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Adaptability key for restaurants amid COVID-19 obstacles

This year has taught us all a little something about survival. But perhaps no one has had to learn this more than those in the restaurant industry, which has experienced obstacle after obstacle since the coronavirus pandemic hit U.S. soil in early-March.

With razor-thin margins in the best of times —alongside the tedious balance of rent or lease payments, payroll, food costs and more—adaptability and innovation have long been core tenants of a successful restaurateur and dining concept.

“COVID-19 has been the most challenging crisis the restaurant industry has faced in living memory,” says Sonia Riggs, president and CEO of the Colorado Restaurant Association. “The shutdown was like a free fall — we believe the Colorado restaurant industry lost nearly $1 billion in revenue in April alone.”

Not only did the initial shutdown pose its obvious challenges, but the reopening has been a maze of red tape and ongoing capacity restrictions. And, according to Riggs, the only substantial relief the industry received — the Small Business Administration’s PPP loans—came at a time when restaurants were closed for business and had nothing for staff to do; which is particularly bad timing when you consider that loan forgiveness hinges on the money being used for payroll.

With crisis after crisis, innovation was certainly rewarded for those able to adapt to the circumstances.

Take Zeppelin Development. The company, which owns both the The Source market halls, Zeppelin Station and many other multi-use properties in Denver, had a few things working in its favor during the pandemic: its pre-existing focus on indoor-outdoor space; the fact that food hall concepts present a lower overhead and risk for restaurant vendors; and more. This, coupled with its ability to continue to bring new experiences during the pandemic, has allowed the company to maintain optimism about the future.

According to Justin Croft, VP of development at Zeppelin Development, this year has been somewhat affirming for the forward-thinking Zeppelin. As one of the first to bring food halls to Colorado, the company has seen the advantages of the concept play out in a troubling time.

“Margins in that industry have always been so thin and COVID has made that so much more challenging,” he says. “In some ways, we saw the writing on the wall [in 2013 when The Source first opened in RiNo] about having multiple operators attracting and sharing some of the operating costs and customer base; that’s where the market was already headed, and in some ways COVID accelerated that.”

And certainly the company’s access to outdoor dining helped it through the summer months, something Riggs noted as a clear advantage. “Restaurants able to really take advantage of a patio expansion for more seating over the summer have fared better,” she says. “Likewise, those that had significant takeout and delivery operations before COVID-19 certainly weathered the early part of the crisis better.” Those who have been able to grow takeout and delivery operations also found success.

Still, with winter approaching, restaurants that found success in the summer will face a new set of challenges — challenges that those without expanded patio space have been facing all year.

“We are working on creative solutions to making outdoor space usable through the winter, including partnering with the state for a design workshop with the goal of having design professionals create affordable, implementable solutions that keep diners safe and warm on patios throughout the winter,” Riggs says.

These adaptations will require significant investment. Which is why The Restaurant Association is working to secure funding, grants and financial assistance.

For Zeppelin, the winter will be about continuing to accommodate guests and going back to the basics of hospitality. “People want to be comfortable, they want to have delicious food, they want to have nice things to drink and celebrate nice occasions; and to the degree that they can be in a big space and feel safe, that’s what we’re here to provide,” Croft says.

As for the long-term future of restaurants in Colorado? Only time will tell.

“It’s too hard to say yet what the lasting impact of this will be on restaurants. We’re still in survival mode,” Riggs says. “We do anticipate a long recovery and will continue to advocate for relief in all forms at all levels of government.”

COVID-19 spawns creativity with restaurateurs

Since Colorado’s stay-at-home order was issued in March, restaurants “are doing about 10% of the business they’ve done before,” consultant John Imbergamo says. “They’re trying to innovate and be clever and do new things, but there’s just this fire hose of people doing clever and new, so it’s really hard to get messages out.”

Not that it’s a polar shift from the pre-pandemic era, he adds. “It was very, very hard to staff, and because we were paying quite a bit more, it was very, very difficult to make a nickel.”

