Economy

The Pain in America’s Food Supply Chain

It was last November, Mark Mavilia says, when he and three friends in Washington, D.C. rendezvoused for dinner at Ghibellina’s, an Italian gastropub in Logan Circle “specializing in Neapolitan-inspired pizzas and craft cocktails,” says the online restaurant guide “Popville.”

Hold the pizza! Mavilia, who is art director at the Association of American Medical Colleges, couldn’t wait to tuck into the pasta-bolognese, his favorite dish. “In my opinion,” he says, “it’s the best in the city.”

Or rather was the best. When the foursome assembled outside the restaurant, they were disappointed to find Ghibellina’s had closed. “They had shut down for good,” Mavilia says, adding: “It was not boarded up. Just a note on the door thanking patrons for their support. I will surely miss the bolognese.”

The Ghibellina brand was later consolidated into a sister restaurant called Via in Ivy City.

Mavilia’s experience in Washington is typical of a nationwide phenomenon. Tens of thousands of restaurants and bars and eateries of every kind have closed their doors as the Covid-19 pandemic has ravaged the country and Americans have sharply limited their social interactions. As U.S. fatalities surpassed 410,000 in January, the economic damage to the restaurant and bar businesses has been staggering.

“Washingtonian” magazine keeps a running tab of restaurants that have closed their doors in and around the nation’s capital owing to the pandemic. In December, its tally listed 75 casualties in The District alone, including such icons as the Post Pub and Montmartre, Momofuku and Tosca, plus many more in the Maryland and Northern Virginia suburbs.

The area around the White House dominated by the influential K Street law firms and lobbyists, and the World Bank and International Monetary Fund has been nearly barren. With few people trickling into the central city, says Madeleine Watkins, owner of 202strong, a fitness club featuring personal trainers, her business is getting battered. Receipts are off by 80% over last year and she sees the effects all around her.

“There are definitely a lot of restaurants closed, but I’m hoping and praying that lot of it is temporary,” she says. “We need people to come downtown for Washington to be a vibrant and bustling city with coffee shops, restaurants, and sandwich shops.”

One hopeful sign: Tosca, a white-tablecloth restaurant near Metro Center which boasts an enthusiastic, upscale audience and earns 4.8 stars from customer reviews, promises to re-open in the spring. “This was my go-to Italian restaurant near my office,” declares Deborah Meshulam, a partner at multinational law firm DLA Piper and a former lead trial counsel at the Securities & Exchange Commission. “I loved their grilled Branzino and pretty much anything else they made.”

The Minneapolis Star-Tribune recently counted 94 restaurants that had closed down permanently in the Twin Cities. “Saying goodbye to a beloved watering hole, a neighborhood café or a four-star restaurant is never easy,” reporter Sharyn Jackson wrote in late December. “But in 2020, the pain kept coming as the pandemic brutalized the Twin Cities hospitality industry.”

Among the notable casualties, were Bachelor Farmer, Muddy Waters, and Fig+Farro.

Angharad Bhardwaj, communications manager at medical technology company GenesisCare and a lifeling Minnesotan, told deBanked of her sorrow at learning that Fig+Farro had closed. “My husband and I were there for their opening, and I am so sad to see it close,” she says. “This was one of our favorite restaurants, just steps away from our condo in Uptown. We spent our first Valentine’s Day there. It was fresh vegan food. We even sat with the owner’s children one night. The little boy was helping his parents with the restaurant, taking orders.”

In Denver, online entertainment publication “Do303” recently highlighted closures of 15 area restaurants it called “the great ones that kept our hearts and bellies full for years.” Notable among the cohort was El Chapultepec, 12@Madison, and Biju’s Little Curry Shop. Michelle Parker, a Denverite who has a short commute to suburban Westminster where she is the City Clerk, says: “The feeling around town is that this has been a big loss to neighborhoods and to the food scene, which was just coming into its own as the pandemic hit.”

Nationwide, more than 110,000 restaurants, bars and food-service establishments have closed their doors, reports the National Restaurant Association, the premier Washington-based trade group representing the food-service industry. The membership includes not only restaurants, pubs and cafes but non-commercial restaurant services, cafeterias, institutions like college cafeterias, and even food services at military installations.

The food-service industry is the nation’s second largest private employer and accounts for $2.1 trillion in economic activity, reports Vanessa Sink, director of media relations at the trade group. On average, when a restaurant closes, fewer than 50 people find themselves unemployed, but it adds up. As many as eight million food-service workers – waiters and bartenders, hosts and hostesses, cashiers, general managers and dishwashers, parking valets and cooks and chefs — were out of a job at the height of the pandemic in early 2020.

