Patio season is ending, and Chicago restaurant operators say the winter could deliver a debilitating blow to the city’s vast service industry.
Since the pandemic sank its teeth into the sector, restaurant landlords have had to decide between deferred rent or prolonged vacancies. Alcohol and food suppliers have reported losses. Almost 500 of Cook County’s 13,230 restaurants closed between June 1 and Sept. 20, according to RestaurantData.com.
In a normal year, restaurants come and go. Operating margins are small, and experts say the losses so far could have been worse.
But as the mercury falls, the potential for further losses looms large in a city well known for its dining scene. The Illinois Restaurant Association reports the city’s restaurant and hospitality jobs number 171,000. Those jobs are at stake, as is the 3 percent of the area’s economic output that came from the industry last year, according to data from World Business Chicago.
The equation for survival comes down to the individual restaurant. Some have more space. Others cut deals with landlords. Many added delivery and other revenue streams.
“Some sit-down restaurants are going to see a marketplace where there’s less competition and they feel better about operating. Some are just going to close and take the losses,” says Phillip Golding, a vice president at real estate brokerage CBRE. “The winter is going to expedite that decision.”
Golding, who works with restaurant landlords, has advised them that losing a tenant now might mean longer vacancies. He has also seen other types of businesses, such as outpatient medical centers and grocery stores, fill spaces vacated by restaurants.
Nationwide, 55 percent of restaurants say they won’t survive the next six months if current business conditions continue, according to the National Restaurant Association.
Sit-down restaurants must come up with a new business model if they want to stay afloat, says Kumar Venkataraman, a partner at consulting firm McKinsey. Likely, digital marketing will replace a customer experience once centered around a dining room.
Gene & Georgetti steakhouse in the River North neighborhood put in a coffee window and added menu items, like a $15 pizza, to rope in customers searching for a lower price point than a $78 T-bone.
The restaurant needs to add to overall sales as much as possible, says Michelle Durpetti, third-generation owner. Operating indoor dining at the city’s allotted 40 percent capacity will not generate enough revenue to pay the bills.
Gene & Georgetti needs to bring in $10,000 to $12,000 a day to be stable, paying vendors, payroll and other bills, she says. Durpetti’s father owns the building and hasn’t been collecting rent.
The average check size is $68 per person. Before the pandemic, the restaurant would serve 500 to 700 people per weekend night. Now it can serve about 135 people throughout a day, which would equate to almost $9,200.
Not all diners are comfortable eating inside, either. A June survey from McKinsey found 80 percent of consumers were anxious about dining in. Plus, social distancing guidelines prevent smaller places from reaching their allotted capacity.
The whole equation has Durpetti questioning whether her almost 80-year-old restaurant will survive.
“My father used to say, ‘In order to know where you’re going, you have got to know where you’re coming from,’ ” she says. “I’m just trying to figure out where I’m at.”
Independent restaurants are more at risk of shuttering, experts say. Larger chains often have more capital liquidity. Burger and pizza joints and other quick-service restaurants are also faring better.
Carryout, drive-thru and delivery orders were up 20 percent at U.S. restaurants in August compared to 2019, according to research firm NPD Group. Though on-premise dining orders were down 60 percent in August, they had improved from a 91 percent decline in April.
That improvement, though slight, could help keep restaurants alive, says David Portalatin, food industry adviser at New York-based NPD.
“Is this winter going to be worse than any typical winter? Absolutely,” he says. “But we’re in a much better position now than we were in April.”
More than 130 restaurants opened in Cook County between June 1 and Sept. 20, according to RestaurantData.com.
Rosebud Steakhouse in the Gold Coast neighborhood reopened under new ownership last month. It had shut down in March.
The average check, at $75 to $90 per person, helps minimize losses, says co-owner Angelo Eliades. Rosebud also renegotiated its lease, cut back labor costs and made other concessions.
“We’re making it work,” Eliades says. “I’m not going to tell you that we’re going to become rich if it stays like this. It’s going to be hard.”
Restaurants have received some help. There were Paycheck Protection Program loans and other grants, including one DoorDash recently announced to help shoulder winterization costs. Many operators hung their hopes on federal aid, which does not appear to be coming soon.
President Donald Trump called off talks for a federal coronavirus stimulus package Oct. 6, which included aid for restaurants.
“I don’t think we’re going to make it through the winter without federal relief,” says Erick Williams, owner of Virtue Restaurant & Bar in the Hyde Park neighborhood.
Williams says he hasn’t planned for a closure—that makes the situation feel too dire. Instead, he’s taking it one day at a time.
The city, for its part, will do what it can to give restaurants “a fighting chance,” Mayor Lori Lightfoot said at a news conference Oct. 8. She says she is confident the dining scene will rebound, but the industry, which plays a vital role in the city’s economy, needs help.
“They employ a lot of people,” she says. “They are critical, not just to the employees and the individual restaurants themselves, but think about the supply chain that goes into supporting the restaurant industry in our city.”
Operators continue to work with the city on safely raising indoor capacity limits, says Donnie Madia, co-owner of One Off Hospitality and a founding member of the Independent Restaurant Coalition. Restaurant business models were not built for reduced capacity.
“The model is for 100 percent capacity, so I believe that even at 50 percent, all of us are still struggling,” Madia says. “This also affects the supply chain, it affects the landlords, it affects the vendors.
“It continues to ripple.”