Rising costs of products, delivery fees and lack of customers make it difficult for restaurants to return to pre-COVID-19 revenue levels

The owners and operators of Iowa’s 6,200-plus restaurants were relieved this month when COVID-19 restrictions were eased, allowing dining rooms to reopen to customers.

But the relaxing of restrictions doesn’t mean the state’s restaurants are immediately returning to the levels of activity they enjoyed in February, nine restaurant owners told Rep. Cindy Axne today during a virtual roundtable discussion on the state of the industry.

The price of meat and produce has increased. Some foods, particularly meats, are difficult to obtain and have limits on how much can be purchased. Expenses now include delivery service fees and increased packaging costs for carryout meals. Two owners predicted that it would take 18 to 24 months before revenue and profit levels returned to what they were before March 17, when Iowa’s restaurants were told to close their dining areas in an effort to slow the spread of the novel coronavirus. 

One operator expressed fears that his cafe in Winterset may not be able to reopen at all.

Northside Cafe in Winterset. Photo by Google Street Map

Scott Valencia operates Northside Cafe, a 144-year-old business that gets up to 80% of its business from tourists visiting Madison County. And while museums and other tourist attractions will soon begin reopening, Valencia said the cafe will likely remain closed to eat-in diners. The building in which the cafe is located was built in 1876, and space inside the restaurant is tight, making it difficult to provide 6 feet of spacing between customers.

“This year, Northside Cafe is looking at a loss of about 30,000 meals,” he said. “That’s highly likely going to close down a business that’s survived for 144 years.”

And while the cafe is offering carryout meals, fresh meat is becoming increasingly difficult to obtain and when it is available, prices increase almost daily, Valencia said. “I don’t know how you predict your sales, when every day you come in and you’re not sure what your pricing is going to be.”

Other restaurant owners shared similar experiences with Axne, who represents Iowa’s 3rd Congressional District, which covers much of the southwest section of the state and includes Polk, Dallas and Warren counties.

Chris Diebel, managing partner at Bubba – Southern Comforts in downtown Des Moines, said the restaurant reopened its dining room on Saturday. Sales, which included carryout, were about 70% of an average Saturday night. On Sunday, sales were about 60% of what the restaurant, which opened four years ago, normally does.

“And then everything plummeted,” he said. “There’s no demand for on-premise dining during the week in downtown Des Moines.”

Most downtown offices remain closed, which means no customers during the lunch hour. There are no business travelers, another large part of the restaurant’s business.

Staying afloat through a carryout business is challenging, Diebel said. Meal delivery services charge fees that total 24% of the cost of a meal. The restaurant now has the added expense of providing containers for carryout meals. Diebel said the restaurant has increased the cost of many items by 25 cents to $1. It also has pared its menu of meals that don’t travel well in carryout boxes.

The restaurant received a loan through the Small Business Administration’s Paycheck Protection Program, but some restrictions are troublesome, Diebel said. Only 25% of the loan can be used for nonpayroll expenses, and those expenses are limited to lease and mortgage payments. Diebel said he’s having trouble paying bills that were due in March for expenses incurred in February. It would be helpful, he told Axne, if money from the loan could be used on other expenses.

Most restaurant owners told Axne they likely will be forced to permanently lay off some workers. If that happens, they’ll have to repay part of the loan that can become forgivable if workers are retained.

Axne said a bill the House is working on would allow a larger percentage of the loans to be used for expenses other than payroll and mortgages and leases. She said lawmakers are also working on ways to extend the payback period of the loan and ease restrictions on how many employees must be retained to get the loan forgiven.

Sarah Pritchard, who operates Table 128 Bistro + Bar in Clive, said she had been considering reopening her dining room for lunch but now is shying away from doing so. Most of the businesses near her restaurant are not likely to reopen until after July 4, she said.   

“Recovery for us – well, we’re looking at a really long road ahead,” Pritchard said.

The restaurant will need to change its business model to rely more heavily on carryout business. The change will mean limiting what types of foods are offered. 

Pritchard said she is forecasting that within the next 12 months, the business might be able to return to 60% of its sales pre-COVID-19. Reaching that level, though, will mean keeping just 30% of her current staff. 

“We’re concerned that we’re not going to be able to return to those original employment levels, which means the burden of our unemployment [insurance] is going to go up,” she said.