Restaurant Round Table: Turning Up the Heat

Owners of local eateries chime in on staffing, food costs, and tip credit changes

An extinction-level event: That’s what some experts predicted the COVID-19 pandemic would prove to be for the restaurant industry. Take a look back to March 2020, as restaurants shut their doors and the world went into lockdown, and you’ll see more than a few nightmare headlines spurred by the predictions of celebrity chef Tom Colicchio, who forecasted that 75 percent of restaurants wouldn’t make it through the pandemic.

Fortunately, Colicchio proved to be wrong. A 2022 report on the matter from The Washington Post concluded that some 72,700 United States restaurants had closed their doors in 2020—still a high number, but only “around 11 percent of America’s roughly 660,000.”

The bad news is that, for many restaurants, the troubled times aren’t over. While the days of shutdowns, strict capacity limitations, and acute fear of indoor dining are in the past, the pandemic also precipitated a slew of other challenges that are pushing restaurants to the brink.

For one thing, restaurants and other hospitality businesses have struggled to win back the workers that left the industry during the pandemic. In addition, supply chain issues have sent the cost of many ingredients into the stratosphere.

It’s not even just COVID-related hurdles that are hitting restaurants: In Michigan, consideration of a bill that would drastically raise the minimum wage—and eliminate the tip credit structure that has long been the norm in the food service industry—has caused an uproar among restaurant proprietors who say the legislation would effectively kill their industry.

With 2023 now underway—and with another busy summer season creeping closer by the day—Northern Express wanted to get a sense of where the local restaurant industry stands right now.

To find out, we touched base with a pair of long-running local restaurant groups to hear their insights on business health, staffing challenges, lingering supply chain woes, and what the future might hold.

Those restaurant groups are Stafford’s Hospitality, which includes Pier Restaurant in Harbor Springs, The Weathervane in Charlevoix, and Noggin Room Pub and Perry Hotel, both in Petoskey; and Wineguys Restaurant Group, which encapsulates City Park Grill, Roast & Toast, and Palette Bistro, all also in Petoskey.

Staffing Challenges

“Help wanted” signs have become permanent decor in many local establishments. Even in the summer months, restaurants are frequently closed on Sundays, Mondays, and/or Tuesdays—often not for lack of customers, but for lack of helping hands. (This, despite a low statewide unemployment rate that hovered between 4.1-4.9 percent for all of 2022.)

“In 2019, on season, we employed 420 people,” says Brian Ewbank, president of Stafford’s Hospitality. “In 2022, at the height of the season, we employed 282.”

Those numbers illustrate the sea change that northern Michigan restaurants have seen with staffing since the start of the pandemic. Stafford’s was still operating all the same restaurants in 2022 as in 2019, but had to make do with 67 percent of the staff.

Unsurprisingly, a few sacrifices had to be made as a result: to avoid excessive overtime—and to protect employees from burnout and other risks to health and wellbeing—Stafford’s cut its restaurant scheduling “to offering four lunches a week, as opposed to seven.”

For his part, Joe Keedy, a partner in the Wineguys ownership group and the general manager of Palette Bistro, is trying to see the staffing issue as a “glass half full” situation, even while acknowledging that the challenges have had consequences for the Wineguys restaurant family.

“We are blessed with a strong core staff that handles business this time of year,” Keedy says, speaking of the off-season months. “The real challenge is ramping up for the summer season, and that has been an acute issue since the pandemic. We have had to adjust hours and offerings to accommodate, but we are back to full operations.”

The Cost of Doing Business

Between inflation, supply chain kinks, agricultural crises, and other problems, restaurants are having to spend more money to build their menus and keep operations moving. And those price increases, especially in the food cost category, are causing significant strain.

Take eggs, for instance, which were 60 percent more expensive at the start of 2023 than they were a year ago—the result of inflation combined with the devastation caused by an outbreak of avian flu, among other factors. According to Keedy, some items have seen even more drastic leaps in cost.

“Some items were either 2-10 times the cost, or were out of stock for months,” Keedy explains. “Mostly proteins and international products, but we saw spikes across the board. As a result, we had to be more active with menu and price changes.”

Before the pandemic, it wasn’t necessarily uncommon to see local restaurants shift their menus on a regular basis. Some did it seasonally, while others employed monthly, weekly, or daily variations. Now, though, Keedy and Ewbank say that patrons should expect to see restaurants tweaking their menus more frequently in response to supply costs, mostly in an attempt to save customers from exorbitantly high prices.

“Our chefs remain diligent in producing quality products while still offering a fair menu price,” Ewbank says. “Pricing of ingredients is really all over the board, and our chefs will re-create menus and items frequently to offer alternatives rather than just continue to raise menu pricing.”

Fortunately, relief may be on the way. Keedy says that drastic price spikes are becoming fewer and farther between, and that costs in general seem to be coming down. Those changes aren’t going to play out overnight, though: Looking at the egg market again, experts say it will be springtime at least before prices start to even out.

The Tip Credit

Despite a few major challenges recently, local restaurants do have at least one big thing to celebrate: a decision by the Michigan Court of Appeals to halt a shift in wage laws that Michigan restaurants have said would have threatened their very existence. Broadly, the law change would have raised the minimum wage in Michigan by nearly $3. Specific to the restaurant industry, though, the change would have eliminated the tip credit, a wage approach that has long been standard for waiters, bartenders, and other food service workers in Michigan.

In Michigan, the tip credit allows tipped employees to be paid a minimum wage of $3.84, with the understanding that the rest of their wage will be made up in gratuity. Restaurants are required to make sure all employees are earning at least the state minimum wage of $10.10, but many restaurant owners say their employees make well beyond minimum wage because of tips.

The recent Court of Appeals ruling overturned a lower court ruling that would have both raised Michigan’s minimum wage from $10.10 to $13.03 in February and started a phase-out of the tip credit. Under that previous ruling, the tipped minimum wage would have increased from $3.84 an hour to $11.73 an hour this year before eventually being eliminated entirely in 2024. Instead, the tipped minimum wage will remain at $3.84.

“[Losing the tip credit] would be completely disruptive to the current business model,” Keedy says. “The increase in wages would wipe out the profit from most restaurants without a large adjustment in prices or revamp of the tipping structure. The people whose wage it would be changing aren’t happy with it. Luckily, it seems the change was overturned.”

Ewbank concurs, declaring that a discontinuation of the tip credit “would be detrimental to all restaurants in Michigan, and would change the entire restaurant experience for our guests that they’ve enjoyed, in our business, for over 60 years.”

Further appeals could bring the wage reform conversations back to the forefront in Michigan. For now, though, the tip credit is safe.

The Big Picture Up North

So how is business right now? With all those hurdles to overcome, is there hope on the horizon? Will things ever be “normal” again?

Every restaurant has a different story to tell, and while much has been said in the past three years about the inevitable doom of the restaurant industry, we were surprised to hear some optimism.

When asked to give a letter grade for the recent performance of his restaurant, Ewbank settles on a B+. “The company revenue has rebounded [from the pandemic],” Ewbank says, noting that Stafford’s as a whole in 2022 was only about 7 percent down from where things were in 2019.

Keedy echoes Ewbank’s positive assessment. “We’re still feeling grateful that we are doing this well coming out of a global pandemic,” he says. “Demand is as strong as ever in northern Michigan. The biggest challenges are probably no surprise: staffing, housing, and supply chain.”

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