Why the next 45 days are crucial for restaurant survival in Dallas-Fort Worth

Restaurants in North Texas are in jeopardy of failing in the next 45 days. That’s according to Ray Washburne, the Dallas businessman who owns Highland Park Village and has invested in 65 restaurants, including Mi Cocina, Katy Trail Ice House, The Rustic, Hudson House, Up on Knox and CRÚ Food and Wine Bar.

“There is incredible carnage in the restaurant business right now,” he said during a call with Downtown Dallas Inc. “You’re just not going to believe how many people are just not going to make it.”

Tom Fleming, the chef-owner of Crossroads Diner, is one of many independent restaurateurs in Dallas-Fort Worth taking a hit. His business is down more than 50%.

“Here’s what I know,” Fleming says: “Humankind has never, ever hidden from a virus successfully. And I don’t think we’re about to do it now. But the reality is, if people don’t come out of their house or don’t order from restaurants — independents, especially — we won’t be around in the next 45 days.”

At least 25% of restaurants in Texas will fail during this pandemic, and the most vulnerable businesses are independently owned, says Emily Williams Knight, president and CEO of the Texas Restaurant Association. That figure increases if the government doesn’t offer more money to restaurateurs in the next three weeks, she says.

A group called the Independent Restaurant Coalition is trying to persuade Congress to pump $120 billion into independent restaurants. The bill, called the Restaurants Act, has been introduced in the Senate and the House. It’s too early to tell if the bill will be considered for the next COVID-19 relief package, but a spokesman for the Restaurant Coalition says it has “growing bipartisan support.”

Chefs including John Tesar are left wondering who can outlast the pandemic — and what the restaurant scene will look like on the other side.

“I’m hoping mask wearing and modern medicine save us, because I don’t think we can go past another six months,” says Tesar, who operates Knife steakhouse in Dallas. Despite the pandemic, he’s continuing to work on plans to open three new restaurants, in Laguna Beach, Calif.; Orlando, Fla.; and Austin.

The plight — and the fight — of the independent restaurant owner

Heather Nguyen, development partner at NewQuest Properties, which manages 15 Asian-owned businesses at Carrollton Town Center and Frisco Ranch, says passionate mom-and-pop shops will fight to remain open.

“This is their livelihood,” she says. “They put their heart and soul into it, and they’ll do everything to keep it going.”

None of her restaurants in Carrollton Town Center or Frisco Ranch have called it quits yet. But if dining rooms were to be scaled back to less than 50% occupancy, she’s not sure if many independent restaurants in Texas can survive. According to U.S. Census Bureau data, sales at eating and drinking establishments across the country were down $94 billion in March, April and May.

What’s more, restaurateurs’ passions — for serving customers, for making great food and for believing they can innovate to survive — might contribute to their downfalls, says Dallas chef Stephan Pyles.

“I can only imagine if this had happened during my more passionate times,” he says. “I would have rode it till the end, until we were all in the poorhouse.”

He got out just in time. His ultra-fancy restaurant Stephan Pyles Flora Street Cafe closed at the beginning of 2020. Sales were down and Dallas diners seemed to be trending away from fine-dining food.

“What was actually dumb luck looks like brilliance,” says Pyles, who is now retired from restaurant operations after more than three decades in Dallas. “I couldn’t have taken a 50% cut. Much less an 80% cut.”

Dozens of independently owned restaurants have closed since the coronavirus pandemic began. Family-owned drive-through Start Restaurant closed its two locations after owner Erin McKool said she was operating on “tiny” margins and didn’t have cash reserves to float her through several devastating months. She said in March what others have echoed since: “It was too expensive to stay open.”

Restaurants big and small have closed: Sushi Bayashi in West Dallas; Penne Pomodoro in Lakewood; Highland Park Cafeteria; TGI Friday’s in the West End; Bird Cafe in Fort Worth and chef Wolfgang Puck’s Five Sixty, the sky-high restaurant inside Reunion Tower in downtown Dallas. Twisted Root, a Dallas owned and operated burger chain, closed all its restaurants and filed for bankruptcy.