It follows that COVID-19 was the final straw for many restaurateurs. “The pandemic has probably accelerated some decisions for people in terms of closing down,” Imbergamo says. “There’s a subsector of the market that will never come back, and that’s buffets. Never’s a bad term, but it’s going to be a long time before anybody’s comfortable doing that.”

While the labor situation “is going to be different after we’re allowed to reopen,” he adds, “I think any projections of where we’re going to be in six months are essentially a waste of breath.”

Steven Cook of Broadway Real Estate says he sees independent restaurants better equipped for the pandemic fallout. “The mom-and-pops and small entrepreneurs, they can get creative and be flexible and adjust with the times,” he says. “Then you’ve got Starbucks, who are sending letters basically bullying people and saying, ‘Hey, we’re not going to pay the rent that’s in their lease. Take it or leave it.'”

At the other end of the spectrum, Euro Crepes, a Cook tenant on South Broadway, has just one location. “They’re going to do everything they can to survive,” Cook says.

The Big Red F Restaurant Group’s 13 restaurants in Colorado “are going to take things very slowly,” founder Dave Query says. “It’s going to be very challenging, it’s going to be very scary for people.”

Part of it depends on seating restrictions, he adds. “No bar seats and 25% of capacity just doesn’t work. So we’ll probably stay in a to-go-only mode until things calm down a little bit — which they will.”

The future of restaurants is clouded by restrictions, fears

Along with travel-tourism, no Colorado industry has suffered more as a result of COVID-19 restrictions than restaurants.

As of 2019, there were more than 12,500 eating and drinking establishments across the state. They generated more than $14.5 billion in revenue and employed 294,000 – nearly 10% of the state’s workforce. Eating and drinking establishments in the Denver metro area (which includes Boulder) employed 140,000 people and generated $5.9 billion in revenue in 2019.

Sonia Riggs, CEO of the Colorado Restaurant Association, shared her insights of the impact of COVID-19 with ColoradoBiz, addressing the questions below on April 16.

ColoradoBiz: How many of Colorado’s restaurants are expected to survive this month-long (and probably extending to at least 1 ½ months) economic lockdown?

Sonia Riggs: Our surveys indicate 3% have already closed permanently, and 6% are considering closing permanently by the end of April. If the dining room closure continues into May, 12% would consider permanently closing if it extends to mid-May, and 22% would consider permanently closing if it extends to the end of May. So we’ve already lost about 375 eating and drinking establishments across the state – and we could lose as many as 2,500.

CB: Do you have figures for the number of restaurant workers who have been laid off?

SR: According to data from our March survey, at least 150,000 of 235,000 restaurant workers were laid off or furloughed. [Note that the number of restaurant workers is different from employment of the whole eating and drinking establishment industry.]

CB: What are restaurants doing to survive until some semblance of normal dining resumes?

SR: Many are trying to take advantage of federal government assistance like the Paycheck Protection Program and Economic Injury Disaster Loans (EIDL). We’ve seen some success in securing PPP loans, but the program is structured poorly for restaurants, and the money ran out yesterday (April 15). We’ve seen almost no success with the EIDL program, and we’ve heard that funding has run dry, too. Cash relief is critical to this industry’s survival, so we need to see more relief – and quickly – from the federal government. From a business-model perspective, those that remained open have switched to to-go and delivery models, and we’ve seen a lot of creativity in offerings, including family meals, feasts, special pricing and special items.

Most are also taking advantage of the allowances for alcohol to-go and delivery and selling bulk goods. We’ve seen restaurants set up markets, offer a roll of toilet paper with each order, sell hand-made bulk pastas, bottle cocktails and offer rare wines in flights alongside tasting notes, for just a few examples.  And 53% have temporarily closed their doors – which is also a survival mechanism.

CB: Besides the statewide restrictions on social gathering, are there other challenges unique to the restaurant industry, such as a typically high turnover rate?

SR: Other challenges for restaurants include limited delivery schedules from suppliers, as they have had to cut staffs too. Overall, though, cash is the No. 1 problem restaurants are facing now: How do you pay your rent, taxes and your bills when you have far less money flowing in.

