BETHLEHEM, Pa. — Ask a longtime downtown Allentown restaurant owner about the current state of the industry, and at least one answers with five words.
“It’s getting harder and harder,” said Jeff Fegley, owner of Fegley’s Allentown and Bethlehem Brew Works locations.
Around the Lehigh Valley, cautious optimism on nights where business is bustling can instantly be tempered by the day-to-day realities and operating costs that continue to constrain margins.
Fegely's words were just the beginning of his thoughts on restaurant owners who are feeling the squeeze on profits as they deal with inflation, labor challenges and volatility that hasn’t eased coming out of the COVID-19 pandemic.
LehighValleyNews.com approached Fegley and others with data from the 2024 State of the Restaurant Industry report published by the National Restaurant Association on Feb. 7.
The annual report, based on analysis of economic data and extensive surveys of restaurant operators and consumers, said the country’s restaurant sales are expected to hit a record $1.1 trillion this year.
According to the report, restaurants also are predicted to add 200,000 jobs nationwide in 2024.
But there’s a downside to the data.
The report states that 38% of restaurants were not profitable last year, and only 27% of those surveyed expect to be more profitable this year.
The statistics were presented as average food prices remain 25% higher than they were before the pandemic, the report says.
Operators said inflation — not just food prices, but prices running high across many budget categories — is among their greatest concerns and biggest reason for a squeeze on profits.
But other considerations, especially getting people in the door, also were top of mind.
‘We were a well-oiled machine’
“We’re watching closure after closure,” Fegley said, and he said he’s wondering how much longer he can hold on in Allentown, where Brew Works is “operating at a fraction of sales” compared with its Bethlehem counterpart.
And where an ever-shifting landscape was altered again last month by the abrupt closure of Bell Hall.
Bell Hall, a gourmet burger bar, was based on the ground floor of the Trifecta Building at 612 Hamilton St. — a few blocks from Brew Works — and opened in October 2015.
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“We opened in 2007, and so we’ve seen Allentown transition over the years," Fegely said. "And we’ve had different challenges than establishments like Bell Hall, because being pre-NIZ, we weren't able to utilize any of the economic development benefits of the NIZ.
"So it was a little different for us. And it still remains very different for us."
Created in 2009, the NIZ, or Allentown’s Neighborhood Improvement Zone, has funneled more than $500 million of state tax dollars into the downtown to encourage redevelopment.
“So we were here prior, we were set up, we were a well-oiled machine, we were able to handle it. I mean, we were filling the restaurant, multiple floors, for arena nights. And then as they opened up all these new restaurants, we saw the drop in our sales because it started diluting the market.”Jeff Fegley
Under the program, developers determine how much more tax revenue their project will generate compared with the existing property.
If the project is approved, any new taxes generated can be used to pay off the project's debt service — the money required to pay the principal and interest on an outstanding debt for a particular period of time.
Bell Hall continued the run of prominent restaurants that have closed in downtown Allentown in recent years that were part of the flurry of development in the NIZ. They include names like The Cosmopolitan, Hook, Shula's Steak House, Queen City BBQ, ROAR Social House, Sangria, Centro, Grain and more.
Fegley said being pre-NIZ was one challenge, but the Allentown Brew Works faced a bigger problem as downtown development took off.
“I think the PPL [Center] arena took off, everything was awesome," he said. "But unfortunately, there were all these brand new restaurants that opened at the exact same time.
“So we were here prior, we were set up, we were a well-oiled machine, we were able to handle it. I mean, we were filling the restaurant, multiple floors, for arena nights.
"And then as they opened up all these new restaurants, we saw the drop in our sales because it started diluting the market.”
'Getting people in seats’ a struggle
Just down the street, Eric Cutting and a business partner are the owner/operators of Blended Bar + Grill, formerly Blended by Bru Daddy’s, which quietly pulled out of ownership near the end of 2022.
“We took over but we didn't rebrand and change the name or anything like that because, one, it's expensive," Cutting said.
"And two, we already kind of had that audience and we didn't want to just open up a new place with a new name and not be able to sustain the business."
So Cutting said he, like Fegley, put his energy into figuring out what will get people through the door.
“I think a big struggle that we have is getting people in seats on a daily basis," he said.
"So we've optimized this space to utilize it not just like a restaurant, but almost like a social place, a gathering place — whether it be events that are related around food or not so much related around food."
That includes hitting different interest groups and opening up the space for events, collaborating with other businesses and local retailers and using it as “an opportunity to kind of understand the community and understand the audience that’s coming downtown.”
