired. At this time, lots of people are discovering that dining at home is an astounding level more cost effective, much more pleasant, and saves lots of time. Lots of people will eat at home because it makes sense, and lots of others will do it because they're afraid of getting sick. This is one of those times in human history when everything is in flux, and the 21st century American restaurant culture will not survive in anything resembling its pre-pandemic state.

Walther Funk
Mon, 05/04/2020 - 10:12am

The goalposts will move- they always move. Whatever answer you receive to your question, you know that answer will not be written in stone. To exert authority under the 1976 law, the Governor had to satisfy conditions 3 and 4 of that law, which was to set in place clear conditions establishing when the disaster would be over- that was our Legislature's attempt to prevent this sort of goalpost moving by a wanna-be-dictator. But our Governor did not satisfy condition 3 and 4 of the law, which is why her executive orders from the beginning have been illegal. There is no exit plan- but the goal isn't to exit the crisis, it's to hold power and use that power to reward faithful party members and supporters with taxpayer money and contracts.

Lags
Wed, 05/13/2020 - 10:43pm

Thanks to all the front line people you are truly heroes!!

MichVet
Thu, 05/28/2020 - 9:00pm

I will go to my favorite restaurants and sit inside as soon as possible. I've been double tipping on takeout and will do that for a while as we get back to business.