The Restaurant Industry Is Dying And Time Is Running Out
When stories about a novel coronavirus afflicting China first appeared in local newspapers, Chicago-area restaurateurs were expecting a prosperous year. Weeks later, they faced an unprecedented crisis, and with the state reporting Wednesday another 192 deaths from COVID-19, the most for Illinois in a 24-hour period, a swift end to the emergency seems unlikely.
The state’s mid-March shutdown of most businesses hit the industry hard, and restaurants have furloughed about 321,000 workers since, according to the Illinois Restaurant Association. Some of Illinois’ roughly 25,000 restaurants have already announced permanent closures, and as restaurants typically operate with thin margins, plans to let them partially open sometime this year may not save others at risk.
“I wouldn’t say we are in a holding pattern; I would describe it as a dying pattern,” Fifty/50 Restaurant Group co-founder Scott Weiner said. “Every week that goes by without customers coming through the door, the business is dying.”
“We were coming off our best January and February ever, but even before the shutdown, when all of the conventions started canceling and business travel dried up, you could see revenues plummet,” 4 Star Restaurant Group owner Doug Dunlay said. “It was catastrophic.”
Illinois Restaurant Association President Sam Toia said the state could lose about 5,000 restaurants permanently unless Gov. J.B. Pritzker agrees to speed up plans that will allow these businesses to reopen or the U.S. Congress agrees to pass a $240B industry rescue package designed by the National Restaurant Association.
“We need the federal government to step up, like they’ve done in the past for banks, auto companies and the airlines,” he said.
A mass failure of restaurants would deliver another body blow to an already-reeling commercial real estate market. The wave of closures and bankruptcies over the last few years as retailers lost business to e-commerce led many landlords to favor restaurants, which don’t worry about competing with Amazon and can bring in foot traffic as well as pay high rents. With the economy sinking into a recession, property owners may find it difficult to fill newly empty spaces.
“Nobody is going to be looking to lease a space in Fulton Market for $70 per SF,” Weiner said. “If they’ve got the means, landlords should do whatever possible to keep their restaurant tenants, whether it’s restructuring their debt or deferring rental payments, because I don’t see any tenants expanding now.”
Dunlay helped start 4 Star in 2003, and prior to the pandemic, it had nine restaurants in the Chicago region, including D.O.C. Wine Bar in suburban Lombard, The Windsor in Chicago’s Streeterville neighborhood, Remington’s in the Loop and two Smoke Daddy restaurants.
4 Star has been negotiating deals with its landlords and succeeded in getting some relief, including rent deferments and reductions, Dunlay said.
“It’s extremely difficult for landlords, and I get that, because most have mortgages on their buildings, but we’re hoping they continue to give us a long runway and help shoulder the burden so we can be there for the next 10 years," he said. "They’re not going to get anyone to come in and pay $50K a month anytime soon.”
Although 4 Star has been able to keep four businesses open for carryout and delivery, the pandemic forced it to permanently shutter D.O.C. Wine Bar and The Windsor, Dunlay said.
“We couldn’t just continue to hemorrhage money,” he explained.
Dunlay said the closed pair depended heavily on corporate parties, business travelers or conventiongoers, making each particularly vulnerable to the coronavirus disruption. D.O.C. Wine Bar had the additional handicap of being located on a parcel at Yorktown Center, a mall already plagued by vacancies and declining sales.
“Some of our employees had been there eight to 10 years, so it was difficult to say goodbye, but this past year we’ve seen the mall slow down considerably,” Dunlay said. “That area is just collapsing, and the coronavirus just exacerbated it, so it just didn’t make sense to reopen.”
Toia said that unless the state speeds up the timetable for restaurants to start reopening or the crisis ebbs, it won’t just be the already-vulnerable restaurants that close.
“No business can go 16 weeks without sales,” he said.
Last week, Pritzker outlined his plan to reopen businesses across the state. Called Restore Illinois, the plan breaks the state into several regions and envisions each moving through five phases, with more businesses and activities opening at each step, as long as certain health benchmarks are reached.
The entire state entered Phase 2 on May 1 when Pritzker modified the original stay-at-home order, and a region can reach Phase 3 if it doesn’t see a spike in COVID-19 hospital admissions for 28 days and has an adequate supply of ICU beds and testing available for first responders and at-risk populations, among other benchmarks. At that point, barbershops, salons, industrial operations and offices can open if they adopt strict safety procedures.
The earliest date regions can reach Phase 3 is May 29. What troubles Toia is that the current plan does not allow restaurants to open for on-site dining until Phase 4, after regions meet all previous benchmarks and greatly expand testing capacity. Hitting those goals is far from easy. Even under the most optimistic scenario, restaurants can’t realistically open until July, four months after the onset of the crisis, and social distancing rules will still forbid dense crowds.
