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Wednesday, October 7, 2020

Federal Assistance and a Warm Summer Kept Most Cleveland Restaurants Open Through the Pandemic. That’s About to Change

Posted By on Wed, Oct 7, 2020 at 10:03 AM

click image WALT STONEBURNER/FLICKRCC
  • Walt Stoneburner/FlickrCC

“I've never seen a summer like this in Cleveland," says Doug Katz. “I’m so grateful that we have had this. But I think it's going to be a true awakening when it gets too cold.”

After enduring six months of awful, terrifying and confounding hardships, the vast majority of Cleveland restaurants still are open. While we have lost many prominent places, including Spice, Ushabu, Distill Table, XO Prime Steaks, Tastebuds, Zaytoon and Katz’s Fire, the number of independent eateries that have permanently closed has not risen to the fateful levels predicted.



That’s good news, obviously. But it’s far from a success story. Restaurants might be open for business, but most are teetering on cliff’s edge. The ones that are clinging to life despite once-in-a-generation challenges are doing so in MacGyver-like fashion by knitting together a web of short-term fixes. Federal assistance like the Paycheck Protection Program provided a vital lifeline. Expanded outdoor dining areas helped to mitigate social-distancing guidelines that cut occupancy by half. Belt-tightening measures have translated to leaner staffs, shorter days and weeks, and limited menus. Those measures are supplemented by revenue generating “pivots” such as setting up makeshift bodegas, selling meal kits and whipping up to-go cocktails.

But the economic assistance has dried up, winter is just around the corner and all the pivots in the world won’t offset the loss of precious holiday business. Many restaurant owners are terrified about what’s to come, while others who can read the tea leaves are electing to get out while the getting is bad as opposed to miserable.

According to the Ohio Restaurant Association, nearly 80-percent of restaurants statewide have now reopened. But a recent poll conducted by the organization revealed that a majority of owners reported sales that were down at least 50-percent compared to the previous year. Worse, 79-percent of them do not expect to break even in 2020. And worse still, more than half stated that if things do not improve, they will be forced to permanently close within nine months. Which ones ultimately survive will depend on a host of factors that include location, size of dining room, style of service, demographics of clientele, reputation within the dining community, and whether the property is leased or owned.

If the closure of Fire exposed anything, it is just how slim profit margins are – and how tenuous daily survival can be – for a full-service restaurant. Katz says that his decision to permanently shutter his 20-year-old bistro was unavoidable given the financial realities. In the best of times, when Fire enjoyed robust food and alcohol sales indoors and out throughout the week, month and year, the net return was between four and six percent annually.

“If you look at the profit level, and look at where you’re at with cutting seats, you’re really in trouble,” he explains. “The costs in a normal time are so expensive that it’s really all smoke and mirrors when it comes to the bottom line. And then something like this happens. Even at 90 percent it doesn’t work. We realized that we had to make some serious decisions.”

In an ordinary world, being hailed as a restaurant with the toughest reservations to obtain is quite the accolade. In Umami’s case, that honor was earned thanks to great food and service, sure, but also the restaurant’s almost comically diminutive proportions. In the age of social distancing, an intimate 30-seat dining room is wholly unworkable.

“We were just too small,” says partner Mike Mendlovic on the closure of that beloved Chagrin Falls bistro. “From one side to the other is barely six feet, so that was the biggest issue for us. It wasn’t worth it to us to stay open and pay all those bills as small as we are.”

Despite closing in June, the restaurant recently reopened as a carry-out only restaurant (with dine-in service one night per week) as a way to stay alive and relevant until something changes, according to Mendlovic.

“This is a short-term, not a long-term, solution,” he says. “We don’t want Umami to disappear. We do want to come back as a full-fledged restaurant.”

On the other end of that spectrum is Dan Deagan. As a partner in four very different types of establishments, he is able to reduce his risk, spread his losses and ride this crisis out like a well-diversified investor. His portfolio includes Dive Bar, Humble Wine Bar, Deagan’s Kitchen and Lakewood Truck Park, each possessing certain strengths and weaknesses that help offset each other.

“Having very different types of places seems to be helping,” he explains. “I can sort of hedge my bet. It has to be terrifying for the people who have one place.”

Lacking a patio, Deagan’s Kitchen typically is slow in summer. To counter that, Deagan built the Truck Park, which has 8,000 square feet of open-air space, an absolute boon given this summer’s weather. Deagan’s has a spacious dining room that is more conducive to social distancing than Humble, which loses a significant chunk of its revenue-generating seats. And then there’s the matter of the 10 p.m. curfew on alcohol sales.

