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Ron Bailey: Stay open late

For years, Ron Bailey, a McDonald's franchisee with six units spread across New York City's Harlem neighborhood, would lock up shop at 11 p.m. After all, he opened up at 7 in the morning to catch the crowds on their trek to the subway, and 16-hour days were enough to do the numbers he needed.For years, Ron Bailey, a McDonald's franchisee with six units spread across New York City's Harlem neighborhood, would lock up shop at 11 p.m. After all, he opened up at 7 in the morning to catch the crowds on their trek to the subway, and 16-hour days were enough to do the numbers he needed.

But what represented the end of the day for him was not day's end for the numerous pedestrians who strolled the sidewalks well into the wee hours. Bailey had a large movie theater across from one of his units, and a popular concert hall next to another—and both spit out hundreds of people long after he'd served his last Big Mac of the day.

So when McDonald's headquarters started a push last spring to encourage franchisees in select regions to stay open later, Bailey jumped at it. He nudged his closing time to 1 a.m. at some of his units, and extended drive-thru hours further into the night at others.

And today, both Bailey and his accountant are very happy about it.

Because since he's been keeping the fryers going later into the night, Bailey's sales have risen 4%-5%. "Say you do $200-$300 in an extra two hours of being open," he says. "Multiply that by 365 days—that's a considerable increase in sales." (Up to $109,500, in fact.)

Bailey's hardly the only one at the Golden Arches who's done this type of math. After a goodly stretch of disappointing numbers, McDonald's execs recently trumpeted a jump in sales growth —and credited the extended-hours initiative for delivering it. "The evening daypart between 11 p.m. and 4 a.m. is a significant opportunity for us," McDonald's USA president Mike Roberts announced. "As the word is getting across America about the possibilities for us, more restaurants are extending their hours."

Indeed, they are. After Jack in the Box, Wendy's, and Taco Bell led the late-night charge a few years ago, the likes of Burger King, Subway, and Qdoba (to name just a few) have scrambled to join the late-night crowd. And the trend hasn't been limited to the fast-food segment. Five hundred units in the IHOP system—already known for the late hours it keeps—recently jumped to 24-hour operation at least two nights a week. And independent operators are keeping the "Open" sign lit up later, too, with places such as popular Denver diner Pete's Kitchen and New York bistro Florent going to 24/7 operation.

In fact, such a vanguard of restaurants has been staying open later that some places that previously had a lock on the late-night trade are feeling the bite of competition. Denny's, which for decades has enjoyed a following that trooped in for omelets at 3 a.m., recently blamed a drop in its sales on the proliferation of open-late restaurants out there.

"They filled some stomachs that we normally would," Denny's CEO Nelson Marchioli told analysts. "I'm not surprised that McDonald's is entering [late-night operation]. Most of their competitors already have."

Why is this happening now? To be sure, the idea of late hours—and even never closing—is hardly new to the restaurant industry. The first diners that popped up in Massachusetts in the late 1800s were in fact known as "night owls," because they served workingmen long after other eateries had closed for the day. Truckstop eateries have always been open all night, and some chains such as Waffle House have been open around the clock since their founding.

But observers say that gradual but steady changes in the social and economic landscape—some of which started decades ago—have finally reached the point where the industry that feeds them has had to respond. The times that Americans wake, commute, work, play, study, and relax have been altered permanently, which in turn has altered something else—when they eat.

The reasons for this erosion of the "standard" hours of operation are many —ranging from a high unemployment rate, to a change in alcohol consumption, to the ongoing demise of the 9-to-5 workday—yet the implications for the industry are singular: If you want to keep your customer counts, open earlier and stay open later. It doesn't take a macro-economist to see that, either. Just ask Dean Contos, GM of Pete's Kitchen. "With the economy being what it's been the past few years," he says, "we saw an opportunity to increase cash flow by staying open 24 hours."

To understand what's going on, there's no better place to start than with the changing American workday. The wholesale shift to a service-based economy has been steadily throwing the 9-to-5 hours out the window for some time now. But newer trends are changing the picture, too. Telecommuting, the internet, and the global economy have all recently conspired to smash the traditional time clock.

"Employers tell employees just to get the job done on their own schedule," observes workplace consultant and author Richard Hadden, who adds that the sour economy has stretched the workday in other ways: "People being squeezed by management may have to work 9 to 9 just to keep their jobs," he says. In fact, a recent study by foodservice consulting company Technomic revealed that the average American work week is no longer 40 hours, but 48.

Americans aren't just spending longer at work, they're taking longer to get there (which means, theoretically at least, that they're passing more restaurants, and passing them when they're hungry). Prior to moving forward with its late-hours initiative, for example, McDonald's studied commuting times in the New York metropolitan area and discovered that people spent up to three hours each day just in transit to and from the workplace.

Apart from the impact of commuters heading to and from jobs, the late-hour trend also seems to be driven by those with no jobs at all. With the current unemployment rate hovering at 6.1% as of September, millions of Americans are setting their own routines, further breaking down the definition of traditional meal times. (Of course, on the other hand, jobless Americans also theoretically have far less discretionary income.)

What's more, colleges across the country are reporting dramatic increases in enrollment (the oft-cited theory is that people head for the classroom when the job market is bad). That adds countless thousands to a student population known for the late hours it keeps, the pizza it orders, and the drinking establishments it patronizes. These numbers are hardly insignificant for restaurants near schools. In the state of Utah, for example, colleges have collectively reported a 58% spike in applications. And the California Post-secondary Education Commission has reported that enrollment in the state's university system will increase 36% by 2010—and this estimate was issued before the current economic downturn.

