About this series
This is the second in an occasional series on the effect of the pandemic on retailing.
Tongue in Cheek has made it through the pandemic so far, but not without changes, many of which will likely be permanent. The St. Paul restaurant is open fewer days for fewer hours with fewer seats. Its workers are paid more and are now offered health insurance. Its takeout business has become key to its finances.
Like Tongue in Cheek, the restaurant industry in the Twin Cities and across the nation has evolved by necessity. And the changes are likely to continue.
First part of series
How the pandemic has changed the way Minnesotans shop
Not only are customer patterns pivoting again with the rise of the delta variant, but the labor shortage and increased food prices also beleaguer an industry that has been one of the hardest hit by the coronavirus pandemic. More than half of food-service operators in an August Hospitality Minnesota survey said they could still face financial collapse or insolvency in the next six months to a year.
"I think it's easy for all of us to walk into a busy restaurant and think, 'Oh everything is fine. Everything is good,' " said Liz Rammer, chief executive of Hospitality Minnesota. "That belies the underpinning challenges … all of these other issues they are facing that the customer doesn't see."
Already what has emerged is a changed industry, one that has integrated takeout and delivery into its fabric instead of it being an afterthought, that is more savvy about using technology and has a labor force that is better paid.
Tongue in Cheek was able to dig into several changes that have kept its business afloat. The staff created date kits, including cocktail mixers, when indoor dining was shut down. Already with snug booths and dark ceiling tiles, the restaurant became even more intimate as it removed a quarter of the seats to deal with capacity restrictions and social distancing guidelines.
"I don't think we are ever going to add those back because people have gotten used to enjoying their space a little bit and it's just nicer too when it's not so crammed in," co-owner Leonard Anderson said.
The restaurant reduced its hours and the days it is open because of necessity — but that too has proved a good move. It has given more free time to both the owners and staff, and the restaurant hasn't lost sales, Anderson said.
To react to the labor environment, back-of-house staff got a pay increase, which has been a long time coming for the restaurant, said Anderson, who owns Tongue in Cheek with his wife, Ashleigh Newman, and friend Ryan Huseby. The servers decided to move to a system where tips are pooled and split among workers, and the restaurant now offers health and dental coverage to its employees, some of which is covered by a 3.3% fee that is listed on customer checks and its website.
"Restaurants are just a grind," Anderson said. "It's day in, day out. Long hours, long shifts. … I feel like everybody has a little bit more empathy now, and it's more about life and less about work and career."
Across the country, the restaurant business is improving. Sales at eating and drinking places was $6 billion higher in July than in February 2020 before the industry shut down, according to Census figures. The industry has also added 1.3 million jobs as of the end of July, which brought the sector within 1 million jobs of its pre-pandemic employment level of 12.3 million.
The National Restaurant Association said its outlook for the rest of the year was of "cautious optimism."
But while many restaurants have seen improving sales, the recovery for the industry has been uneven.
Nearly 30% of the state's food-service operators say they expect higher revenue this fall, but almost half still expect less than pre-pandemic numbers, according to the Hospitality Minnesota survey. More than 60% took on debt during the pandemic and now face a tight labor market and other costs.
"This is a very creative, resilient industry, yet these people are tired," said Rammer, of Hospitality Minnesota, which represents restaurants as well as hotels, resorts and campgrounds.
Quang, the venerable Minneapolis Vietnamese restaurant known for its pho and other casual fare, invested in technology for to-go orders, after being overwhelmed with just the phone, and added a pick-up entrance and window for delivery. Now delivery has increased to make up about half of Quang's business.
"I think what [the pandemic] has done is made us so much more resilient and adaptable to changes," said Sen Truong, who co-owns the Eat Street staple with her siblings.
To tap into the on-the-go craze that surged during the first months of the pandemic, co-owners Jami Olson and Jose Alarcon decided to rebrand their acclaimed, refined-dining restaurant Popol Vuh into Mexican bakery and cafe ViV!R last summer.
"It wasn't an easy decision by any means," Olson said. "I knew it was going to be a very, very long time before we could open the refined side of things again, if we ever could, so there was more risk in sitting on the space and trying to re-create what once was than there was in flipping it and trying something new."
They changed the color scheme as well as the layout and repurposed a bar top into a cafe counter. But like many restaurants, they switched to online menus, with customers able to use their smartphone cameras to scan the QR codes. ViV!R's sister restaurant Centro, in the same building in northeast Minneapolis, has kiosks for self-service ordering and checkout.