“The curfew doesn’t affect Deagan’s, Humble or Truck Park too much because by 10 o’clock we’re pretty much done anyway,” the owner explains. “But nobody goes to Dive Bar until midnight, so Dive Bar might as well not even be open at this point.”

If a restaurant does have a reasonable amount of dining room space to play with, the million-dollar question remains: Will customers be at ease dining indoors when Cleveland patios are buried beneath a fresh dusting of snow?

“I think most people at this point are comfortable dining outside,” says Matthew Stipe, owner of Banter. “And you’ll always have that group of people who will go out and dine no matter what. It’s that percentage of people who might be willing to sit on a patio but maybe not dine in when most of the scientific data, even though the CDC took a lot of it down, points to these aerosols that are rampant in restaurants.”

Stipe concluded that his clientele largely did not consist of the people who ignored all threats to personal safety, but rather the other two-thirds that are more cautious. Because of that, he decided to close the west-side location of Banter this month (Banter Van Aken District remains) rather than suffer what likely would be a long, slow demise.

“We’ve done fine on the west side these last five years, but the best we could hope for was kind of breaking even and it didn’t make sense to wish on a star that that’s the best that can happen when more than likely the opposite – or much worse – would end up happening,” he explains.

Jeff Fisher, who operates Salted Dough in Broadview Heights, has the same fears that Stipe does, but he’s using every tool at his disposal to hold back the floodwaters. When he lost more than half his seats indoors to distancing, he expanded his patio into the parking lot to recoup them. But with winter looming, he’s going to have to fight even harder to preserve that income.

“Because we are out in the suburbs, we don’t have the younger crowd that is a little more carefree,” Fisher explains. “We have a little bit of an older clientele who are much more socially aware. Some won’t eat at the restaurant unless they are eating outside.”

So what’s an operator to do? For Fisher, that means raising a tent, slapping on side walls, firing up the propane heaters, installing ventilation, hiring third-party disinfection services and praying that people continue to visit, eat and spend. Of course, given the cost of all those measures, his nut just got a whole lot meatier.

“As long as we can keep up the numbers that we’ve been doing, we can break even or do a little beyond,” he says. “We go into survival mode.”

Survival to Chris Lieb means cutting costs, increasing safety measures and cashing in on the goodwill that he and his partners have banked at Butcher and the Brewer during their six years on E. Fourth Street. After sitting on the sidelines for six months, the restaurant recently reopened, but in limited fashion: everything has been scaled back, including the staff, the menu and the days and hours of operation.

“The reality of it is, we can’t go full bore; there’s just not enough business to support it,” he explains. “We scaled it all back so that we can try to function in this atmosphere – and still do it very well – but not to the degree we’re used to.”

Lieb adds that downtown restaurants are hit especially hard given the lack of sporting events, concerts, theater, conventions and daily commuters. The goal, he says, is to be that reason to visit.

“There are things that are out of our control,” he explains. “The things that are in our control that will separate us will be the quality of our product, our service, our atmosphere… all the things that we’ve always done well. If people think of you as an average place to go – especially now with the reduced amount of places to go – you’re going to see a clear distinction. I think the places that continue to do that have a chance.”

Ask an operator what the most challenging aspect of this seemingly never-ending nightmare is and more than likely the answer will be the uncertainty of it all. For owners like Katz and Stipe, both of whom were approaching lease renegotiations, the path presented itself with unvarnished clarity. For everybody else, life is a daily roller coaster of ambiguity and anxiety.

“We haven’t made any decisions because you can’t make any decisions until you know what’s going to happen,” says Michael Symon, who has restaurants downtown and in suburban Cleveland. “Will there be more PPP. Is there going to be a vaccine in a month, six months, one year. Will people take it when it comes out or be afraid. You just try and make good decisions every day, but it’s a moving target. Sometimes you do something that works and then you try the exact same thing again but it doesn’t work. In a business that is always a little bit fickle, now it’s so unpredictable.”

Another factor that can tip the scales of survival is whether or not the restaurant owner rents or owns the property. While many tenants we spoke to were quick to compliment their landlords for “working with them” on rent payments, not a single one mentioned any type of monetary forgiveness. The best most could hope for is a modified payment schedule.

When Bonnie Flinner decided to open a business 15 years ago, she was dead set on property ownership. She purchased a chestnut of a building in Tremont, opened Prosperity Social Club and knew that she had made the kind of investment that would help pave the way to a happy retirement.

“That has probably been my saving grace,” she says with respect to the current situation. “For people who have to pay rent and who don’t have a landlord that’s working with them, that’s going to be a nail in their coffin for sure.”

But it’s not all good news for property owners like Flinner, who might have been eager to cash in their chips and ride off to the next chapter of their lives.
“I have thought about a transition, but a lot of businesses are now so devalued without the sales that they have established over the years and years of being in business,” she explains. “You don’t want to flush that all down the toilet to a bottom feeder during the pandemic.”

