Restaurant owners see slow rebound as state begins reopening in ‘deep recession’
Delaware is set to begin Phase 1 of its reopening plan on June. In the interim, it’s is embarking on what Gov. John Carney calls a “rolling reopening” – a series of baby-steps that allow some segments of the state to ramp up even sooner.
The hope is to start getting the economy back up and running - and avoid long-term damage to it.
Contributor Jon Hurdle takes a look at where Delaware’s economy is right now – and what impact these initial steps may have on bringing it back in hard-hit sectors like restaurants and hospitality.
Michael Stiglitz could reopen his chain of four Delaware restaurants for limited sit-down service on June 1 but he won’t because it’s just not worth it financially.
Stiglitz, owner of Two Stones Pub, with locations in Wilmington, Newark, Middletown and Hockessin, doesn’t want to resume operating at 30 percent of capacity, as allowed by Gov. John Carney’s order for phase 1 of the state’s reopening from June 1, and so is going to stay shut for in-house dining until the state permits more tables to reopen.
It’s not possible to make money if a restaurant is less than a third full, Stiglitz said, and so he’s waiting for phase 2 of the reopening plan when he hopes he will be able to operate at 50 percent of capacity, perhaps from July 4.
“Thirty percent of anything is an F, no matter what school you go to,” Stiglitz said. “Financially, it’s just going to put me in more debt. I don’t think it’s smart of me to have the view of ‘ok let’s open up with 30 percent of capacity’, meaning 30 percent of sales.”
At Drip Café, with locations in Hockessin and Newark, owner Greg Vogeley is also planning to stay closed for sit-down service during phase 1.
“We’re going to stay takeout and curbside pickup through phase 1,” he said, referring to the limited service that his Hockessin location has offered so far during the pandemic. “I don’t want to have to backstep if something happens.”
Vogeley is treading carefully because he’s worried that it will take a while for some of his customers to regain enough confidence to enter a sit-down restaurant without fearing infection with Covid-19.
“Some customers don’t know how to act or where to stand, and they don’t know how to be comfortable in this new environment,” he said. “If they come in and see people sitting down, they are more than likely to not come back, and I can’t afford to lose them.”
Still, he has trimmed losses during the pandemic with the takeout and pickup service, and kept some employees at work by providing meals for health care workers, paid for with private donations. He also found a new source of revenue by roasting coffee and shipping it across the country via a new web portal.
By mid-May, Drip Café’s revenue was down about 60 percent from pre-pandemic levels compared with a 75 percent drop earlier the shutdown. And employment has edged back up to 20 from a low of eight, but still well short of a pre-crisis level of 50, Vogeley said.
And he’s hoping that he can help to rebuild his customers’ confidence by more rigorous cleaning of high-traffic areas.
"Some customers don't know how to act or where to stand, and they don't know how to be comfortable in this new environment." - Drip Cafe owner Greg Vogeley
“As we enter phase 1, public opinion will change and hopefully become more and more positive, and I’ll just ride that train,” he said.
The Delaware Restaurant Association echoed its members’ discomfort with the 30 percent reopening mandate. At that capacity, many will struggle to break even, said Karen Stauffer, a spokeswoman. And those that have received federal funding under the federal Payroll Protection Program will have to rehire nearly all of their employees to qualify for loan forgiveness, she said.
“It's tough all the way around,” she said. “We are looking to the Governor to help our industry - they will need direct and targeted assistance if they have any chance of making it back.”
The combination of shaky consumer confidence and restaurants’ qualms about a partial reopening suggests no quick recovery from the economic devastation wrought by the pandemic shutdowns.
The impact on Delaware’s businesses and consumers was highlighted by Philadelphia Federal Reserve president Patrick Harker who said on May 12 that Delaware’s pandemic-related job losses have been “heavily concentrated” in the food-service and accommodations industries.
