'Treading water' — Will beloved Twin Cities restaurants survive COVID-19?

The numbers are not adding up at Vivo Kitchen in Apple Valley.

Revenue has plummeted 88% in the weeks since COVID-19 took hold in Minnesota, prompting Gov. Tim Walz to close the state's dining rooms in mid-March. The governor's mandate turned the sprawling restaurant's 350-seat setup — which grows to 500 during patio season — into a modest takeout operation.

"Vivo is a $4 million restaurant" in revenue each year, said Daniel Wesener, its director of culinary development. "Anything less than $4 million, and it's hard to deal with the overhead costs. It's going to be hard to recover after closing for a couple of months, and to reopen to an economy that isn't supportive. I personally wonder how much longer I'm going to get to put on a chef's coat."

Sadly, not much longer. On Saturday night, the restaurant announced it was closing its doors permanently. The last day of takeout service will be May 23.

The Twin Cities' nationally recognized food scene contributes as much to the region's reputation as its vaunted assets in the arts, education, corporate diversity and other livability measures.

Many of those working in this vital segment are saying that their industry is in big trouble and may never recover. Hospitality Minnesota — a trade group representing 2,000 restaurants, hotels, resorts, campgrounds and outfitters — expects more than 50% of those businesses to close by July, according to a survey of 300 of its members.

"It's extremely disturbing to see these businesses and hospitality jobs hanging in the balance," said Liz Rammer, chief executive of Hospitality Minnesota. "As time ticks on, it gets worse. Lately we're losing about one restaurant a day in the metro."

Nationally, as nearly every restaurant has had to close for some period of time, the outlook is even more bleak. In mid-April, the James Beard Foundation, the New York City-based culinary nonprofit, conducted a coast-to-coast survey of 1,400 owners of small, independent restaurants, and four out of five respondents don't expect their businesses to survive the coronavirus crisis.

Even before COVID-19, restaurants operated on razor-thin margins. Adding to the maelstrom was a saturation of the national market and rising food and labor costs, according to Darren Tristano, founder and chief executive of Foodservice Results, a consulting firm in Chicago. If a restaurant earns a nickel on every dollar they take in, they're doing OK. That's under normal circumstances.

But the stay-at-home orders and fear of public spaces are far from normal. Minnesota's restaurants closed their doors on March 17. Many were hoping to reopen for more than takeout and delivery next week, but the governor on Wednesday extended the shutdown until at least June 1.

Despite that bit of encouraging news, Anne Spaeth, owner of the Lynhall in Minneapolis, said that she's going to stick with her current takeout and delivery model.

"Until we get more clarity on what the opening should look like, we're not going to make that decision," she said. "It's a comfort level with how our team should be educated in welcoming the public back in. Our team's safety is what will drive our decision, and while we have a lot of information coming at us, not much of it is consistent."

Struggling to survive

While customers are absent from shuttered restaurants, rent and utility bills keep coming. Hell's Kitchen in downtown Minneapolis turned off lights and unplugged empty refrigerators. A freezer, two coolers and emergency lights stayed on. The monthly electric bill dropped by two-thirds but was still $2,600.

Job losses have been staggering, even for restaurants that have transitioned to takeout service.

Green + the Grain, the salad-focused lunchtime operation, temporarily shuttered four of its five downtown Minneapolis and St. Paul locations as it moved from 65 staffers to a few. The payroll at Common Roots Cafe in Minneapolis went from 45 to 10, and Vivo Kitchen's shrank from 76 to 11. Even tiny, 14-seat Al's Breakfast in Minneapolis has shed half its 13-member crew.

The ones that have been able to open with takeout and delivery are eking out 15% to 50% of their normal revenue.

"But that's not making a profit," said Susan Eder, owner of the Golden Valley restaurant consulting firm Cue the Accountant. "It's just treading water. No restaurant can survive on that."

Many are certainly trying.

"People are really sick about talking about pivoting, about changing business models, and I certainly don't want to change our model, because it was working so well," said Kirstin Wiegmann, co-owner of Reverie Cafe + Bar, which opened in Minneapolis in December and started serving takeout this past week. "But really, we have nothing to complain about. Maybe in six months I'll be telling a different story."