Toia said the IRA would prefer restaurants be included in Phase 3, and the group would help develop a set of stringent safety measures for the industry to win the confidence of customers and public health authorities.
“We were not communicated with until after the governor’s plan was released, so we were a bit taken aback by it, but I’ve talked to some of his people and I believe that moving forward they will communicate and listen, and that’s all I ask,” Toia said.
Dunlay supports strong safety measures but said he and other restaurateurs were confused by the state’s step-by-step plan and why it privileged salons and barbershops over their businesses.
“We are already held to a much higher standard of sanitation, yet people will be able to go to nail salons and get their hair cut, and I can’t open a 100-seat restaurant at 50% capacity where someone wearing a mask will serve customers?” he said.
Pritzker countered such concerns by saying the plan was developed by epidemiologists and public health experts, who consider restaurants a severe risk to spread disease unless handled carefully.
“These are situations where you are naturally going to be putting people close to one another,” he said last Wednesday during a press conference. “There are servers who will be serving food, which can transmit the disease. So, all of these things are playing, you know, a role in the decision-making. And even if you flung the doors open on bars and restaurants today, I think many people would say, ‘I don’t want to be in a public location like that.’”
“The governor is not in an enviable position,” Weiner said.
But along with protecting public health, the economy is at stake, and if hundreds of thousands of hospitality workers remain unemployed, it could help fuel a depression that will take many years to recover from.
His Fifty/50 Restaurant Group already had to furlough about 600 employees, he said, but so far, it hasn’t permanently closed any of its 20 locations, which include the 90th Meridian Kitchen & Bar, Homestead on the Roof and The Berkshire Room, a cocktail lounge in River North. Three of its Roots Handmade Pizza outlets are still open for delivery and carryout.
But Fifty/50 owns most of the real estate it occupies, he added.
“That’s our saving grace. If we had to negotiate with 20 different landlords, chances are we’d be closing some of our properties,” Weiner said.
Most other Chicagoland restaurants, especially the thousands of small independents, remain at high risk, Weiner said. The pandemic hit at the worst possible time, as 60% of their revenue typically comes in over four months starting in March.
“Restaurants are usually pretty close to running on fumes by March, but then convention season starts, and then we move into summer, which is patio season,” he said.
That means the clock is ticking.
“If we lose June, we’re not going to get back to anything approaching normal before the end of the year, and losing July will push it into next year,” he said.
The picture could remain bleak even if the state starts opening up. Weiner expects many restaurants will somehow hang on while the shutdown continues but be forced into permanent closures when faced with the expense of opening their doors after such a long pause.
Each restaurant will have to replace all the beer that went stale, buy massive amounts of food, replenish the wine lists, add no-touch payment systems and most likely redesign their interiors, adding such features as pickup windows so social distancing can continue.
“Nobody’s got the cash needed except for the larger companies, and all those mom-and-pops will have no way of coming back,” he said.
Dunlay said his company is one of those independents in danger.
“We didn’t have rich uncles or angel investors lining up to give us millions of dollars,” he said. “If we fail, we take all of our debt with us, and that would affect our family generationally.”
He said it would be helpful to know more about what safety equipment and policies state officials will require restaurants to have before reopening.
“Guidelines for Phase 4 have not been developed at this time,” a state spokesperson told Bisnow. “As noted in the Restore Illinois plan, this is an initial framework that will likely be updated as research and science develop and as the potential for treatments for vaccines is realized. Guidance will be provided as Illinois Health Regions draw closer to those phases.”
Dunlay said it will be tough for independents to make it over the long term. The four 4 Star restaurants, including the Smoke Daddy in Wicker Park, that remain open for carryout and delivery bring in about 40% of expected sales, and much of that money is eaten up by third-party deliverers.
“We’re on such a thin margin as it is. You can’t take in that much revenue and expect it to work,” he said.
Each of the restaurants received a lifeline from the federal Paycheck Protection Program, which helped cover a couple of months of rent and payroll, but that help is temporary.
“The rubber hits the road in two to four months when that money goes away,” Dunlay said.
Losing thousands of independents will not only harm the local economy, it means losing businesses that help give many of Chicago's neighborhoods their character, he added.
“I hope we're not seeing Chili's and Red Robins on every corner in Chicago in the future.”
Jeanne Roeser decided the obstacles to reopening were too high for her small business. She opened Toast in Lincoln Park 24 years ago and a Bucktown location two years later, but called it quits on April 22.
“I know every single restaurant is feeling the pain, but unlike many of these others I’m a one-man band, it’s just me, and I rent at both places,” Roeser said.
She had read that restaurants might open at 50% to 75% capacity after a few months of lockdown, but couldn’t make the math work.
“We serve just breakfast and lunch, so the margins are small, the rent is high, and there was just no wiggle room. I love the business with my heart and soul, I know nothing else, but I decided maybe Toast reached the end of its natural lifespan.”