Curtis Dubay, senior economist at the U.S. Chamber of Commerce in Washington, D.C., notes that a whole array of food-service jobs are interwoven into the fabric of the U.S. economy. “Anything that involves large gatherings – transportation, travel and tourism, athletic events, the theater, the hospitality industry,” he says. “In places like The Hyatt in Orlando, food-service workers are involved in setting up a ballroom for conventions and small meetings. It’s a big part of the economy.”

Since the spring, many of the lost jobs came back as restaurants were able to add take-out and delivery services. Many states and localities allowed restaurants to re-open with outdoor-seating, limited occupancy, customer-spacing, and Plexiglas booths. Through the end of November, 2020, 75% of the lost jobs were recovered but 2.1 million food-service jobs had still vaporized.

As more and more people prepare their own meals at home, the switch from dining-in to curbside and takeout services has met with limited success. For take-out people are more likely to order fast-food from Chick-fil-A or Pizza Hut and Domino’s rather than something fancy. “Who wants to spend $60 for a meal you have to eat out of a cardboard container,” one Minneapolis woman complained to deBanked.

Restaurant closures, meanwhile, are having devastating consequences across a broad swath of society. “When a restaurant closes or has to cut back, it not only impacts the economy of the local community, it also affects the culture of the community,” says Sarah Crozier, communications director at Main Street Alliance, a 30,000-member, small-business advocacy group headquartered in Washington, D.C. “Local, independent places are where we create our memories as cities and towns. From losing the cries of “Keep Austin Weird” to stripping away the innovative recipes coming out of Raleigh, N.C., it deeply scars the culture and feeling of a place when we have only chain restaurants to fall back on.”

Adds Sink: “Restaurants are the cornerstone of communities. You often find that neighborhoods and local economies have built up around a restaurant. Restaurants provide jobs, they pay rent and contribute to the tax base. Other businesses will grow up around them. People will go to a restaurant – and then they’ll go next-door to shop.”

Food-service establishments are also long-term tenants. The “vast majority” of the closures, Sink asserts, have involved restaurants that had been in business for more than 16 years. Roughly one in six had been in operation for 30 years or more.

Backlit downtown restaurants with inviting awnings, valet parking and limousines idling out front are giving way to boarded-up buildings, many battened down with battleship-gray steel shutters. “I’ve been talking to mayors about empty storefronts and the effects of business failures,” says Karen Mills, former administrator at the U.S. Small Business Administration and a senior fellow at Harvard Business School, says. “It’s significant. It devastates the whole community and brings down the whole environment. People don’t want to go downtown to Main Street anymore.”

Many cities and towns have invested heavily to revitalize their inner cities and urban areas around restaurants and bars to add sparkle to the nightlife and draw visitors and tourists. The economic development strategies often commingle trendy restaurants and nightclubs, shops and boutiques with spruced up warehouses or old buildings converted into artists’ studios, lofts and apartments.

Some cities feature sports arenas and stadiums as a major draw, and the food offerings go beyond hotdogs, peanuts and Cracker Jack. St. Louis’s “Ballpark Village” promises, according to its website, a “buzzing, sports-themed district close to Busch Stadium with restaurants, bars and nightlife venues”; Baltimore’s Inner Harbor, which is walking distance to Oriole Park at Camden Yards, features a science center, aquarium and historic warships moored at the dock, as well as a complex of bars, eateries and music venues in a repurposed electric-power station known as “Power Plant Live!”

Beyond Main Street, restaurant closures are part of the collateral damage in suburbia as pandemic-wary people work and shop from home. “As I go around from town-to-town on Long Island and shoot out to the malls, I can see business closings everywhere,” says Ray Keating, chief economist at the Small Business & Entrepreneurship Council, a Washington-based trade group claiming 100,000 members. “When one business shutters, it affects other businesses. There’s a ripple effect.”

Adds Sink of the restaurant association: “Restaurants are often located with the anchor store inside malls. You never find any kind of mall without some sort of food court.”

When a restaurant closes its doors, it has a knock-on effect as well, sending shockwaves coursing up and down the supply chain. Prior to the pandemic, Sink reports, the industry generated $2.5 trillion in economic activity and supported 21 million jobs. Cutbacks in food service hurts “everything from butchers and farmers and distillers to the Cisco and Aramark food companies that depend on restaurants.

“It will reach farther back into the economy,” she adds, causing economic pain to such disparate businesses as cleaning companies, local plumbers, handymen, and maintenance workers. Even “technology companies that provide systems (for restaurants) to run a credit card or make reservations or keep track of service orders” are affected.

Andrew Volk, owner of the Portland Hunt & Alpine Club, a restaurant and bar with the reputation for offering possibly the tastiest cocktails in Maine, says that keeping his business going hasn’t been easy. The establishment was forced into lockdown in March and “stayed dark until Memorial Day,” he says, when it got the green light from the state to sell food and cocktails to go. On July 4, the restaurant went to outdoor seating, which it maintained until New Year’s Eve, adding heaters and umbrellas in the autumn to fend off Maine’s frigid temperatures.