And how bad could it get in Texas, as COVID-19 case numbers climb and Gov. Greg Abbott has restricted restaurant dining rooms to 50% capacity? Here are three opinions:

“If all I had is one restaurant, I’d be toast,” Washburne says.

“We are burning cash,” says Tony Montero, CEO of Hai Hospitality. His company operates six restaurants in Texas, including the renowned Uchi.

“If there’s not a vaccine — or if people can’t get past the fear [of going to restaurants], I think we’re going to see a lot more restaurants just giving up,” Nguyen says.

Restaurateurs like Pyles worry that small, family-owned restaurants will not just suffer, they’re in jeopardy of going extinct.

“When this washes out, there are going to be primarily big box stores and chain restaurants,” Pyles says. “It’s about who’s got the capital to sustain, and most independent restaurants do not. ... The thought of nothing but Walmart and Olive Garden is a scary thought. But it could be — it could be something along that level.”

The ‘4 legs to the restaurant stool'

Pyles says the COVID-19 pandemic will force a restructuring of the restaurant business. And that restructuring will be permanent.

“This is bigger than anything we’ve ever seen,” he says. During the 2008 recession, he says, his restaurant took a 20% to 25% hit. Most of the restaurateurs interviewed for this report say their business today is down at least 30% over the past few months — and most say 40% or 50% is more like it.

“You learn from those times,” Pyles says of recessions. And that can be a good thing: It teaches restaurateurs how to be lean and resilient. But the COVID-19 pandemic is worse than a recession and worse than the fallout after the 9/11 terrorist attacks, Pyles says:

“What we know of the restaurant industry is over for the foreseeable future.”

Washburne says the restaurant industry is sitting atop a four-legged stool for the next 45 days. Kick out any of the legs, and a restaurant could fail.

The first leg is federal Paycheck Protection Program money, which saw participation from nearly 1,000 restaurants in North Texas to the tune of about $475 million.

“PPP did what it was supposed to do, but now it’s run out,” Washburne says. “If you haven’t triaged your way back to 60% or 70% of pre-pandemic sales, you’re in a lot of trouble.”

The second leg is help from landlords. It was essential for restaurateurs to ask their landlords for a break, Fort Worth restaurateur Tim Love said when the pandemic began. But landlords aren’t going to continue to be so forgiving, Washburne says: They’ve got bills to pay, too. And he should know: He’s both a restaurateur and a landlord.

“Landlords who were very sympathetic in April and May aren’t sympathetic anymore,” he says.

The third leg is the cost of goods. Meat, dairy and alcoholic beverages are skyrocketing in price at exactly the wrong time for struggling restaurateurs.

Restaurant owners are also shouldering new costs: masks for employees and to-go containers for curbside business. Washburne says packaging is being sold “at a premium.”

“If I’m buying a $50 steak, that comes in the same package as a $12 enchilada dinner,” he points out. “The lower you are on price point, the more it’s crushing your margin.”

The fourth leg is the role of governmental regulation on dining rooms. Abbott has closed bars and limited restaurant capacities to 50%. Some restaurants are breaking even at 50% occupancy. Many are not.

Washburne says Mi Cocina is “dogpaddling” to break even. At Katy Trail Ice House, profits are zero because Abbott shut down bars in Texas.

None of the legs of the stool are sturdy, Washburne says: “If you’ve got a one-off restaurant, your PPP has run out and your landlord is being hard on you and your cost of goods is going up. ... Can I paint any bleaker a picture?”

Comfort food is key

Fine dining is dead, Pyles contends. For now, anyway.

Fine dining was suffering in Dallas before the pandemic began, when restaurants like his Flora Street Cafe didn’t seem to resonate with deep-pocketed diners. And now, mid-pandemic, a dinner plate of snails garnished with fiddlehead ferns — a dish Pyles’ team once served at an exclusive tasting room named Fauna — seems like a joke.

“We’re done,” Pyles says, talking about fine dining’s dramatic death.

