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Your favorite restaurant is closer to going under than you think. Here’s what they’re trying to do about it.

"For many people, you’re one big repair away from not being able to pay your bills," says Restaurant Alma chef-owner Alex Roberts.

"For many people, you’re one big repair away from not being able to pay your bills," says Restaurant Alma chef-owner Alex Roberts. Zoe Prinds-Flash

From the outside, everything looked perfect at Funky Grits.

Less than a year after opening, Jared Brewington’s south Minneapolis soul food restaurant got the invite of a lifetime: a booth at the Minnesota State Fair. They accepted, of course, and they crushed it—the shrimp fritters were a hit, among the most universally liked new items of 2019. Brewington’s face was all over local media. Funky Grits was having A Moment.

And then, weeks after that explosion of praise, Brewington made another announcement: His restaurant was closing.

“People are wondering how I’m closing down and opening a coffee shop when I just made ‘millions’ at the State Fair,” he says. “Even if I say it was expensive, they’re like, ‘Yeah, but you had to have made millions. You were everywhere.’”

Any time we lose a beloved restaurant or bar—the sudden shutter of south Minneapolis Italian gem Al Vento earlier this month, the end of U of M dive-bar treasure Sporty’s before that—the news is met with the same cocktail of shock and sadness. We wonder how the goodwill and attentive service we just experienced on Saturday didn’t correspond to big-digit earnings. On the other side, there’s always someone who just knows the restaurant went under because—and you’ll have to fill in the blank here—prices got too high/minimum wage laws are destroying this city/liberals are destroying this city/poor people are destroying this city.

(Or because parking there sucked.)

Jared Brewington, Funky Grits

Jared Brewington, Funky Grits Zoe Prinds-Flash

The $15 minimum wage increase in Minneapolis and St. Paul isn’t a non-issue. Restaurant owners certainly are thinking (and, in many cases, worrying) about it. It’s also not their only financial concern. Healthcare, rent, property taxes—they’re all on the rise, and restaurants run on almost laughably low profit margins as is.

Diners don’t want prices to go up. Restaurant owners want to stay in business. Costs—for almost everything—are climbing.

How is this going to work?

***

“Most restaurant owners are very prideful people, like any business owner would be,” says Brent Frederick, owner of Jester Concepts (the restaurant group behind Parlour/Borough and P.S. Steak, among others). “I think it’s hard for them to admit that they’re not doing so well, that the industry is really tough, that they make a small salary and have razor-thin margins and can’t make much of a profit.”

“A lot of people on the outside looking in look at it as a kind of fly-by-night industry,” he adds. “But there’s people that are putting up their houses, putting a second mortgage, third mortgage on their house.... People are risking it all, and I don’t think anybody understands.”

If there’s not a lot of sympathy to go around for struggling restaurants, that could be because their owners don’t always present as very sympathetic characters. In the last month alone, two widely reported-upon closings served as case studies in just that. There was Rojo on Nicollet Mall, whose owner blamed July and August shootings in downtown Minneapolis, the increased minimum wage, and high property taxes for the Mexican grill’s demise. It wasn’t made clear how those factors retroactively led to the closure of his previous concepts at that address: Randle’s, which shuttered back in March, and Ling & Louie’s Asian Bar & Grill (2014-2017), which came before it.

(“Man, I would love to have enough money to tank three restaurants,” read one popular comment on that City Pages story.)

There’s also O’Gara’s in St. Paul. Owner Dan O’Gara sold the 77-year-old bar to a development company in 2018, but planned to bring the old-school institution back to a smaller, ground-floor space in the new apartment complex. On November 4, O’Gara announced that the bar wouldn’t return after all, citing too-high state and city taxes and fees, the burden of paid sick leave and minimum wage without a tip credit, and competition from taprooms.

That felt a little disingenuous to a lot of people, including Wes Burdine, owner of the Black Hart of St. Paul, who tweeted: “Dude just sold his building for $4.5m dollars. That is $3.5m more than what it was bought for just over a decade ago. Congrats buddy, enjoy your retirement.”

“As someone who cares really deeply about the city... I was very frustrated to see the amount of great work and the amount of growth we’ve seen in the city of St. Paul get dismissed by someone who, by their hard work but also all these other things, just made a lot of money,” says Burdine, whose bar is only about a mile from the former O’Gara’s. “Here’s someone blaming the city, when he just came out with millions of dollars. I just thought that was really frustrating.”

