COVID challenges continue for Va. restaurants

Liz Kincaid faced a major problem in August after the walk-in refrigerator in one of her Richmond restaurants — Max’s on Broad — broke. Her usual supplier told her the wait for the replacement part would take two months. “I have raw oysters and produce and fish and chicken,” recalled Kincaid. “I’m like, ‘What am I gonna do?'”

She got lucky. One of Kincaid’s other restaurants, Bar Solita, is across the street, so she was able to move the food from Max’s to its refrigerator. But this type of supply chain problem isn’t limited to critical refrigeration.

“The guy that sells me my equipment is like, ‘You might as well buy an oven and a fryer today. You’ll get it in two months, because with four restaurants, one of them’s bound to break,'” recounted Kincaid, CEO of RVA Hospitality, a Richmond-based restaurant company that owns and operates Max’s, Bar Solita, Tarrant’s Cafe and Tarrant’s West.

In the wake of the COVID-19 pandemic, supply chain disruptions, backlogs, inflation and labor issues continue to be lingering causes of headaches for restaurant operators.

According to a National Restaurant Association survey of 4,200 restaurateurs conducted from July 14 to Aug. 5, 41% of restaurant operators think business conditions for their restaurants will not return to pre-pandemic levels for more than a year. The 120 Virginia restaurant operators who responded to the survey had similar responses, with 40% estimating it will take more than a year, and 27% saying conditions will never return to normal for their restaurants.

Kincaid said revenue is down about 30% from 2019 across her four restaurants, amounting to nearly $3 million in sales.

Tony Stafford, chef and founder of Ford’s Fish Shack, thinks it could take until 2025 for his three locations — in Ashburn, Leesburg and Chantilly — to return to pre-pandemic conditions.

One reason sales are down is widespread remote work, Stafford said.

“You have employers not requiring employees to go back to work, so they’re still working from home, so we have no lunch business and then we have no happy hour business,” Stafford said. “People aren’t coming home from the office.”

Supply challenges

Restaurant owners are taking hits from supply costs, with 90% of Virginia respondents saying their total food and beverage costs are higher than in 2019, comparable to the 88% of nationwide respondents who said they’ve seen the same thing.

One example is French fries, which cost less than $1 a pound last year but are now $1.25 per pound, Stafford said. Fry cooking oil became more expensive as well, particularly sunflower oil, which has been affected by Russia’s invasion of Ukraine. Before the invasion, Ukraine was the world’s largest exporter of sunflower oil. Cooking oil is up 40% to 50% over last year, he said. (The prices are also being driven up in part by increased demand for used cooking oil and soybean oil for making renewable diesel fuel.)

Stafford’s had to raise menu prices as a result. A side of fries used to be $2 or $3. Now, they’re $5 or $6.

Kincaid’s experiences have been similar.

“Chicken, beef, pork — almost every single thing costs more today than it did before the pandemic, and we’re also seeing gas surcharges put on deliveries,” she said.

Stafford also cited increasing gas surcharges. One company charges him $7 per delivery, and he gets six deliveries a week, adding up to more than $2,000 a year.

“How do I pass that along and put it on the bottom of a check?” he asked. “Here’s your subtotal, your tax, your gratuity and your fuel surcharge. Some people are trying that, but I feel like I can’t do that. I’m trying to keep my guests coming in.”

To-go containers are more expensive as well, because Styrofoam and other plastic containers are manufactured with petroleum derivatives. Stafford estimates container costs are up 50%.

Kincaid also has seen increasing costs for paper products, including to-go boxes.

Supply chain problems have meant she’s been forced to accept alternate products. “You want to serve your takeout food in the same compostable, recyclable box that makes your food look great,” Kincaid said. “But next week, they won’t have that size, so you have to settle for a different size or something less than what you would normally serve your food in.”

Even silverware supplies are inconsistent, leading to different-patterned silverware within the same restaurant, she said.

