The Hospitality Industry

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Two years of the pandemic have been tough on the hospitality industry. We will get a status update on how Iowa restaurants and hotels are doing and the challenges many still face on this edition of Iowa Press.

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Funding for Iowa Press was provided by Friends, the Iowa PBS Foundation. The Associated General Contractors of Iowa, the public's partner in building Iowa's highway, bridge and municipal utility infrastructure. Fuel Iowa is a voice and a resource for Iowa's fuel industry. Our members offer a diverse range of products including fuel, grocery and convenience items. They help keep Iowans on the move in rural and urban communities. Together we Fuel Iowa. Small businesses are the backbone of Iowa's communities and they are backed by Iowa banks. With advice, loans and financial services, banks across Iowa are committed to showing small businesses the way to a stronger tomorrow. Learn more at IowaBankers.com.

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For decades Iowa Press has brought you political leaders and newsmakers from across Iowa and beyond. Celebrating 50 years of broadcast excellence on statewide Iowa PBS, this is the Friday, May 20th edition of Iowa Press. Here is Kay Henderson. 

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Henderson: Coming up on a holiday weekend and maybe the kickoff of the summer travel season and people are heading out to restaurants and hotels and tourist sites. We've gathered a couple of people who are experts on Iowa's hospitality industry to talk about the impact the pandemic has had and what may be ahead. You may recognize Jessica Dunker, she has been on the program before. She is the President and CEO of the Iowa Restaurant Association and a new group that has been formed that is called the Iowa Hotel and Lodging Association. Welcome back.

Dunker: Thank you. Thank you. One day I'll get to come back and it will be a joyful time in our industry, it just hasn't come quite yet.

Henderson: Our other guest is Mike Whalen, he is the President and CEO of Heart of America Corporation. And for people who aren't familiar with that, Mike, tell us a little bit about it.

Whalen: I'm best known for 44 years ago I started a little 100-seat restaurant called the Iowa Machine Shed dedicated to the Iowa farmer in Davenport and built a company into a restaurant and hotels and we have quite a few hotels within Iowa. So we're on both sides of this equation.

Henderson: Great, well welcome to you as well. Joining me in asking questions today is David Pitt of the Associated Press.

Pitt: Thanks for having me back. Let's start out with the report released this morning by the state of Iowa, the unemployment report, the monthly report that we see. On Friday morning it was released and it showed that Iowa's unemployment rate dropped to 3% and that is a good trend. But it also showed that lodging and food was the largest increased industry segment in the last year, something around 10,000 jobs. Maybe Jessica you could tell us to what do you attribute that?

Dunker: Yeah, so a couple of things. When the pandemic hit, we were the industry that put the most people on unemployment obviously and we had to fight our way back from that. And at the end of 2021 we were down still about 25,000 jobs. So as we continue to reopen and we continue to have people coming back to the restaurants as consumer we also have been just hiring, hiring, hiring, at least trying to. And so we are still down about 10,000 jobs from where we were in 2019. And in 2019, I think Mike would agree with this, we needed 10,000 workers then. So it's no surprise that we would be showing growth. But I can tell you we could show substantially more growth if there were more people out there to hire.

Pitt: Mike, do you want to respond to that as well and talk about that a bit?

Whalen: Oh, when people see the unemployment rate is 3% I would probably say if it was properly calculated it would be 10% to 15% if you could ask people how many more people would you hire if they were there. And we have clawed our way back. We're probably down about 10% from where we were in '19 but it has been difficult. It has been a real challenge and our biggest challenge to get back in business.

Henderson: Is it more difficult to hire people to work in a hotel or to work in a restaurant?

Whalen: Interesting statistic that I read that something like over 70% of the people that resigned their jobs during COVID had regrets later and miss that job. I think we're probably at the top of that list. Restaurants and the hotel business can be tough and demanding jobs. But I think you increasingly see people miss it and come back.

Henderson: I saw a headline about people are unretiring.

Whalen: They are unretiring.

