With business down more than a third, restaurants dreading winter chill

Phil Roberts knows better than most that looks can be deceiving.

Outdoor dining, federal bailout money and takeout service have allowed him to keep the doors open at Salut, Manny's Steakhouse, Good Earth and other Twin Cities-area restaurants he and his partners own.

But profits? Forget about it.

"It's carnage out there," Roberts said. "People think that if restaurants are doing takeout that things are fine. But we're not."

And things are likely to get worse.

Outdoor dining, which allowed many restaurants to limp through an otherwise dreary summer, will soon end. State-mandated capacity restrictions at bars and restaurants remain in place, and luring customers indoors while a pandemic continues to rage across the state could be a tall order.

Help, in the form of more aid from Washington, appears unlikely to arrive soon.

About 100,000 restaurants have shut down since March, according to the National Restaurant Association, an industry trade group. The same report found that 3 million restaurant workers remain unemployed, and that industry losses this year total $165 billion.

In Minnesota, state sales tax collections from restaurants plunged 56% in April, and remained down 26% in August from the previous year.

Jeff Burstein, who owns Brothers Deli in the downtown Minneapolis skyway, said he used to take in about $20,000 a week. Now business is down to about $5,000 a week, and most of that is catering.

"If it stays the way it is, we'll make it to until June," he said. "But if it gets worse and I run out of money, I'll have to close up shop. I won't take out a loan at age 71."

More than half of Minnesota restaurants and food service operators project they will be insolvent in the next four to six months, according to a survey last month compiled by the Federal Reserve Board of Minneapolis and Hospitality Minnesota.

More than 50 restaurants already have closed permanently around the Twin Cities, including Pazzaluna and In Bloom in St. Paul, McCormick and Schmick's and Bardo in Minneapolis, Green Mill in Roseville, Old Chicago in Apple Valley, Old Country Buffet in Burnsville and a number of Bonfire locations.

The award-winning Butcher & the Boar filed for Chapter 7 bankruptcy last week, saying it owes creditors between $10 million and $50 million. Its assets are worth less than $50,000, the filing said.

In Minneapolis, overall restaurant revenue in July was $96,187, compared with $1.14 million in July 2019. Receipts from city restaurants were down 90% in May, June and July.

Such startling numbers have members of the Minneapolis Downtown Restaurant Group meeting to find some solutions to the crisis.

"We're pulling together as a group, but we're also going to the city and state and asking what they can do for us," said Dennis Monroe, an attorney and co-owner of La Pistola at Eastside restaurant on Washington Avenue and organizer of the group.

Roberts, of Parasole, said the industry needs another round of the federal Paycheck Protection Program or other stimulus to get it through the winter.

"Half of diners don't feel safe dining in yet," said Richard Dobransky, president of Morrissey Hospitality, which owns nine Twin Cities restaurants including St. Paul Grill and St. Paul's Pazzaluna, which closed in May. "That probably won't change until 2021 after there's a vaccine."

PPP kept many restaurants afloat throughout the summer as restrictions to help stem the spread of COVID-19 meant dining rooms could handle only 30 to 50% of their former capacity.

Some restaurants made do with impromptu outdoor seating on sidewalks, parking lots and closed streets.

A second round of PPP money has stalled in Congress, giving many restaurant owners a sick feeling as winter takes away their outdoor dining option.

"There's a permanent loss of some customers willing to eat inside, and that will last a long time," said Jeff Crivello, chief executive of BBQ Holdings in Minnetonka, which runs more than 140 Famous Dave's and Granite City restaurants.

Alex Roberts, who co-owns the fine-dining Restaurant Alma in Minneapolis, has already made the decision to close the restaurant's dining room on Nov. 2 and offer only takeout and delivery.

"Every week we have customers who've made a reservation in the restaurant who later ask if they [can] switch it to a to-go order," Roberts said. "They think they're ready, but they're not."

Most restaurants that were consistently busy pre-pandemic made 5% profit, owners said. Those that made 10% were lucky and rare. But since March profits have vanished.

