High food costs, slim profits: How Lansing-area restaurants cope with new reality

LANSING — When Ann Nguyen announced plans in April to close Nola Bistro, she didn't place blame squarely on the COVID-19 pandemic.

But the months-long mandated dining room closures and capacity restrictions, struggles with keeping a full staff and the rise in costs for everything from utility bills to payroll and ingredients that followed "hit in every way possible," she said.

"I just had to do it for my mental health," she said of her decision to close the Vietnamese and Cajun restaurant she opened off North Waverly Road nearly a decade earlier. "I don't think we were ever whole again after the pandemic. I think it left a scar that will never heal all the way."

So far this year more than a dozen Lansing-area restaurants have closed. That's in addition to the estimated 3,000 restaurants in Michigan that closed permanently or for an extended period because of the pandemic between 2020 and the end of 2022, according to the Michigan Restaurant & Lodging Association.

These days, it's harder to track why closures are happening, said Emily Daunt, the association's vice president of communications and operations.

"Some people are just retiring now or they're like, 'Well, I'm sick of this industry, and I'm getting older and I'll just retire, so we're closing.' It's not necessarily clear-cut the reasons why restaurants necessarily close," she said.

But Greater Lansing restaurant owners said the industry forever has been changed in COVID-19's wake. The cost of labor, overhead and operations are higher, margins that were already small are smaller and the pandemic has, in many ways, changed the way people dine out. The result is a new normal, many said, and while business has improved for some, others continue to struggle.

"It takes a level of good luck and business sophistication to try to balance labor costs with the cost of goods with legal liability and risk and controlling your business expenses," said Scott Berman, an owner at One North Kitchen & Bar in Delta Township, formerly home to Reno's West. "And it's gotten dramatically more complicated, indifferent and volatile, so some people are coming to the understandable conclusion that this just isn't worth it."

Higher costs mean smaller profit margins

Some of the region's well-known restaurants have closed this year, among them Champps Kitchen + Bar near the Eastwood Towne Center, YaYa's Flame Broiled Chicken near Frandor and the Flap Jack Restaurant in DeWitt Township. Locally owned spots including Tannin in Lansing and Charlie's Bar and Grill in Holt also shut their doors.

"I'll bet you the average restaurant, it's making about 3% profit," One North's Berman said. "They're extremely thin margins with a lot of risks."

The typical restaurant had a 5% profit margin in 2022, according to the National Restaurant Association.

Pablo Maldonado, who owns Pablo's, a Mexican eatery in Old Town, opened a second location on East Michigan Avenue this year but said despite the expansion, he has accepted the fact that post-pandemic profit margins for restaurants are simply smaller.

"I don't mind making less money," he said. "If it means having my customers and my employees happy, then it's alright. I've been in the business for 18 years and probably the one reason that we have been in business for 18 years is we don't overcharge the customers. If they don't come in, I've got to stop paying my bills."

That doesn't mean restaurant owners haven't raised prices. Many said they've had to.

"The cost of everything has gone up 20% to 30%," said David Yang, whose family owns The Tangy Crab and Ohana Sushi in Delta Township and Fuel'D in East Lansing.

In its annual report this year, the National Restaurant Association reported that 92% of restaurant operators cited higher food costs as a significant challenge.

"They continue to rise," said Keith Buchele, general manager of the Soup Spoon Cafe in Lansing. "We pay 40% more for chicken than we ever have in the past, beef is up 25%, wine import prices are up 15% to 20%."

The price of labor is up 30%, too, but, Buchele said, raising menu prices has to be done thoughtfully.

"We've tried to do that as little as possible because we don't ever want to price ourselves out," he said. "We definitely have not raised them as much as we probably should have if you're going on a purely business model."

Matt Gillett, co-owner of Saddleback BBQ in Lansing's REO Town and Slice by Saddleback in Okemos, caters to a casual clientele and take-out customers.

"I think the consumer only pays so much for certain products," Gillett said. "So for us, our challenge is, how do we maintain our cost of goods sold without really ridiculously affecting our pricing structure?"