Dunker: Yeah, it's interesting. So prior to COVID our largest growing, fastest growing worker demographic was age 55 and above. And so on the restaurant side in particular we are such a part-time industry, we were really seeing that people were unretiring or doing fun jobs, fun money for themselves in our industry. From the standpoint of what is harder to hire, a hotel or a restaurant, I will tell from a recovery standpoint we are down about 10% from where we were pre-COVID on hotel employees, but in the restaurant industry our latest data tells us that 35% of the restaurants in the state are 30% below their pre-COVID staffing levels. So they are desperate to hire people and they are taking really drastic steps. They are still not putting their tables back, they're closing an extra day a week, they are doing -- I'll bet Mike is doing jobs he hasn't done in his restaurants. Every now and again I've got owners who are washing dishes, busing tables, working the line because they have to because they just don't have the staff.

Pitt: Have you seen a trend among younger people? Obviously in the fast food industry it was a place where someone could go in high school perhaps, get one of their first jobs. Are you seeing any difference in younger people entering the businesses that you run?

Dunker: We've always kind of been the first employer. I think something like 15% of Americans at one point said their first job was at McDonald's alone, an astonishing statistic. But you're seeing the old people come back to the restaurant business and as I said, a lot of folks that maybe thought it was a tough thing to do and I really should move on are coming back and saying they have what I call the sickness, they just enjoy the business and they miss it.

Dunker: One of the things that is the root of part of our problem is there just are not enough people in the state. We need more people to live in the state of Iowa. And we are competing, we statistically, I don't know how many people worked at McDonald's first but one in three people had their first job in the restaurant industry and that is still true today. But for the first time ever we are competing with industries for teens that we have never competed with. I use my own children as an example. I have 17-year-old twin boys. One is a certified nursing assistant, he is a CNA and will be able to work as a CNA after his 18th birthday next week. And the second is working in daycare. And so daycare centers and certified nursing assistants were not high school students five years ago. And so we really are finding that we are now attracting kids that are 14 and 15 into our industry and the child labor laws prevent them from doing a lot of things that we need to have done.

Henderson: Why did you form this new group?

Dunker: The Iowa Hotel and Lodging Association? Because Mike Whalen called me on the phone and said to me, this was shortly after the state of Iowa -- the state of Iowa really handled restaurants well and I give them a lot of credit for how they worked with restaurants and helped. But there was not a voice at the table for the lodging, in the hotel and lodging. And so things like the state's restaurant and bar grant program, hotels were not eligible for those things. And so we really felt like by having a voice and an advocacy group from the very beginning helped one or two segments of the industry, but hotel and lodging they were really left behind both at the state and the federal level.

Henderson: Mike Whalen, A, apparently you saw a need here at the state level. What about at the federal level?

Whalen: Well, it was frustrating that hotels just seemed to be not part of the programs. They were eligible for the first round of PPP but noticeably one of the things that is our biggest challenge is property taxes. My CFO had to tell me one day in April of 2020 that our daily property tax burden at Heart of America was $27,000 a day, our revenues at that point were a couple thousand a day. And so the PPP money was not eligible to pay property taxes and we had to pay them even though we might be closed.

Henderson: And what is going on at the federal level now regarding the hospitality industry?

Dunker: Very little, truly very little. Hotels leaned heavily into the EIDL program, those are the emergency disaster loans, but those are loans and loans come due. So that is one of the big worries is the burden of debt that a lot of our hotels have taken on. Somebody said something brilliant to me about the hotel industry that I don't think people thought about which is, restaurants could pivot, but I couldn't do sleep to go with my hotel. And so really they were just in a position where they had to take on debt, there were loans available, but you can never recoup, you can never recover, you can never pivot a hotel room night back.

Whalen: It's a perishable.

Dunker: It's a perishable, it's gone. And so I'm worried for the hotel industry that we haven't seen closures, we haven't seen bankruptcies, but we will because they will not be able to ever recover with the debt load they've taken on just to try to survive during COVID.