While the impact has been limited on service industries whose employees can effectively work from home, job losses have been much more severe in businesses like restaurants that rely on in-person contact to generate revenue, Harker said, during a conference call hosted by the Delaware State Chamber of Commerce.
Harker, a former president of the University of Delaware, warned that the effects on airlines, hotels, and restaurants that cater to travelers “could be severe and long lasting”, and that’s likely to be bad news especially for southern Delaware whose economy depends heavily on tourism.
Educational and medical institutions – which together account for about 17 percent of Delaware’s jobs -- will also struggle to recover from the pandemic, Harker warned. He said colleges are heavily impacted by the need for social distancing, and face difficult decisions on whether to switch to all online classes in the fall. Colleges have also been hit by a decline in the number of overseas students, who may not be able to reach the United States because of the pandemic.
In the health care industry, companies like Delaware’s Christiana Care are facing a drop in income with the loss of elective procedures because of the crush of Covid-19 cases, and the additional costs of treating infected patients.
Recognizing the challenges faced by ‘eds and meds’, the Fed is considering lending directly to colleges, universities and nonprofit medical institutions, Harker said.
Commercial real estate, too, could be in for a “rough stretch” if major employers conclude that many employees can work from home permanently, thus reducing their need for office space, Harker warned. But it’s possible that companies will instead look for bigger offices because they will need to provide more social-distancing space for their employees as business reopens.
“We don’t know which way that’s going to go but it does mean that commercial real estate owners will have to start really talking to their customers about what they’re going to need going forward, and being creative about how to meet those needs,” Harker said. “The banking sector, they are going to have to start looking at their portfolios and having those conversations with owners.”
Whichever sectors lead Delaware’s economic recovery, it will start from a deep hole, as shown by almost two months of record new jobless claims, which totaled 90,256 from March 15 to May 9, representing about 19 percent of the workforce, according to the Department of Labor.
The weekly totals, which dwarf pre-shutdown levels of around 500 a week, may actually understate the true level of unemployment, argued Jim Butkiewicz, a professor of economics at the University of Delaware. He said the DOL numbers don’t reflect people who lost their jobs but didn’t claim; didn’t until recently include self-employed people, and can’t account for people who have tried but failed to claim benefits through the DOL’s overwhelmed website.
“That number is probably on the low side,” he said.
So too is the official national unemployment rate of 14.7 percent for April, Butkiewicz said. He argued that the number doesn’t include people who gave up looking for work, and is distorted by coding errors in the latest data by federal employees who compile the data.
“That number is not a good number, and if you take those two effects, it’s possible that the unemployment rate for April was over 20 percent,” he said. That number begins to approach the 25 percent jobless rate at the depths of the Great Depression in 1933, but overshadows the 3.5 percent rate for February, before the pandemic shutdowns began.
Like the rest of the country, Delaware is now in a deep recession that could become “something much worse” if it persists, he warned.
Prospects for recovery will largely depend on consumer spending which accounts for about 70 percent of gross domestic product. And it’s not clear whether consumers will have the confidence to return to shops, restaurants, sporting events and other settings that draw large numbers of people.
"I'm looking at this as a year-long slowdown. I just don't see it bouncing back quickly." - Henlopen City Oyster House and The Blue Hen owner Chris Bisaha
“The real issue is when is it going to be safe to have groups of five or six or ten people gathered together?” Butkiewicz said. “Who’s going to feel good about a cruise ship now?”
At the Delaware shore, restaurant owner Chris Bisaha isn’t expecting a quick recovery as the economically crucial summer season gets underway. After completely closing both his Rehoboth restaurants – the Henlopen City Oyster House and the Blue Hen – he’s getting ready to reopen for carryout in the state’s Phase 1.
But with unemployment so high and consumer confidence fragile, Bisaha predicted there won’t be a full rebound until summer 2021.
“My perception is that it’s going to be a very off year,” he said. “We want to get through the winter, and by next summer I think things will be back to normal. I’m looking at this as a year-long slowdown. I just don’t see it bouncing back quickly.”