The downturn is affecting every type of restaurant.

Last month, Sizzler USA declared Chapter 11 bankruptcy after 62 years. McDonald's plans to close 200 locations this year. Fast casual Darden, which owns Olive Garden, saw sales decline nearly 30% in its most recent quarter.

Although larger restaurants that can seat 200 or more can fit more customers with social distancing, they also pay more rent, one of the most significant expenses for any restaurant.

The pandemic also accelerated takeout and delivery business, which now makes up 70 to 90% of total revenue for many restaurants, owners said.

Takeout used to make up about 30% of orders before the pandemic at PinKU Japanese Street Food. Now it's 90%, but chef and owner John Sugimura said he's accepted the change.

"We can't be smug and turn our backs on what customers want," he said. "We've never needed our customers more."

Sugimura's small restaurant in northeast Minneapolis held only 32 seats before pandemic restrictions. He has closed the dining room to concentrate on patio dining and takeout and delivery.

Japanese specialties such as poke, tuna rolls and seared salmon rice travel well, he said. Sugimura handles deliveries himself to save the 23 to 30% fee that delivery services such as Door Dash and Bite Squad charge.

He found the face-to-face interaction boosted his spirit as well.

"When I show up on people's doorstep, that's intimate," Sugimura said. "You develop a lot of support and cheerleaders. You know people are rooting for you."

As a result of the changes, Sugimura's revenue is 2% higher this year while neighboring places such as Keegan's Irish Pub, JL Beers and a Red's Savoy Pizza branch have closed.

Even all-you-can-eat buffets have adjusted. Dale Maxfield, who owns the franchised locations of Golden Corral in Maple Grove and Maplewood, said his restaurants are improving slowly.

He knows takeout and delivery can cramp the style of diners attracted by the all-you-can-eat concept, so the company came up with both a packaged meal for takeout and a "weigh it and pay it" option for $7.99 a pound.

With business down 70% initially and now down 50%, Maxfield said he couldn't make it without takeout. He's especially thankful when customers choose takeout instead of delivery.

"Customers willing to do curbside delivery where we run it out to their car and put it in the back seat to make it contactless saves us 26% over the delivery fee," Maxfield said. "We appreciate that."

Meanwhile, restaurants are bracing for winter by doing more of what they've been doing the past six months — belt tightening.

Nearly all restaurants said they are handling equipment and repairs and cleaning duties themselves when possible, instead of hiring contractors. This ranges from laundering their own towels and aprons to landscaping and plantings.

At Good Earth in Roseville, general manager Cindy Mott bought and planted all the flowers herself for the restaurant's large patio. The company reimbursed her for the flowers, but she saved the company $2,000 in labor costs by not hiring a gardener.

Executive chef Rene Roque saved the company up to $9,000 by trimming two trees and removing the debris.

"I've cut down trees on my own property so I had the equipment," Roque said. "When you feel passion for what you do and proud of the place you work, you just do it."

Brian Ingram has taken a different strategy. He's opening restaurants instead of closing them. Two of his St. Paul restaurants weren't even set in motion before the coronavirus pandemic.

Gnome, which opened in late May, is in the former Cathedral Hill firehouse that had been home to the Happy Gnome for 14 years. Woodfired Cantina, which opened in late September, is in the former In Bloom spot in Keg and Case Market.

Ingram, who opened Hope Breakfast Bar in St. Paul a year ago, said he's making a profit, but barely.

"Neither site would have approached a guy like me before the pandemic," he said.

Instead of a fixed rent price he negotiated a deal that took into account how much revenue the restaurants can produce. He will pay less when business is light, more if receipts pick up.

Still, he admits the future for any restaurant right now remains far from secure, especially with cooler weather approaching.

"Since March it feels like we've been launched to the moon. There are lots of tears and fears," Ingram said. "Another outbreak would be a death knell for us and many others."

John Ewoldt • 612-673-7633