Michigan Restaurant Industry Still Facing Challenges Post-COVID

Justin Winslow isn’t attempting to sugarcoat the challenges facing Michigan’s restaurant industry.

Justin Winslow

Yet the executive director of the Michigan Restaurant and Lodging Association remains optimistic about the future for restaurant owners and operators in the state – provided they evolve with consumer demand and other industry trends.

Those restaurant owners who survived the first two years of the COVID-19 pandemic, and the two main state-mandated shutdowns in March 2020 and October 2020, have “thick skin” and went through “some battles,” according to Winslow.

Just when it appeared that the restaurant business was looking up in late 2021 and early 2022, inflation reached its highest level in the U.S. in 40 years. Government stimulus checks gave patrons more money to spend, but also motivated workers to take a temporary or permanent break from the workforce.

Many of those who did leave the hospitality industry did so for jobs they deemed to be more stable.

“Look, our recovery (in Michigan) was harder than most states because after that first reopening we had another closure (mandated by Michigan Gov. Gretchen Whitmer in October 2020),” Winslow said.

He laments the closure of numerous restaurants that largely served the State Capitol’s breakfast and lunch business crowd in downtown Lansing, where the association’s headquarters are located.

“(Restaurant owners and operators) have been through hell but hospitality and quality are still at the core of what they do,” said Winslow. “But I am optimistic. As they say, hope springs eternal.”

Winslow spoke with Corp! Magazine about those challenges and how operators are addressing industry headwinds. Many struggle with profitability for a few reasons: the labor force, inflation, the rise of remote working and third-party delivery services.

Labor Force
Simply put, COVID was catastrophic and the direct cause of an estimated 3,000 restaurant closings, according to the State of Michigan. Both in those early days of COVID and since, one of the outcomes has been the fact that fewer Michiganders want to work in the restaurant industry. Restaurants that rely on volume need the staff to support that volume with excellent customer service.

The state has claimed it is making progress in replacing many of the jobs lost in the wake of COVID. As of January 2023, the state said all but 30,000 of those lost COVID jobs across all industries had returned.

However, Winslow said nearly 70 percent of those jobs that had not returned are in the restaurant and hospitality sectors.

“Hiring is coming back, but it’s uncertain exactly where or how much,” he said.

Just as the majority of residents were starting to participate in activities in 2021 and early 2022, inflation arrived. The cost of everything from labor to food to equipment rose significantly, often doubling in price, making profitability virtually impossible for some.

Inflation has stabilized some in 2023, falling to 4.93 percent nationally in April 2023 from a high of 9.06 percent in June 2022. But higher prices remain an issue just as consumers’ discretionary income falls.

“You can see it now,” Winslow said. “We’re past the point where consumers are flushed with cash. You may not have people willing to pay more than $50 (for takeout) at a fast food or fast casual restaurant.” Any increase in unemployment will put further strain on many restaurants, he added.

“They have had to make some difficult decisions,” Winslow said.

The impact of remote working
Restaurants that catered to office workers have either disappeared or are surviving with significant strategic changes, according to Winslow. He pointed to a study released in March 2023 by the University of Toronto’s School of Cities that indicated mobile phone activity in downtown Detroit is still half what it was pre-pandemic.

Downtown Detroit Partnership CEO Eric Larson told Detroit Public TV in January 2023 that Detroit’s downtown workforce was at 30 to 40 percent of pre-pandemic levels and predicted the city’s workforce population might hit its ceiling at about 70 percent.

“Traffic is down. Some (restaurant) destinations are thriving in the urban areas but it’s a small group,” Winslow said. “The demand just isn’t there.”

Third-party delivery services
The “delivery” disruption occurred within months of the pandemic taking hold and hasn’t slowed down since. Many consumers are reliant on sites like Uber Eats, DoorDash and Grubhub to deliver their food when and where they want it.

But that service comes with a hefty price for local restaurants. Winslow said these rates can mean a restaurant loses money on some orders. He called the relationship between restaurants and these services “complicated.”

Yet the demand and expectation from consumers remains. It has forced restaurant owners to decide: Partner with these third-party services and pay the fees, move to a hybrid model or shift delivery in-house. The latter can be an operational headache.

With the help of legislation passed in 2022, rates charged to restaurant owners by these third-party services were capped, and laws were passed to help protect proprietary information like the restaurant’s likeness and logo.

Winslow said the association is not actively pursuing new legislation and that productive conversations with the third-party services are ongoing.

There is no panacea for all that ails the industry, but proven strategies have emerged. One is the increased reliance on technology, AI and automation to help streamline operations and increase efficiencies that over time, save operators time and money.

These tools often come with a large up-front cost, but when used properly can be a major benefit, Winslow says.

For example, such technology can help better predict future demand while placing food orders accordingly, automate staff schedules and improve customer experience.

Winslow said much of the focus of the recent National Restaurant Association’s annual conference held in Chicago in May was on these tools.

“AI will change this industry and help it to deal with labor shortages,” Winslow says. He believes that while well-run restaurants in Michigan will thrive, they will do so with fewer workers and more reliance on these high-tech tools. “It’s a trend (the industry) will feel acutely.”

Second, is the natural evolution of smart business decisions such as reducing operating hours. Some restaurants, for example, are now closed on Mondays or other weekdays and/or shorten hours on other days, mobilizing staff and resources for hours of high demand. 

The Michigan Restaurant and Lodging Association is taking an active role in helping members with training future and current managers who may otherwise be inexperienced or underqualified for their roles. It has launched the Hospitality Training Institute of Michigan (HTIM) to provide students which comprehensive training and certification for advancement in the industry. Some federal dollars are still available from the American Relief (ARPA) that can further support operators to create a training infrastructure.

The HTIM is an accredited educational institute licensed as a proprietary school by the Department of Labor and Economic Opportunity. The courses are approved by the Michigan Talent Connect Program and thus eligible for Michigan Works!

It also oversees the Michigan Hospitality Foundation, which partners with academic institutions to help young professionals enter the workforce in hospitality right after college or high school graduation.

‘We want to be part of the solution to give (members) skills to not just survive but thrive,” Winslow said, stressing his confidence in the industry’s health. “We always have the concept of the American Dream, and many (entrepreneurs) still see opportunity in this field.”