Henderson: Mike, what is your assessment of that particular data point?

Whalen: I think so, I think that a lot of lenders learned after 2008, 2009 not to be too abrupt with the yanking of loans if somebody is behind. But at some point you have to pay the piper and you are going to see a lot of hotels go onto the market. I'm starting to see a radical increase coming through my email of lender-owned hotels in particular. That will come to roost, no doubt about it.

Henderson: So to try to make it a little bit more clear, can you tell us did you get help from the federal government and not the state government? Where did the assistance come from if you received any for the hotel industry because we know restaurants received some?

Whalen: We received some PPP money in round one. In round two because we had more than 20 operating entities we were ineligible to do it. So pretty much after round one we were off the table. I know we did receive some grants from the state of Iowa which I think were about $25,000 a piece.

Dunker: On the restaurant side.

Whalen: On the restaurant side. Not the hotel side.

Dunker: Yeah, most of the money that went to the hotels, the independent small hotels were federal programs. They could qualify for maybe the employee retention tax credit, which is a federal program, the EIDL, which is the emergency disaster relief grants which is an SBA-run federal program and then some received PPP but there was never a carve out for hotels, there was never that recognition that the hotel industry was potentially suffering. Now, I will say this about the state of Iowa, they recently did a program that is a meeting incentive program and actually the restaurant association and the lodging association was selected as the vendor to help them administer this program where they are incenting people back into meeting in person and you have to increase hotel nights and have hotel nights associated with this incentive program. So I think the state is doing things to increase tourism and hotel night stays now, but that is not direct relief paid to a hotel.

Whalen: The single biggest thing and what we're seeing in the hotel business and we saw it last year in the summer was a huge surge of leisure travel that we were not prepared for because we just didn't have people. You're right, Kim and I did about 100 hours of laundry last summer and we couldn't be at all of our places but at least we could be in one and be in the trenches. But the other element that hasn't come back is the business traveler is still back maybe at a 50% level. That is an element that needs to come back. What we did find though is interesting and I mentioned property taxes and I have to give a shout out to Polk County, Polk County was unique among the jurisdictions we were in because they proactively reduced assessments by 30% in the aftermath of 2020. And some jurisdictions, including some in Iowa, actually raised our assessment on hotels that were basically closed for the better part of a year and a half. So, that is an element that could be done to help hotels recover over the course of a number of years.

Dunker: Only sitting here with a hotelier could I say that there is an industry that is more difficult to be in than the restaurant industry today and that would be the hotels.

Henderson: I'm wondering as we hear about oh we're maybe scaling up in the number of COVID cases how that impacts traffic in a restaurant and traffic in a hotel or if people are just, in Iowa particularly, just continuing to patronize restaurants and hotels?

Dunker: Do you want to start?

Whalen: We have seen some phenomenal numbers in our restaurants and to be brutally honest a lot of our restaurants are smashing through 2019 levels. Interesting enough because our restaurants have big exhaust hoods and they constantly turn the air over we have virtually little or no cases of staff COVID, even in the peak in 2020, in the early part of 2021, yet we were kind of demonized as kind of the place you could catch it. And we all found it extremely frustrating and ironic that we were kind of made the poster child.

Dunker: I will tell you that from the restaurant association standpoint the last thing we're thinking about right now is COVID because we are for the first time as an industry facing a 15% increase in cost of goods simultaneously with 15% increase in cost of labor. And so we're trying to compete with labor, wages are going up. We don't mind paying the wages. When we polled Iowa operators, finding people was far ahead of paying people the wages they are demanding as the reason that they can't do what they want to do. And lots of people are having record revenues but almost no one is having record profits.

Whalen: The idea of the $15 minimum wage I think for the most part, certainly back in the kitchens, that's kind of a thing of the distant past at this point.

Pitt: That actually goes into the question that I had next and that is in my own experience with restaurants recently is that I go back to restaurants I went to before COVID is that I'm seeing smaller menus perhaps. Maybe you could talk about that trend as to what's behind that. I have a feeling it's some of the things you were just talking about there. But I wonder if it's food supply chain issues or anything like that.