Volk reckons that his restaurant’s sales were off by roughly 55 percent in 2020 over the previous year. Fully 95% of revenues go to pay expenses, including rent and utilities and employees’ wages. And the rest of the money scarcely lands in the cash register before it’s passed on to his vendors.

But as he has cut back operations, all of his vendors are feeling the pinch as well. There are no longer twice-weekly deliveries from the local package store from which, by state law, Volk is required to purchase hard liquor. His beer purchases –- craft beer prepared by Rising Tide Brewery and Oxbow Brewery, both of Portland, as well as Miller, Budweiser and Narraganset, the popular Rhode Island-made brew – are no longer so robust. Volk has also reduced his procurement of French and South African wines from importers.

Purchases of farm-to-table produce from Stonecipher Farms, Dandelion Springs, and Snell Farms, which came to a halt last March, remain diminished. The daily deliveries from Baldor Specialty Foods, a New York-based food supplier of, among myriad foodstuffs, out-of-season vegetables and citrus fruit, are less frequent.

Volk is still offering fresh cooked fish for take-out, including cod, trout, halibut, hake and shrimp (but not cold-water Maine lobster). Even so, he’s ordering less seafood from Browne Trading Market. He has also cut back on specialty soft cheeses he buys from several local dairy farms, including Larkin’s Gorge and Fuzzy Udder.

Other vendors affected include Portland Paper Products, which supplies him with paper goods such as toilet paper and paper towels, cleaning supplies and chemicals for the dishwasher. One bright spot for the paper products supplier: it is meeting Volk’s increased demand for take-out boxes, paper napkins and plastic utensils.

Meanwhile, Volk is not looking as much to Pratt Abbott Cleaners for freshly laundered linens such as tablecloths, napkins, and kitchen shirts. Capone Griding Company in Boston, which sharpens kitchen knives and cutlery, isn’t making as many pickups and deliveries these days.

Ian Jerolmack, owner-operator of 10-acre Stonecipher Farms in Bowdoinham, Maine, is one of Volk’s food suppliers. He has been providing fresh, farm-to-table produce to several dozen restaurants in Portland, plus a couple “up the coast,” he says, since he began tilling the Maine soil a decade ago. Now the grower of organic fruit and vegetables – a garden of delights that includes tomatoes, carrots, beets, onions, cabbage, turnips, squash, sweet potatoes, and fennel – has been feeling the economic hardship along with the restaurants.

By year-end 2020, Jerolmack says, he is down to only 15 restaurants as customers, a two-thirds attrition from his 45 customers prior to the pandemic. “Our farm was sort of unique in that it almost exclusively sold to restaurants,” he says. “They’re all in various degrees of agony,” he adds, “and I don’t know how the dust will settle. It’s been super-bizarre.”

When the restaurants went into lockdown last March, Jerolmack was faced with zero demand for his produce, and his livelihood was in jeopardy. At the same time, he was forced to reckon how much seed to plant. “There’s only one window in which to plant seeds,” he explains.

He had to decide whether to take on fulltime seasonal workers, which is not a simple proposition. In order to plant, tend and harvest his crops, he’d need to hire and house four Mexican workers under the federal government’s H-2A visa program. By law, he says, he was required to guarantee the foreign workers payment of 75% of their wages for eight months of employment. “I felt as if I were drowning,” he says. “It was a heavy weight.”

He opted to hire the H-2A workers and forged ahead with the planting, albeit at reduced acreage, consoling himself with the farmer’s ancient adage: “People always need to eat.”

With restaurants closed, his only recourse would be to sell directly to consumers. Yet Jerolmack had no online presence and was pretty much frozen out of the local farmers markets. So he turned to local restaurants and arranged to sell produce to their top customers. “I threw together a ‘farmer’s choice,’” he says, “a mixed bag of chard, carrots, onions, and beets – or whatever vegetables were in season and charged $25 a bag.”

Right away, he was able to sign up 175 customers paying $100 apiece for four weeks of produce, enough of a cushion for him to sell his “storage crops” and stay in business. Individual customers were grateful to buy the fresh organic food and avoid grocery stores, he says, the arrangement worked out for the restaurants. “They got increased foot traffic and helped their takeout business. Everybody loved it.”

By being creatively entrepreneurial and employing several direct-to-consumer sales strategies, he was able to chalk up revenues of $300,000 in 2020. That’s a hefty, 35% drop compared with the $440,000 in 2019 gross receipts. But Jerolmack says he kept five fulltime workers employed, he’s got a new consumer trade, and he’s getting ready for the 2021 planting season.