'I don't know if there ever will be another normal'

In many ways, the pandemic permanently altered the restaurant industry, said Sean Johnson, who owns Meat Southern B.B.Q. & Carnivore Cuisine in Lansing's Old Town.

There is no back to normal, he said, but rather a new normal of sorts.

"There are elements that we had (before the pandemic) that we don't have now," he said, and that includes fewer customers who visit downtown areas for lunch. "The pandemic changed how people do business and not everybody works in the office anymore."

Autumn Weston, who owns Kewpee Sandwich Shoppe, said she remains hopeful that downtown Lansing's foot traffic will rebound eventually.

“We know that we won't ever go back to (exactly) that (downtown pre-2020). Because things were just different then," she said. "Business-wise, we'll get back to that. We will. But it just takes working with (the city). Like, if parking wasn't such a pain in the ass, if it was a little more inviting, you might have downtown a little busier because, yeah, the city and state workers aren't back to work like (before) downtown on site. But that's OK. ... We just need to encourage the city to be like, 'All right, well, let's welcome others into downtown.’ "

Tom “Dewey” Bramson, managing partner for the Harrison Roadhouse, Beggar's Banquet, Rick's American Cafe and The Riv in East Lansing, as well as the Nuthouse in downtown Lansing, said restaurants don't look like they did last year, either.

“It's so different. .... We're coming off the wave of the post-pandemic," he said. "Post-pandemic, we had a nice little wave as an industry, where once we got back to full capacity and once masks were taken off and (restrictions lifted) and people felt comfortable coming back to restaurants, we saw a really nice rebound. And people that had been cooped up for two years basically came out and really supported restaurants and supported servers and wanted to get back to interpersonal connections and being out and all those things. That has worn off. ... And, simply from an operations standpoint, the much higher cost of goods that we are still experiencing makes (it tough)."

The industry's workforce also has changed, said Dana Swanson, who owns Swany’s Pub & Grub in St. Johns, and she argues there is no new normal.

"There is no normal at all," she said. "I don't know if there ever will be another normal."

Employees don't ask for time off anymore, but rather tell her when they won't be working, Swanson said.

"None of them want to work nights and weekends," she said. "It's like 'Well, that's when people go out.' It's not as though I turn people down, but I have to stay open. They just won't show up. I can't explain it."

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'This year has been really great for us'

Being in downtown Dimondale hurt MorningLory Cafe & Bakery when the pandemic hit, owner Lori Conarton said.

"People will drive 20 to 25 minutes to sit down and have a meal, but they're not going to drive 20 to 25 minutes to pick up food and take it with them," she said.

The small cafe weathered a two-week closure in July 2020 after a COVID-19 exposure. And it picked up catering jobs with the Michigan State Police and used the federal Paycheck Protection Program funds to get by, Conarton said.

"We continued to work through it and I kept telling myself if we got through that things would only get better," she said.

MorningLory is celebrating five years this month.

"This year has been really great for us," she said. "I've put together a great team that has the same vision that I do of good customer service and great food and it's worked for us."

Nick Sinicropi, an owner of Good Truckin Diner and Art’s Pub, said while some restaurants "couldn't get to the turning point," his have.

"We're small, so it's hard to tell at Good Truckin', but we're full most of the time," he said. "And even at Art's, we're a little bit bigger over at Art's, but it's still, I would say back to normal or better, honestly."

At Crunchy's and Peanut Barrel, two East Lansing staples, owner Mike Krueger said business is "sort of back to normal," at least "comfortable," after the challenges of the pandemic and the surge of the "comeback year" in 2022.

But Taiwo Adeleye said Tatse & Alobosa Bar, his American African eatery and bar, continues to struggle at its spot on South Washington Square in downtown Lansing.

"I'm doing poorly. I've been open since 11 a.m. and I've only had two customers," he said just before 2 p.m. on a Thursday earlier this month. He's hoping to secure a small business grant.

"I won't give up," Adeleye said.

Contact Rachel Greco at rgreco@lsj.com. Follow her on Twitter @GrecoatLSJ . Contact Graham Couch at gcouch@lsj.com. Follow him on Twitter @Graham_Couch .

This article originally appeared on Lansing State Journal: Lansing restaurants cite high food costs, slim profits for struggles