Workforce woes

Labor also continues to be a major concern for restaurant owners. Nationwide, 86% of restaurateurs surveyed said their total labor costs are higher than in 2019, and in Virginia specifically, 91% said the same.

Almost every one of Kincaid’s employees received a raise during the pandemic, including salaried managers, she said. She also increased benefits, like offering free online telehealth services, including mental health care.

Over the last two years, Stafford’s labor costs have increased about 40%.

Neel Desai, managing principal of Virginia Beach-based S2K Hospitality, which owns four Which Wich franchise locations and two Your Pie locations across Hampton Roads, estimated that his costs overall are up somewhere between 8% and 15%, but said his revenue had already returned to 2019 numbers. Meanwhile, he estimated that his employees’ wages have increased between 8% to 10%.

As labor costs have increased, the pool of available workers has gone in the opposite direction. Nationally, 65% of respondents said their restaurants did not have enough employees to meet current customer demand. Sixty-three percent of Virginia respondents said the same.

Each of Kincaid’s four restaurants require 75 people to be fully staffed, and she currently has 225 employees — meaning she’s short by about an entire restaurant’s worth of workers. Although she hired more people in May and June, she won’t be able to keep them if fourth-quarter sales don’t rebound.

“It’s been really hard to hire during a pandemic, and even as it becomes an endemic, it continues to be difficult to find and retain good workers,” she said.

Along with receiving applications from people without experience in the industry, she has had applicants “ghost” her — i.e., not show up to interviews and cease communications without any explanation.

Desai has also had no-show candidates. He’s found a solution in cross-training staff on a variety of jobs, allowing him to operate with fewer employees. At any given store, he has three to five workers who can fill in as needed. That’s also helped offset other rising costs. “You’re doing a better job of training your staff and making sure they understand the importance of their job and really giving them that development so that you can run a more efficient restaurant,” Desai said.

Stafford could hire 15 to 20 employees at each restaurant, but he isn’t getting many interested applicants. It’s a bit of a puzzle, since the jobs pay well and don’t require college degrees or technical education, he said. His servers make more than $50,000 a year — some more than $70,000 — with cooks earning between $40,000 and $60,000 a year, and managers from $80,000 to $100,000 annually, he said.

“I think people have just been so scared to come back into the restaurant industry,” Stafford said. Before COVID vaccines became available, restaurant workers worried about working in closed environments.

Also, restaurant workers are tired and can’t get time off because restaurants are understaffed. Some are leaving the industry in favor of finding remote-work jobs.

Desai has been able to retain employees fairly well, he said. He credits S2K Hospitality’s career development, including training managers on how to review financial statements.

“That helps to retain employees,” he said, “because they can see that there’s a longer career path than just being a cashier or just being a server.”

Passing costs on

To counteract rising costs, restaurant owners are raising menu prices and changing menu offerings, as well as reducing hours and — sometimes — capacity. Nationally, 91% of restaurants surveyed increased menu prices, and 65% changed menu offerings. Sixty percent reduced their hours of operation, and 38% closed on days they normally would have been open.

Eighty-nine percent of Virginia restaurants surveyed increased menu prices, and 61% changed items on their menus. Fifty-six percent of Virginia restaurants reduced hours of operations, and 35% closed on days they would normally be open.

Stafford has closed his restaurants earlier and shut down sections of them. His restaurants closed for the Fourth of July this year.

Kincaid has raised menu prices several times and shrunk her restaurants’ menus.

For restaurants everywhere, “that’s kind of the crux of it,” Kincaid said. “Everything costs more, and we’re selling less.”

As the industry continues to face challenges, restaurateurs are finding alternative solutions. Kincaid found a quicker fix for the broken refrigerator at Max’s on Broad when she contacted another company, which was able to locate a slightly different part that would work. The refrigerator was repaired within a week.

“Basically, we ended up Band-Aiding it, and we think that’s going to work,” she said.