He believes diners crave comfort food during troubled times. “It was impossible to sell foie gras, caviar, lobster,” he says, remembering back to the restaurant climate just after 9/11. “People didn’t want that.” They wanted fried chicken. Vegetables. Mac and cheese.

That’s what they want today, too. Fleming’s most popular dishes right now at Crossroads Diner are eggs and bacon, hash browns and sticky buns.

“People crave things that remind them of safety, remind them of good times,” Fleming says.

Restaurants not equipped to serve comfort food are changing their menus to please diners. At Homewood in Dallas, executive chef Matt McCallister’s team recently sold patty melts. And pizza. While Homewood’s food was always intended to be approachable, a patty melt is a significant lean-in toward pandemic comfort food.

Curbside ‘will be here forever,’ but skilled chefs might not

For the first time, Uchi is selling food to go.

“We talked about do we even do it?” Montero says. As a high-end Japanese restaurant with extravagantly plated dishes, executive chef Tyson Cole’s food at Uchi was never built to be set inside a box and stuck in someone’s trunk. But the chefs have created a curbside menu that includes some of Uchi’s beloved dishes for take-home, like a cold raw fish dish called akami te, made with watermelon and bigeye tuna.

“I would say curbside, for us, will be here forever,” Montero says.

Sending raw fish in a vehicle is a challenge, however. So is packaging soup and handmade noodles, which can damage the quality of dishes from restaurants that sell labor-intensive ramen.

“As long as they’re able to figure out the packaging part and the delivery, that’s key,” Nguyen says. Many of the Asian-owned businesses she represents are trying delivery for the first time.

And as restaurants are opening and closing, chefs with rare kitchen skills are in jeopardy of losing their jobs.

“Many of them, while not making a profit, want to keep their doors open to keep their employees,” Nguyen explains. “It’s so hard to train these employees who make noodles or rice. It’s a skilled talent. They’re hard to find.”

At 50% occupancy, Nguyen says, her clients are “just thankful they’re still open.”

How long should a restaurant hang on?

A second shutdown would spell disaster, said every restaurateur interviewed for this report. But most didn’t even want to talk about that. They’re focused on today, tomorrow and next week.

“What we’re trying to do right now is just break even and give our staff an opportunity to work,” Montero says.

But breaking even “is not a viable way to run a business long-term,” he reminds.

His company, Hai Hospitality, has put together a “playbook” for every possible scenario: how to operate at 25%, 50%, 75%, 100%, patio only, curbside only, and the like.

Some restaurants had OK months in May, due to what Knight at the Texas Restaurant Association referred to as “pent-up demand” from consumers who missed the restaurant experience. (And since the pandemic, several dozen restaurants have opened despite the economic climate.) Montero says his restaurants saw that uptick, too. But then COVID-19 cases started climbing in Texas.

Montero agrees with Washburne that the next 45 days are crucial to restaurants’ survival, but he says the next five to 10 days might be just as critical.

“There are probably restaurants today, in the middle of July, saying, ‘I don’t even know if I’m opening in August,‘” he says. ”The next six months are critical for the restaurant industry. Who can be able to see the other side of this?”

Pyles says his plan, pre-pandemic, was to account for bad months. “You always knew Dallas in the summer was miserable. So you had to really stockpile to get up to July,” he says. So what happens when March, April, May and June bring in awful returns in 2020 before an expected “miserable” July? Dallas restaurants such as The Lot — a place that made its money during sunny patio months — closed permanently in April, as soon as owner John McBride realized he wouldn’t make enough during the months that mattered most.

Montero echoes other restaurateurs’ sentiments by saying the pandemic feels like a guessing game. Some small business owners like Double Wide’s Kim Finch have felt vulnerable as they try to learn pandemic best practices to keep themselves, their staff and their customers safe. Others, like Khao Noodle Shop’s Donny Sirisavath, have had to reinvent their menus and turn their business models upside-down.

“You wake up every morning and wonder, what’s going to happen today?” Montero says. “It’s almost impossible to run a true model right now. You put up different scenarios, and then you pivot to what that scenario looks like today.”

For more food news, follow Sarah Blaskovich on Twitter at @sblaskovich.