For Iowa’s rural restaurants, COVID-19 may be their ‘demise’

Main Street Cafe in Maquoketa is facing unprecedented financial challenges as restaurants across the state close due to COVID-19. (Photo courtesy of Main Street Cafe)

In Iowa’s rural communities, restaurants serve a higher purpose than offering a plate of food or a cup of coffee. On Iowa’s main streets, restaurants are where celebrations are held, people catch up with their friends or it’s a daily chance to socialize.

But these small-town anchors are some of the businesses at the highest at risk of permanently shutting their doors after Gov. Kim Reynolds ordered they close to dine-in service for at least two weeks. The emergency order was issued March 17 to mitigate the spread of COVID-19

That leaves a hole in Iowa’s already shrinking communities.

“I think for a lot of rural Iowa, it will be too hard,” said Jessica Dunker, president of the Iowa Restaurant Association. “It was hard to start with. This might just be their demise.”

Mega Arjoja has built up Main Street Cafe in Maquoketa for the last 20 years — charbroiling beef patties and frying onion rings for hungry customers in his diner-style restaurant.

Although Reynolds’ order allows restaurants to continue to-go and delivery services, his business has significantly slowed, Arjoja said. 

Over the lunch hour some days, only a couple of customers will order take-out.

To make matters worse, Arjoja purchased a former restaurant that closed in Maquoketa in late 2019 with plans to renovate and move into it. With a tightened revenue stream, all of his payments are compounding: mortgages, car payments and payroll quickly adds up.

“We are really just like everybody else — in trouble,” Arjoja said.

If 10-15% of Iowa’s restaurants shut down due to COVID-19, “that will be the best we can hope for,” Dunker said. 

Based on that projection, at least 630 of Iowa’s estimated 6,300 restaurants would ultimately close due to sustained financial hardships. 

The state’s restaurant industry already operates on tight profit margins, Dunker said. On average, Iowa restaurants earn 5% net profits or about $100 on a good day because wages, food costs and infrastructure add up.

Family and locally owned businesses, however, may operate on an even tighter margin than $100 daily and choose to operate their restaurant with just enough to sustain their bills.

The burden of a prolonged, unexpected closure and sitting inventory weighs heavily on these restaurants with little capital.

Rural or urban, COVID-19 will be tough on the state’s entire restaurant industry, Dunker said. But the sale of a shuttered restaurant is easier in urban centers like Des Moines or Cedar Rapids.

Smaller communities have less assurance someone will choose to reopen a business, resulting in more empty storefronts.

“That’s a loss for the fabric of rural Iowa,” Dunker said. “That’s terrifying for me.”

Shore Side Pub & Grill in Manson is serving food to-go and delivery in light of COVID-19. Pictured is a ribyeye steak and potato meal. (Photo courtesy of Shore Side Pub & Grill)

In Manson, a town of about 1,600 people, Shore Side Pub & Grub’s beach-themed restaurant draws in weekly parties to its event room. 

Residents in Manson and surrounding areas hold bachelor parties, bridal showers and surprise birthday parties in Jesse Grossnickle’s nearly decade-old restaurant.

That’s all gone now, Grossnickle said.

With operating expenses, Grossnickle said restaurants are lucky to earn a 5% to 10% profit margin, but COVID-19 is causing those numbers to dramatically drop.

Even though people in town are supporting his business, fewer alcohol sales and an overall reduction in food orders are creating a financial burden.

“When you’re breaking even for bills and heating and cooling, in the back of your head, you’re wondering, is it even worth it?” Grossnickle said, who also teaches restaurant management at Iowa Lakes Community College.

An announcement from Reynolds on Monday was positive news for Iowa’s precarious restaurant industry, however, Dunker said. 

Reynolds announced that the state is launching a $4 million effort to assist small businesses with grants and tax relief tied to COVID-19 losses.

The grants will range from $5,000 to $25,000 and be made available to companies with two to 25 employees. Also, the Iowa Department of Revenue has automatically extended the sales- and withholding-tax deadlines for any business that receives a grant, and it will consider an extension for any business that applies for a grant.

Also, Iowa Workforce Development will allow businesses with fewer than 50 employees to delay, until July 31, their unemployment-tax payments for the first quarter of the year.

Federally, the biggest help offered so far are low-interest disaster loans.

Grossnickle said he doesn’t want a loan. “They’re just deferrals. A lot of it is not helping,” he said. “… I don’t want to go into debt.”

There’s a bright side to operating in a small town though, said Shawn Birdsall, owner of Nite Hawk Bar & Grill in Slater. 

He believes local residents have been extra supportive when ordering food. There’s also less competition for dining dollars in comparison to a bigger city.

“Customers know us a little better,” Birdsall said.

While Arjoja doesn’t know how long he’s going to continue to stay open, a large check given by a donor is helping him pay his 10 employees and kept him more optimistic. Because of the abundance of food inventory, he’s trying to donate meals to families in need in Maquoketa.

“It helped us so much,” Arjoja said. “This is all just crazy, but it shows the greatness of people.”

Dunker projects about 80,000 people from Iowa’s restaurant industry alone have applied for unemployment. Iowa Economic Development Authority has not released an update yet on how many people have filed for unemployment, though the numbers are “staggering.”

She said she is pleased with the grants provided by the state. Federally, she wants Congress to require companies to honor disruption insurance, which typically doesn’t cover pandemics.

A big next step in Iowa is waiting to see if Reynolds allows restaurants and bars to open April 1 or continues her order. But for some businesses, April 1 may already be too late.

“For some people, it’s already over and that’s really sad,” Dunker said.