CB: Are any restaurants or related service providers prospering as a result of swift pivoting to a new business model or emphasis? I read that third-party delivery services may not be as beneficial to restaurants as one would assume. Any thoughts on that?

SR: Ninety-eight percent of our survey respondents say their business is down compared with last year – so restaurants are almost universally suffering. But restaurants that already had a robust delivery business have found a bit of a softer landing. Third-party delivery services often charge restaurants high fees, which eats into meager revenue. It’d be better if patrons called the restaurant directly to order; many have also shifted employees to delivery-driver roles and are running delivery themselves. We’ve heard tangentially that some ghost kitchens, which prepare food specifically for delivery, are prospering, but we don’t have our own data on that.

CB: In a related question, are any restaurant models – such as drive-through-oriented models – actually seeing an uptick in business in this COVID-19 environment? And are there restaurant models for which these COVID-19 restrictions are particularly damaging?

SR: We don’t have numbers specifically on drive-through, but we are hearing that overall quick service is down about 25%. Full-service, independent restaurants seem to be suffering the most (we are hearing upwards of a 90% decrease in revenue for those that have remained open), because they have the tightest margins even in flush times. They tend to have large staffs, and they didn’t do much takeout and delivery before this crisis, so they may be having a difficult time transitioning. Geographically, Colorado’s resort and mountain communities seem to be suffering the most because they rely heavily on tourism, and tourism has completely dried up.

CB: It would seem the absence of baseball at Coors Field – which normally provides 81 days or nights of captive spenders each season – would be particularly devastating. What impact is a dormant Coors Field having – and could continue to have – on restaurants and bars in downtown Denver in terms of laid-off employees, lost revenues and/or shuttered dining and drinking establishments?

SR: Undoubtedly restaurants and bars that see upticks in business around events – baseball, theater, concerts, etc. – are taking a big hit. But it’s not just events – if you look at monthly revenue in this industry, it typically starts to rise in April and May, and then really picks up into summer. Patios add capacity, tourism goes up and people are out. The most extreme example of this may be in the mountains, where summer and winter busy seasons make up for shoulder seasons, when many restaurants actually close because it’s so slow. If you don’t have the busy season to make up that revenue, it makes it much harder to weather the shoulder. Restaurants in all markets are experiencing some version of that: missing out on busy-season revenues that makes it that much harder to survive lulls. Don’t forget also that the state shutdown came just before St. Patrick’s Day, which is normally a significant revenue stream for many restaurants.

CB: To the extent that it’s possible, what does the Colorado Restaurant Association envision in terms of a recovery for Colorado’s restaurants? Can restaurants turn a profit with a 6-foot social distancing requirement?

SR: We’re hoping to see clear guidelines from the state around reopening protocols, alongside assurance that these guidelines will keep employees and diners safe. We’re hearing a variety of possibilities, including maintaining social distancing and implementing additional deep cleaning or sanitation standards. It will be important for the government to offer high-level guidelines yet be flexible in the way that restaurants comply with specific regulations, as restaurants vary widely in size, restaurant and kitchen layout, menu offerings and more. We’re also hoping for as much notice as possible before the state lifts the stay-at-home order, because restaurants will need time to implement new policies with their staffs as well as place orders for supplies. The restaurant business model relies on being able to operate at full-capacity – so no, most will not be able to turn a profit with social distancing requirements in place. Many will not reopen at all as long as reduced capacities are in place. This is why it’s going to be critical for restaurants to continue to receive stimulus during reopening. We are advocating at the national level to make that happen. We have also been sharing suggestions with local and state officials on what they should consider to help keep restaurants viable as this process unfolds, such as continuing the relaxed alcohol take-out and delivery laws.

This article is part of the feature, State of Disruption, is which ColoradoBiz explores the impacts of COVID-19 on the state’s industries. The articles feature insight from industry leaders into what businesses throughout the state are up against, as new coronavirus numbers and strategies for reopening the economy are adjusted and reported daily.
Read more about the impact of  COVID-19, and see what the industry experts are doing and saying in the following industries:
Agriculture | Real Estate | Travel & Tourism