Dunker: So there's a couple of things and then, Mike, I'm sure you'll want to chime in. We have to streamline everything right now. So you have to make your purchases so that whatever you're buying you can put in multiple places in a menu. There simply is not the line staff in a kitchen to make a lot of things. And so pre-COVID we were already telling people in the industry your menus are too big, you've got to streamline, you've got to streamline. And we're now telling people that you have to figure out how to do this with fewer people forever. They're either not coming back or we're not going to have the population gains. And so you're seeing operational adjustments in every type of establishment.

Whalen: There are supply chain disruptions. I never thought I'd see a time when it was really hard to find a plastic cup or a straw --

Dunker: Or chicken wings.

Whalen: Or chicken wings or Porterhouse steaks for some reason. So it's a combination of huge price increases, something I had not seen since 1979 when I first was in the business. But very similarly, I think we've reprinted menus twice in the last six or seven months because of the combination of supply chain disruptions and because of increased prices.

Pitt: Have you had to cut hours of operation or maybe the days of operation at some locations? It seems like that happened at one point in time.

Whalen: We did a lot. At first it was a lot of daytime closures and as we could find people we'd add back things. We're pretty much fully back but I just got a call this morning from one of our restaurants in Wisconsin suggesting that maybe we close during the day again because of the difficulty in finding people. So we're hoping that doesn't occur.

Henderson: This next question is to you, Mike. It occurs to me that as this pandemic is happening you're also facing the kind of competition that taxi companies faced with the birth of Uber and Lyft. Are you looking as an industry for some sort of regulation that is statewide for Airbnb and Vrbo and those sorts of online options for housing and accommodations?

Whalen: It will be an issue at some point in Iowa. I know some jurisdictions that we're in have actually said if you're going to do an Airbnb you need to pay the hospitality tax, for example, the pillow tax as most people would call it. And I think that is for starters to make it a level playing field that those taxes and other things have to be paid on an equal basis.

Henderson: Is that something you're lobbying for at the Statehouse, Jessica?

Dunker: Not yet, not yet. We walked into some things that we had not expected in our first year. So certainly long-term we want to see an even playing field in all types of the hospitality industry.

Pitt: It seems to me like there may be a similar trend with restaurants and the food delivery services like the Uber Eats, DoorDash, that kind of thing. So I'm wondering if you're seeing a similar kind of a challenge?

Dunker: We have some pretty strong feelings, I think you're aware, about the third party delivery and the absolute unfairness in a way, how it casts a restaurant. We have legislation and it is literally, literally today on the one-yard line. It has gone through both the Iowa House and the Iowa Senate, it is waiting for a final floor debate and then hopefully onto the Governor and it does really basic things. It doesn't let a third party delivery system just take Mike's logo and take Mike's menu and put it in their mobile app because a consumer believes you have a relationship and Mike might not have any idea who it is. It also has a certain amount of liability so that if the driver runs over someone with a car it isn't Mike's fault that that has happened. And then really basic food safety like you can't have your pets or your sick children or smoke or vape in the car and that you have a bag that keeps something the temperature it's supposed to be. It's really, really basis right now and we think it's good public policy. It has sanctions that will be taken against the third party delivery systems that break the rules and are caught breaking the rules. And so we're very hopeful the legislature gets this one done this session. It's really needed.

Henderson: Well, Jessica, I've written about this bill before and it had a little bit of a disturbing debate when French fries were mentioned in the House.

Dunker: It sure did, it sure did. There is a study that was conducted by U.S. Foods where they reached out to delivery drivers all over the country and found out that 28% of them admitted to at least once trying the food before they delivered it. And we always laugh about this at the association because we're like 28% said yes, but a percentage of them probably thought I shouldn't answer this as yes on that survey. So just go pick up your food, we would love to let you have carryout, we will bring it to your car, it's so much better from safety, from cost, just pick up your food.