Wendy Dodge, owner of the Onion Grille in Hastings, agrees. "Takeout is definitely sustaining us," she said. "It's keeping our name out there. It's giving customers a sense that we're still open. It's survival mode."

At Prima in Minneapolis, spouses and co-owners Jennifer and Eliot King believe they have a built-in advantage, since takeout always has been a significant part of their business plan. On Mother's Day, the Kings and their skeleton crew produced 350 meals in four hours, a record sales day for the 21-year-old restaurant.

As they look to reopening their 50-seat dining room when permitted, the Kings have worries. "I struggle with wanting to get the product safely to our customers, and about outside forces bringing germs into the restaurant," said Jennifer King. "But then, if we don't, do we become irrelevant?"

The federal program meant to give restaurants a lifeline, the Payment Protection Program, has instead become a debacle. Larger chain restaurants such as Shake Shack initially received the bulk of the funds, squeezing out smaller independents. Shake Shack later returned the money. Even smaller restaurants that received the money say it won't do much good because of time constraints for its use.

They must hire staff back quickly and ramp up before the June 30 deadline, but are closed until at least June 1. Hospitality Minnesota is asking the federal government to extend the "covered period" beyond June 30, relax the rules to allow the loan to become a grant, and add more dollars to the PPP fund.

Bill Kozlak, owner of Jax Cafe in Minneapolis, thinks the PPP money is a start, but not a solution. He recently went without a paycheck for the first time since he was a teenager. "We've survived many things, but maybe not this one," he said. "I might lose more money being open at 50% capacity [due to distancing between tables] than I will be being closed."

Guessing the future

Doubtful that those funds will make a serious dent in their mounting debt without changes, restaurant owners and managers are scrambling to bring customers back and make them feel safe.

Ben Rients, proprietor of Lyn 65 in Richfield, said that he doesn't have the answer when it comes to reopening.

"I don't think anyone does," he said. "But the nice thing about restaurants is that it's a daily restart button. It's not Target, where they're planning the next Halloween the day after the current Halloween ends. That's our advantage, and I'm sure that we're all going to dip our toes in the water."

When they do, restaurants will need to take precautions for the safety of customers and employees and make changes visible.

"You'll see servers wearing masks and black latex gloves, fewer seats, plastic-wrapped unused tables for distancing, single-use menus, and touch-free everything including bathroom doors, soap dispensers and payment processing," said Tristano of Food Service Results.

The reservation system is expected to change, too, spreading out dining from the 6 to 8 p.m. bottleneck to 4 to 10 p.m. to accommodate diners at half as many seats as before. Tables will have to turn quicker. Some restaurants in California have taken to putting hour glasses on the table to not-so-subtly remind customers that time and space are now in short supply.

Still, no one can forecast consumer reaction.

"As always, our guests will tell us when they're ready," said Rients of Lyn 65. "Hopefully, guests understand that hospitality will be completely different. The goal will not be to go out of our way to give you an incredible dining experience. It's going to be more about keeping you safe and getting you fed. It's going to be very utilitarian. Later, we can figure out how to create those special moments again."

One change expected to become permanent is the increase in off-premise ordering, a trend well on its way even before mid-March. More than half of restaurant spending was projected to be off-premise in 2020 through deliveries, drive-throughs and takeout. Pre COVID-19, Cowen and Co. investment bank estimated that off-premise spending would account for 80% of the restaurant industry's growth in the next five years.

That will mean a menu shift to food that travels well. French fries are notoriously poor travelers, so Famous Dave's added a potato wedge. "We designed it specifically because it travels better than traditional fries," said Jeff Crivello, chief executive of Minnetonka-based BBQ Holdings, which owns Famous Dave's. "Demand for them is going through the roof."

Even if there's a run of restaurant closures unlike anything Minnesotans have seen, Tristano believes that the industry will become stronger. "Spoils will go to the victor. There will be more market share with fewer restaurants that will possibly move to better locations."

And the long-held dream of owning a restaurant? That won't go away.

"There's still a lot of passion for hospitality, but rent makes all the difference. Owners will look for a better rent deal and landlords will have to come to the table with more give," said Eder, the restaurant consultant.

"But until then, people have to be prepared that we're going to lose restaurants unless something changes."