Despite possible re-opening, pandemic puts food scene in ‘danger of collapse’

As bars and restaurants prepare for a possible re-opening at the end of the month, their already tight profit margins will continue to be strained by social distancing requirements, strict new cleaning regimens and half-full dining rooms designed to limit the spread of COVID-19.

That is if they can find the funds to even stay in business.

Hospitality Minnesota estimates thousands of bars and restaurants that are temporarily shuttered or hamstrung because of restrictions on dine-in service will have to permanently close as early as this summer unless they receive a state or federal stimulus package.

"This is an industry that’s in danger of collapse," said Liz Rammer, the association’s President and CEO.

Rammer’s projection is based on a survey conducted by the association shortly after the statewide restrictions went into effect in April. Nearly 60% of responding owners stated they would have to shut down within two or three months without a substantial increase in government aid.

While Gov. Tim Walz hinted this week at relaxing the dine-in restrictions as early as June 1, social distancing requirements will drastically limit capacity for the foreseeable future.

Troy Reding, who owns Rock Elm Tavern in Plymouth and Maple Grove, says that means he will have to pay the bills with half as many tables and half as many bar stools.

A half full restaurant – usually considered a bad night under normal circumstances – will be the best restaurants can hope for once they start seating guests again.

"Re-opening is almost scarier than what we’re doing now," he said. "There will be less leniency from creditors and landlords. Everybody will get back to the new normal and want their money."

Reding, who has been in the restaurant business for 32 years, described the last eight weeks as the biggest challenge of his professional life.

His restaurants (like most with the capability) limped through the now expiring state-at-home order by doing more to-go orders than ever before, but it still accounted for less than 30 percent of his normal sales.

"I don’t know that we’ll ever get to the volume that we were before," Redding said. "We’ll make it through… is it fun anymore? Not a whole lot."

Full KSTP COVID-19 coverage

Prior to the pandemic, even the most popular restaurants were often running on profit margins of two to five percent, according to Hospitality Minnesota. That is razor thin compared to the ten percent margins of most small businesses.

The lack of cash on hand is forcing restaurants to make difficult decisions the longer they go without business. Bills are still coming due with barely any revenue coming through the door.

"It’s not like they are deeply able to handle a shutdown like this… they don’t have a big piggy bank in which to draw," Rammer said.

Hospitality Minnesota has lobbied for various relief proposals, ranging from rent abatement programs, to more robust small business loans, to even allowing restaurants to hold on to several months-worth of sales tax it collects and would normally send off to the state.

The federally-backed Paycheck Protection Program, known as the PPP, was designed to offer some relief to struggling small businesses but several restaurant operators have noticed major flaws.

"It was meant to get people back to work. The problem is, there is no job for them," said Brent Frederick, Owner of several Twin Cities restaurants, including Borough and Parlour in the North Loop.

Frederick told 5 INVESTIGATES that he was approved for a $1.3 million PPP loan for the four restaurants he operates. He does not have to pay back the money if he re-hires all of his employees within eight weeks.
But with no clear indication on when restaurants will be able to operate without restrictions, or when customers will feel comfortable sitting in crowded restaurants, Frederick is hesitant to spend the federal money.

"They just didn’t think it through all the way," he said. "That money is going to sit in our accounts and time will tell if we get to use it or not. We might have to give it all back.

"We’ll go broke [paying back the loan] if we keep that money and spend that money because it won’t be used to generate revenue. Unfortunately, it would be a waste of money actually."

While Frederick is optimistic his business will make it through, the growing list of permanent closures indicates the threat facing the bar and restaurant scene will likely loom for many months.

"For so many people, this is their livelihood, this is their heart and soul, this is their dream, this is what they worked so hard for, Rammer said. "They have a personal investment in this, and it’s excruciating to sit on the sidelines to have to wait and wonder if they’re going to get the help they need to survive."