Pitt: Did these services help at all though during the pandemic, like getting food to people when people were afraid to go out and maybe pick it up themselves? I'm just wondering if there was any kind of a benefit at all during that toughest time?

Dunker: Well, 70% of operators that were surveyed said that the food delivery services didn't makes up even 30% of the revenue they lost. And so we haven't even tried to legislatively address the financial portion of this. But consumers pay a delivery fee and don't realize that the restaurants, whatever the ticket is, pay anywhere from 20% to 30% of that ticket cost. We're in a 5% net profit business. So it's pretty much money walking out the door with every order. We just hope you'll come in eventually if you like what was delivered.

Henderson: Do we know if Iowa is an eating out kind of a state? Do we know how many restaurants there are per capita compared to other places?

Dunker: I can address it -- so Iowa is absolutely an eating out kind of state and particularly Des Moines is and per capita we are among the top in the nation. And so especially when the patios open up and patio season is coming and that's a whole other workforce issue is we do like to go out and enjoy our restaurants. I'll tell you what's happening though, inflation is hurting everyone and every consumer is being hurt and we are hitting those thresholds on pricing on what people are willing to pay for a drink or a hamburger or a steak or whatever is out there and we're seeing changes in consumer purchase patterns. We still go out because we like to go out but we don't order an appetizer, we order water instead of a drink, we don't order desserts and that is worrisome back in that profitability model. How do we serve the people because they're still coming but do it in a way that we can actually keep the lights on?

Whalen: That last price increase that we took on menus, you do it with bated breath, you kind of hold your breath and see, and people didn't say anything at all because I think we were at the grocery store and saw what was happening on their direct food purchases. But we are now starting to see I think a softening of demand because I think you're starting to see people maybe compete with $5 gas or at least $4 something gas in Iowa and other things like that and we're discretionary. So we're fearful about what is going to happen.

Pitt: We have just a couple of minutes left. That kind of feeds into my next question which is a future looking question. That is, what if COVID comes back? Are we prepared to deal with it? And then secondly, where do you think we'll be 10 years from now? What impact will this coronavirus have on the industry in the next decade, anything lasting?

Whalen: I think the lasting thing will be when bankers used to ask me what I was scared of a pandemic was certainly never on my list and I think right now if you're going to be starting up a small restaurant I think you're going to struggle to find somebody to lend you the money that is confident that you could weather that if it did occur again. And so I think that will be the residual effect on a long-term basis.

Dunker: I would say 10 years from now what we're going to see is technology moving into places we didn't expect in the restaurant industry whether it's a driverless car delivering the food, if it's automation in the kitchen, you're already starting to see automation in your own ordering. Restaurants are the oldest profession and I know people that would disagree, but restaurants are the oldest profession, and we have adapted through everything throughout time and we will adapt again and come out on the other end serving and meeting the needs of people because that's why we're in the business.

Henderson: Well, speaking of time, we are out of it for this conversation but we may have you back to check on the things that you've been talking about today. Thanks for joining us.

Dunker: Thanks for having us.

Whalen: Thank you.

Henderson: And thank you for watching this edition of Iowa Press. You can check out every edition online at iowapbs.org or you can watch us at our regular broadcast times, Friday at 7:30 p.m. or on Sundays at noon. For everyone here at Iowa PBS, thanks for watching.

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Funding for Iowa Press was provided by Friends, the Iowa PBS Foundation. The Associated General Contractors of Iowa, the public's partner in building Iowa's highway, bridge and municipal utility infrastructure. Fuel Iowa is a voice and a resource for Iowa's fuel industry. Our members offer a diverse range of products including fuel, grocery and convenience items. They help keep Iowans on the move in rural and urban communities. Together we Fuel Iowa. Small businesses are the backbone of Iowa's communities and they are backed by Iowa banks. With advice, loans and financial services, banks across Iowa are committed to showing small businesses the way to a stronger tomorrow. Learn more at IowaBankers.com.