Now imagine how hard that decision-making process becomes when your restaurant is approaching 100 years old and happens to be sitting on prime real estate. That’s the sort of weight that saddles Bernie Sokolowski, who along with partners operates Sokolowski’s University Inn in Tremont. That iconic Cleveland restaurant, opened in 1923 and the recipient of a James Beard "American Classics" Award, has yet to reopen.

“We’re still evaluating everything,” admits Sokolowski. “The way it’s set up right now with the distancing and everything else, it wouldn’t be feasible for us to open up. We do a volume business and it just wouldn’t work.”

Like every other restaurant owner, Sokolowski is struggling to make a clear-headed decision in the foggiest of times. But the heartbreaking truth of the matter is this: You might already have enjoyed your last meal at Sokolowski’s.

“I hope it doesn’t come to that, I really don’t,” he says. “We’ve been lucky, we’ve been blessed. I grew up in that house. I grew up upstairs. That place was my living room down there where I would watch TV as a kid. I shake my head sometimes thinking about some of the people. Not so much celebrities as regular Clevelanders. Beautiful people. Kind people.”

The independent restaurant industry employs more than 11 million people. When restaurants – independent or otherwise – close, it affects not only the owners and staff, but also a litany of supporting businesses like produce, meat, seafood, beer and wine distributors. But also the bakeries, florists, equipment repair folks and cleaning companies.

“I don’t think the general public realizes the trickle-down effect,” states Flinner. “The normal person might think that restaurants are struggling, but it’s more than just the staff, it’s the purveyors, it’s the farmers, it’s the linen company, it’s the soap guy… it’s everybody.”

So far, we’ve been spared the grim carnage that has been prophesied for so many months, but only a fool thinks the worst is behind us. Social distancing guidelines or not, an estimated 30-percent of diners do not feel comfortable eating indoors. Those fears will increase as cold and flu season picks up. Additional federal aid packages might help, but given the current legislative climate, it likely would be too little and too late for many. Short of a silver bullet like a miracle vaccine, operators have little reason to feel optimistic.

“I think there’s going to be sort of a culling of the herd when it comes to restaurants in this town pretty soon, and not necessarily just restaurants that were struggling already,” predicts Stipe. “It’s the people who make the difficult but intelligent decision that perhaps it’s time to throw in the towel or move onto something else. Obviously, I wish it wasn’t the case, but I think it’s going to get scary again through the end of the year.”

If there is a silver lining, it’s that Cleveland could be in a worse position. Stephen Taylor, who leads the Restaurant Practice Group of the local CBRE office, sees glimmers of hope and even reasons to be positive.

“I think Ohio has bounced back,” he says. “It’s definitely one of the stronger states. Those markets which are very heavily focused on corporate traffic, convention business and tourism like New York, New Orleans, Vegas, Orlando… that will take a lot longer to turn around. Restaurants in New York City or Chicago with very small footprints are going to have challenges. There’s obviously going to be some big changes to the industry. Unfortunately there’s going to be some more closings. But there is going to be some big operators looking for new spaces. I’m optimistic about the future.”

Some of the industry shifts that Taylor references, such as fast-casual and quick-serve restaurants, have been on the upswing for years. Others, like the birth of ghost kitchens, are just beginning to heat up. Both categories are better suited to weather the pandemic than full-service eateries for a number of reasons.

“Fast-casual is perfect for this time because of the way it’s set up,” explains Victor Searcy of Sauce the City. “We’re in between fast food and dining in, so you’re still getting that quality of ingredients but you have the choice to sit and eat or go out. There is no pressure to dine in.”

In fact, volume-based businesses like Searcy’s depend on speedy turnover, where people get in, get their food, and get out. While check averages are significantly lower than those of full-service restaurants, operators serve more customers while spending considerably less to do so.

“We don’t have the overhead costs of a full-service staff,” Searcy adds. “We basically just have our cooking staff and register people and that’s it.”

Chimi, a virtual eatery in Cleveland Heights, takes the concept a step further. Diners never even step foot inside the door, relying instead on pickup and delivery to secure their meal. Doug Katz opened the South American concept in a catering kitchen that was idled by the lack of event business. The lean operation lacks the lofty rent, bloated payrolls and day-to-day costs of a conventional full-service restaurant.

“The minute you open a brick-and-mortar restaurant, your costs just skyrocket,” explains Katz.

The concept, which opened during the pandemic, has been so successful that the chef will open a second ghost restaurant out of the same commissary sometime this month. Expect other operators to follow suit as we enter a winter of new adjustments to another new normal.

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