Thomas McQuillan, vice-president for strategy, culture and sustainability at wholesale food distributor Baldor, says that in a given year his Bronx-based company – with major operations centers in Boston and Washington, D.C. – delivers high-quality food to 10,000 restaurants from Portland, Me. to Richmond, Va. The wholesaler also supplies food in bulk to corporate dining rooms and cafeterias, hotels, institutions like hospitals and schools, and sports stadiums.

Baldor buys its produce from 1,000 regional farms, both big and small, and trucks in out-of-season produce from the West Coast. A visit to the company’s website discloses a vast cornucopia of edibles and victuals for sale. A few clicks discloses a gastronomic wonderland of fruits and vegetables, organics and cold cuts, meat and poultry and seafood, specialty and grocery items, dairy and cheese, bakery and pastry, and wine.

When the pandemic hit and restaurants went on lockdown, Baldor’s business plummeted by 85%, McQuillan reports, and the company reacted in much the same way as the Maine farmer. “With Covid-19,” says McQuillan, “all industries in the food business were affected. But we knew that the same number of people in our geographic area would be looking for food and we pivoted to a business-to-consumer platform and began shipping directly to people at home.

“We also knew many corporate types were no longer working in offices and, early on in the pandemic, people were fearful of going to grocery stores,” he adds, “and we began deliveries to apartment buildings all over New York. It’s not that different from delivering to a restaurant.”

According to a New York Times story, the company required a $250 minimum for consumer purchases and delivered 6,000 items within a 50-mile radius of New York City. McQuillan told deBanked it pressed its 400-truck fleet of “sprinter vans to tractor trailers” into service for the residential deliveries. The consumer business and limited restaurant re-openings allowed Baldor “to rebound, but nowhere near pre-Covid levels,” he says. By year-end 2020, the company had furloughed 20% of its workforce.

Fresh fish is for sale on the fishmonger, outdoor seafood market.[/caption]The seafood industry was among the hardest hit by the pandemic’s throttling back the restaurant industry, says Ben Martens, executive director of the Maine Coast Fishermen’s Association. Seafood is much less likely than poultry or meat to be prepared at home or ordered for takeout. Groundfish like flaky cod, haddock, pollack, hake and flounder, he explains, are especially popular dishes in high-end restaurants in New York, Boston and Chicago.

“Seafood is a celebratory food,” Martens says. “It’s a food people embrace when things feel good. It’s covered in butter and people eat it outside when they’re with family and friends.”

Early data, he says, showed a 70% decline in “landings revenue” at the non-profit Portland Fish Exchange Auction, the major marketplace connecting fishermen with wholesalers and processors. Some fishermen and lobstermen have had some success selling directly to consumers by switching over to scallops and other seafood popular with Mainers who, Martens asserts, are somewhat more inclined to prepare seafood at home than people in other states.

But what has really given the industry a boost, he says, has been an anti-hunger program run by his trade association. Seeded with $200,000 from an anonymous donor, and bolstered with $200,000 received through the CARES Act passed by Congress last year, the program purchases seafood at a fair price and funnels it to food pantries. “Maine is the most food-insecure state in the country,” Martens says. “and high quality protein is hard for a lot of people to find.”

The program contributed enough fish portions to contribute to 180,000 meals in 2020, while helping soften economic damage to fishermen. “Now we’re seeing some stabilization with outside restaurant seating,” Martens says.

Sam Cantor, who is vice-president for sales at Gotham Seafood, a New York broker doing an estimated $16 million in sales, according to Buzzfile, sounded glum and subdued in a telephone interview with deBanked. He reports that the company delivers salmon, tuna, lobster, King Crab legs, red snapper and other seafood directly to eateries in Manhattan as well as the tri-state region of New York, Connecticut and New Jersey.

The last year has been a burden. “A ton of places are closed — cafeterias, cafes, hotels,” he says. “People are not going to the Berkshires or the Hamptons, offices are closing. In the beginning of the pandemic when (New York Governor Andrew) Cuomo shut down indoor dining it was brutal. And it’s still a difficult situation.”

Describing layoffs at the company as “significant,” Cantor says it’s also been emotionally draining to see the misfortune that has befallen restaurant workers. “It’s been a hard thing to witness,” he says. “A lot of our relationships are with chefs and they have families.”

Gotham has had some success selling directly to consumers by revamping its website and putting money into advertising on the online platforms Facebook and Instagram, he says, but “we’re not back to 100%.”

Cantor also says he is concerned that the country’s commercial infrastructure is at risk of fracturing. “It’s more than just losing your favorite restaurant or what happens to the individual fisherman and farmer,” he says. “It takes a very intricate supply chain for you to get your favorite fish. There’s a lot of work that goes into it.

“I hope my kids don’t have through something like this,” he went on. “The home delivery has been a shining light. But we want travel and tourism to come back. We want people going back to The Garden to watch the Knicks. I’m hoping there will be a renaissance, and this is just the start of the Roaring Twenties.”