"Had we gone to app ordering [before the pandemic], it would have been a lot harder for people to accept," Olson said.
Using an all-digital menu and ordering system was the plan from the start for the owners of the Pillbox Tavern in downtown St. Paul, which opened for business in March 2020, a week before statewide mandates forced restaurants to go curbside.
When the tavern reopened in June last year, dining was limited to the patio. Having digital tools helped with food ordering, especially given social distancing recommendations, said co-owner Bill Ashton.
"It covered all our needs with the pandemic," Ashton said. "Customers could pay from their phone."
Gone from Punch Pizza are much of the lines. Owner John Puckett said takeout is now 70% of his business, instead of 20% before the pandemic.
"The store doesn't look that crowded because people are timing their arrival for when the pickup time is; they are not wasting their time standing in line so it's a very different-feeling business," said Puckett, who said it's possible in the future Punch Pizza could open kitchen-only restaurants for takeout.
Two months ago, Punch Pizza added a pre-order option where people order and pay for their food online and then sit down inside to eat. Puckett said it could "be the dining of the future."
While same-store sales volume at Punch Pizza is 10% to 20% higher this year than in 2019, costs are higher, too.
Punch Pizza had to pay more to attract workers and has begun to offer $10,000 signing bonuses for managers.
In her 28 years in the restaurant business, Stephanie Shimp has never offered a hiring bonus to new employees — until this year.
"That's a first for me," she said.
Continued challenges
An August Hospitality Minnesota survey found the following of food-service operators in the state:
- 62% took on debt due to COVID over the last 18 months with the average loan valued at $538,915 per restaurant.
- 56% are in jeopardy of financial collapse/insolvency in the next six to 12 months.
- 49% are expecting lower fall revenue than pre-pandemic numbers.
- 29% expect higher fall revenue.
- 56% saw wholesale prices increase by 5% or more.
- 32% of operators raised prices 5% or more.
- 91% describe labor availability as tight, with 76% saying very tight.
Shimp, one of the owners of Minneapolis-based Blue Plate Restaurant Co., which operates restaurants throughout the Twin Cities including the Freehouse and Groveland Tap, said the labor shortage has "made us re-evaluate how we operate."
In many ways, the pandemic has helped push the restaurant industry to rethink the work-life balance of its workers as it struggles to recruit and keep staff. Even before the pandemic, the industry faced labor issues such as the debate over a $15-an-hour minimum wage.
Higher labor costs come at the same time restaurants are reporting ingredient shortages because of shipping issues and drought conditions.
Punch Pizza has had mozzarella hung up in shipping delays. Tongue in Cheek reported seafood prices have increased. Quang had to take a loss a few months ago when a chicken wing shortage caused a case of wings that usually cost about $60 to more than double in price.
Customers are not always sympathetic, either. Just as consumers have come to expect ease and convenience during online shopping and with pickup and delivery at retail stores, customer expectations also have heightened for restaurants, putting pressure on them to get people food fast while also not skimping on quality.
"Now, everyone wants it all," said Rammer, of Hospitality Minnesota.
Concern over the emerging delta variant is also expected to dampen restaurant resurgence. Six out of 10 adults surveyed said they changed their dining habits because of the variant, including 19% who said they stopped going to restaurants altogether, according to a National Restaurant Association survey released in the last week.
Cities such as San Francisco have begun to require proof of vaccination to dine inside restaurants. Last month, downtown Minneapolis vegan and gluten-free Hark! Cafe became one of the first restaurants in Minnesota to require proof of vaccination or a negative COVID test for anyone over 12 years old wishing to eat inside.
With all the disruption, restaurant operators say they need continued governmental help. Temporary changes in outdoor dining rules in places like Stillwater were a lifeline for many restaurants. So were easing rules on take-out alcoholic beverages.
And emergency financial assistance was key to survival, many say.
If not for the federal Paycheck Protection Program forgivable loan program, "we wouldn't be here," Shimp, of Blue Plate, said.
The company sold its 53-acre farm just south of the metro, temporarily closed two locations and furloughed several hundred workers to get through the pandemic. And it is paying higher wages and costs, while passing on costs to customers "only when we absolutely have to," Shimp said.
Despite the current challenges, Shimp is optimistic.
"Working through the supply chain issues and working through the competition for good talent and menu modifications is a much better set of problems than being closed," she said.
RELATED: First part of series
How the pandemic has changed the way Minnesotans shop