Admittedly, it’s not a good look. It reads both entitled and aggressively out of touch for a person who sold their building for millions to say an incremental hourly wage increase caused their financial woes.

But bars like O’Gara’s are the exception, not the rule. The perception that restaurant owners are out here Scrooge McDucking into vaults full of money—on the whole, that’s not the case.

“I think that’s one of the longest myths in the restaurant profession,” says Restaurant Alma chef-owner Alex Roberts.

An oft-cited bit of wisdom is that in the restaurant industry, your profit margin typically spans from 0 to 15 percent. Full-service spots should expect about a 3 to 5 percent average profit margin; for quick-service, the numbers are more like 6 to 9 percent. Some, like Frederick, think it’s even lower than that.

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“I would say that most restaurants are operating at even or negative cashflow or profitability,” he says. “I would say 70 or 80 percent are not making money.”

And this is, of course, after you’ve shelled out your startup costs, which can vary widely but have a median around $375,500, per one recent restaurantowner.com survey. “They might be able to pay themselves a management fee or a salary or something like that,” Frederick continues, “but they’re not making money for the people who invested in them: friends, families.”

“Generally, most restaurant operators don’t have the scale of a financial controller or a CFO,” Roberts adds. “A 3 percent profit, depending on how you’re managing cashflow, can look like you’re breaking even. For many people, you’re one big repair away from not being able to pay your bills.”

***

When industry folks blame the minimum wage for draining their bank accounts, it can sound a lot like woe-is-me buck-passing. But with margins that slim, any increase in expenses has an outsized impact. A cold snap in Georgia can double the cost of collard greens. A busted freezer might mean you don’t take home a salary that month. Even a difference of a few dollars an hour per employee can throw your bottom line into chaos.

In Minneapolis, wages are now $12.25 for employers with more than 100 employees and $11 for those with fewer; large businesses will have to hit $15 in 2023 while small businesses have until 2024.

“It stresses me out at Sandcastle,” says Doug Flicker, who owns the seasonal Lake Nokomis seafood and sandwich spot along with the bar-restaurant Bull’s Horn in Standish-Ericsson. “At Sandcastle, it’s grab-and-go—it’s meant to be a first job, for teens. And it takes two kids to do the work of one adult person.”

Flicker isn’t arguing against a livable wage. (Although: “Part of me wishes the city would have just implemented 15 right away. Then everybody would have had to have figured something out, as opposed to just kicking the can down the road.”) At Bull’s Horn, it means raising prices 10 or 15 cents every summer when the wage notches up. Their business is high-volume, and it’s bar food—if he still owned the more fine-dining Piccolo, those markups would probably be higher and harder to achieve. Plus: “We sell a lot of beer, you know? The markup on beer is really good. We have full liquor. That helps our margins.”

“Concerns for the minimum wage are really tough, and they’re really real,” Black Hart’s Burdine says—it’s why he wasn’t sure he should tweet his frustrations with O’Gara’s in the first place. “I know a lot of great business owners who try to do right by all their employees, and they’re not sure how to make it work in a few years.”

The timeline is different in St. Paul, where businesses with more than 100 employees will need to pay $11.50 hourly in July 2020, with incremental increases until reaching $15 in July 2024. Those employing between 5 and 100 workers have to hit $10 next year, and reach $15 in 2026.

Burdine has already started raising wages—“which is a great thing”—but it means prices have to go up, too. It’s a tricky balancing act: You don’t want to be known for having a beer and a bump that’s a buck more than your neighbors’ (and competitors’). And if people want to pay a little less, they have the option to go out in Roseville or Edina, where the minimum wage has stayed stagnant, which means bars and restaurants in the Twin Cities might see fewer folks walking through their doors.

“Fifteen dollars an hour is extremely helpful, but it certainly has its—there will be bad effects that come from it, and people just need to adjust.

“It’s not like every restaurant is suddenly going to disappear,” Burdine continues. “But it is going to get tough for existing restaurants to adjust to that. Because consumers are not ready to pay $5, $5.50, $6 for a Bud Light. And that is coming in the near future. It’s coming.”