As a Downtown Allentown Business Alliance board member, Cutting said he’s doing his best to bring forward ideas that will draw folks who live in the suburbs into the downtown area — something Fegley believes is desperately needed.
“I think what’s important is that you start seeing the perimeters,” Fegley said.
“I think a big struggle that we have is getting people in seats on a daily basis."Eric Cutting, owner of Blended Grill + Bar
“And I think that's also kind of what's happened here is the arena people came in, they got a taste for downtown. But it's different. It's different than the suburbs, right?
"So now, you're still going to come to those arena events, and for the concerts specifically. Those are the biggest hits for the arena. But you're gonna go to your local restaurant and then come down for the event and then leave.
"And there's still that suburban mindset, which is never going to change, in my opinion.”
But Cutting said he believes that with a little bit of thinking outside the box, it can change.
He said he’s working on a couple of projects, including a bus tour that would start in the city and venture to a brewery or winery outside the downtown before returning.
“I think about grabbing those communities in suburbia and bringing them into the city and seeing what the city has to offer,” he said.
“Not necessarily like, ‘Hey, stay in the city. But 'Hey, come visit the city, we can facilitate your needs.’ It means that, you know, we can house you all day and find you a proper means to get from point A to point B.”
‘We’re in a rebuilding stage’
Supply chain issues and shortages impacted 77% of restaurants nationwide in 2023, according to the data compiled by the National Restaurant Association.
Compounding the problem was a shortage of workers. The report found that 70% of restaurants have job openings that are difficult to fill, and about 45% need more employees to meet customer demand.
But it’s hard to know where to focus recruiting and retention efforts when operating hours are in flux, the average restaurant is still full service and price points aren’t quite high enough to pay for everything.
It means many patrons might experience slow service, a disorganized staff, problems with their orders and more.
"We're in a rebuilding stage," Fegely said. "And I think that's just going to take a couple more years to generationally get more talent back to our industry.
"And it will recover. I mean, there's no doubt in my mind. But that's part of the negatives, right? And that's, that's probably seeing its worst [time] right now."
Juan Martinez, who owns and operates the Don Juan Mex Grill brand and the State Cafe and Grill in Easton, agrees.
“We run a very limited, very lean restaurant at Don Juan in comparison to somebody who has a full-service restaurant," Martinez said.
"You know, I like that, but the people we do have here, you know, most of them have been with us for a long time."
But Martinez, who has five Don Juan locations in the Lehigh Valley, said he had a different perspective of the labor force and trends pre-pandemic that led him to pivot toward technology as a driving force affecting the way his restaurants operate.
“One of the biggest things that I foresaw was issues with the labor in America [and that] a lot of people are going to go more toward technology," Martinez said.
"And the newer generation, you know, they don't feel like doing the manual labor and entry-level. So one of the things that we did right before the pandemic, we invested in self-service kiosks, online ordering and a mobile platform."
Today, that technology is playing a large role at each Don Juan location, enhancing the customer experience, automating operations and supplementing labor in a way that’s cost-effective, Martinez said.
He said that many customers, especially younger ones, not only are comfortable blending technology into transactions, but expect more, and he’s happy to deliver.
“We're here for the customer," he said. "You have to meet with a customer right where they're going to be, and as a business owner, you're always looking for ways to add more value for the customer.
"Rewards, loyalty points, you know, that does something big and our customers expect that and they love that.”
Social sharing, specializing
Martinez said another trend boosting the restaurant industry is food being shared on social media that has opened the eyes of a lot of people, taking them to places they only used to dream about.
“We're here for the customer. You have to meet with a customer right where they're going to be, and as a business owner, you're always looking for ways to add more value for the customer."Juan Martinez, owner of Don Juan Mex Grill
“Back in the days when you read a book, you went to the library,” he said. “Well, now, you go into Instagram, and you see the stories from people all over the world and interesting food, interesting posts from people that travel, so the new generation is seeing those things.”
He said he believes restaurants that specialize in something specific, whether it be Latin-inspired foods or something else, can continue to attract a loyal customer base even with the industry teetering on a precipice.
“For those of us still here after COVID, you know, we have nothing but optimism ahead of us," he said. "Those who were able to survive all the challenges of COVID are still here.
“But restaurant owners are downsizing, making and developing smaller locations. Even the national guys are doing a new prototype, where their stores are half the size of what they used.
"And that’s the trend. That’s where the industry is going and I don't see it changing anytime soon.”