Something else you should expect to see: more health and wellness charges on the bottom of your bill. Because while the minimum wage is one thing, healthcare is a bigger, meaner, harder-to-plan-for beast.

Kim Bartmann was the first in town to add a health and wellness charge in her restaurants in June of 2017. She says her premiums have gone up 25 to 30 percent each year for probably the last four to five years. (“At least.”) Under the Affordable Care Act, employers with more than 50 workers clocking 30-plus hours have to provide a health insurance benefit, or pay penalties. So at Bartmann Group restaurants like Tiny Diner and Barbette, there’s an addendum at the bottom of the menu: “In order to maintain health & wellness benefits for our employees, [restaurant] adds a 3% employee wellness service charge to guest checks.”

“The costs keep going up, and it was impossible to keep pace,” she says. “We thought it was important to be transparent about it.”

It’s been popping up all over the Twin Cities since: Roberts introduced one at Alma, and Jester Concepts restaurants all have the charge. Parasole Restaurants (Manny’s, Chino Latino), Craft and Crew Hospitality (the Howe Daily Kitchen & Bar, Stanley’s Northeast Bar Room), the Lexington, Travail and Pig Ate My Pizza in Robbinsdale—all are among those now tacking on a health insurance fee.

“Some of the criticism I got was, ‘Well, why don’t you just raise prices?’” Bartmann says. “We didn’t do that because we want people to know that we’re offering health insurance to our employees and have it be part of the conversation.”

“For us, we wanted to keep it separate from increasing our prices, because it resonates differently with people when they see that as a line item... rather than, ‘My burger that I’ve been coming in for the last three years to get just went up whatever percent,’” adds David Benowitz, COO of Craft and Crew. The dog-friendly restaurant group added a 3 percent charge in January that helps pay for healthcare along with mental health services for staff. “Our places, we try to create a sense of community. We’re very family, neighborhood oriented. People see us as that in terms of our locations, so in some sense, they’re helping the extension of their community and family.

“Especially as the minimum wage increases,” he goes on, “I think you’ll see more and more restaurants start adding it.”

***

Asked if it’s fair to say restaurants are under increasing financial pressure from all sides, Bartmann fires back: “I would say more like under siege.”

As for whether they’ll be able to adapt?

“Frankly, a lot of them aren’t going to be able to,” she says. “You will see a lot of washout over the next couple years.”

The answer seems obvious enough: Well, fine, then don’t open a restaurant. And it does raise the question of why anyone chooses to do it.

But if you like to go out to eat and drink, then you need somewhere to do that, and these are people who have spent their whole lives providing you with places where you can. They fell into it, and then in love with it: Frederick started bussing tables at 20, working as a server, a bartender, and a bar manager before going on to open restaurants of his own.

“You don’t get into restaurants because you want to make a million dollars—you’re in the wrong industry,” he says. “You get into it because you love food, and you love wine, and you love the people.”

...You’ll notice he didn’t say anything about loving accounting.

“That’s why there’s a few groups out there—and I belong to a few of them—that we’re getting together and we’re helping each other.”

Frederick says that 20 or even 10 years ago, the people who were successful tended to hold their secrets close. Now he thinks there’s a “movement afoot” in the industry—chefs are talking with other chefs, owners with other owners, GMs with other GMs. “What I’m seeing right now—and I think it started because of the minimum wage talks—everybody’s getting together. And we’re not afraid to be like, ‘Hey, how much are you paying for linen right now? What’s your food deal look like? What liquor supplier are you using?’”

“Because we know how tough it is,” he continues. “It’s kind of like therapy.”

“When I thought about doing [a wellness charge], I called Kim Bartmann, and she talked to me about why she did what she did,” Roberts says. “And then other people called me, you know? ‘How’s it going?’ and ‘What’s going on?’ I think everybody’s struggling with the same things, and there’s a lot of people I really admire in this business that are taking it on.”

These are trying times in a lot of industries—restaurant owners know that. But they’re in the business of hospitality, and that means providing a living wage and healthcare for employees just as much as it means giving you a barstool where you can vent about your own job woes over a Hamm’s. It means trying new things and seeing what sticks.

Even if it’s imperfect, they’re working on it—fumbling toward taking care of each other, so they can take care of... you.

“People dine today to have an experience,” Benowitz adds. “But we can’t create that experience unless we have amazing people creating that experience.”