Apart from this, there's the ongoing deterioration of traditional mealtimes. According to the most recent Forecasts & Outlook produced by the International Foodservice Manufacturers Association, three meals a day is no longer the rule, with fourth and even fifth meals becoming increasingly common later into the night.

Finally, there is also evidence in numerous markets that Americans are going out to drink more frequently—often after a late working day and on normally quiet nights—which seems to be filling restaurant seats not only more frequently, but during times it might not have previously.

"People don't want to go straight home and go to bed after a really long day," says Chicago restaurateur Miae Lim, who owns and operates three upscale eateries in the city. "They want to unwind over a drink and a little food."

Lim adds that she's seeing greater numbers of stressed-out office workers earlier in the week, too, with previously sleepy Wednesdays emerging as a big night. Seconds Contos of Pete's Kitchen: "We still have a big weekend crowd, but now we may have a big Thursday or Sunday, too."

To capture this business, operators have made the decision to open earlier and stay open later when they might not have just a few years ago. And you don't have to look too hard to find operators singing the praises of extended hours.

"It's a good piece of business," says one Wendy's franchisee with 48 units (who asked not to be named), adding that his later hours have meant an extra $1,000 per week per unit. A spokesperson for IHOP says it's not coincidental that the region with the system's highest sales average is comprised almost entirely of units that operate 24/7.

At Beaner's, a coffee chain based in the Midwest, the new 24-hour schedule has resulted in some dead periods in the middle of the night. But according to president Mike McFall, business around the hours that used to be opening and closing times (6:30 a.m. and midnight) is up by 50%. "Those periods help cover the hours that don't do substantial business," he says.

Florent Morellet, who runs Florent in New York, says he made the move to 24/7 after he heard there would be a Starbucks opening near him. That didn't end up happening, but the market forces which interested Starbucks were ones Morellet decided to take advantage of, too. "Starbucks would have gotten all the morning business," he says. "Why should I give it to them?"

Indeed, some operators who are extending their hours are finding that it not only makes business sense, but they really have no choice in the matter. Right now, for example, some 75% of the Jack in the Box system is open all night, and operations VP David Kaufhold says he's seen other chains follow suit in those areas. "Our competition has definitely moved in that direction," he says.

But do the fiscal benefits justify the considerable effort (to say nothing of costs) required to stay open later?

Not always. When the Back Yard Burger chain decided to push its closing time just three hours later, it got slammed by the increased labor costs. In fact, execs blamed this for the chain's net income plummet of 47% in the quarter ending Sept. 27.

"The implementation of such a program takes time to communicate to the general public and to generate incremental sales adequate to offset the incremental costs," the company stated in a release. (Back Yard execs chose not to comment for this article.)

Apart from the higher utility costs and increased wear and tear on the equipment, operators report that the biggest liability with extending their hours is finding workers to fill the shifts.

Ask Jim Poteate, who owns and operates Royall's Soda Shop in Elkin, NC. He discovered that pushing back the closing time just three hours a night required bringing on an extra staffer—already in short supply in his very small town.

A regional director at ice cream chain Cold Stone Creamery adds that the staffing problem is only complicated by labor laws; the Fair Labor Standards Act, for example, prevents an employer from having a 14- or 15-year-old work past 7 p.m., except between June 1 and Labor Day, but then they have to clock out at 9.

In fact, the problem of staffing a late shift has caused some operators to shorten their hours even as others lengthen them. After years of being open 24/7, New York's Moonstruck Diner recently started closing at 1 a.m. "I couldn't find good people to work the late shift," says partner John Kolombus. "Lots of people will work until 1, but not many will work through the night."

Of course, some operators have found the opposite to be true. Given the ranks of students and the unemployed out there, restaurateurs like David Rabin, who operates New York's Suzie Wong's Late Night Cafe, report little trouble finding people to wear the aprons. "A lot of people just really need to work these days," he says.

But labor's hardly the only problem. Late-night operation has introduced many operators to a whole new atmosphere of doing business, some of it unpleasant. Beaner's McFall relates that his extended hours tend to attract drunken students from nearby Michigan State, in addition to other questionable characters. He was concerned enough to train his staff in crisis-management techniques.

At many Wendy's units with late hours, security concerns dictate locking the front door after a certain hour and serving only through the drive-thru window. And management at the Bootlegger Bistro in Las Vegas (open 24 hours) has had to install a front-door buzzer and hire a security guard for the late-night shift. "It wasn't cheap, but it makes employees feel safe," says operations VP Ron Mancuso.

For his part, McDonald's franchisee Bailey has struggled with the problem of increased demands put on his equipment. "It wasn't built to run 24 hours," he says. He's solved the problem by shutting down what's not absolutely needed during slow hours, and rotating equipment to keep utility costs down (for example, he'll use two out of three grills a night, resting a different one each night).

Then there's another pitfall with late-night operation: Simply, the quality of life of the operator. "I feel like I haven't slept in six months," complains New York restaurateur Yoni Margulies, who keeps his Anytime Cafe open 24 hours a day. "Three years of running a 24/7 business is like five or six years for a normal business."

But industry watchers advise the Margulieses of the world that they'd better get used to it. As Americans move ever more steadily toward waking hours that know no boundaries, a restaurateur who wants to keep his place will have to learn to be open when those Americans are hungry—whenever that is. As consumer trends analyst Gerald Celente puts it: "When are restaurants going to understand that people don't work 9 to 5 anymore? There are opportunities to be taken advantage of."

For his part, Celente is. He'll soon be opening his own restaurant in Kingston, NY. And it'll be open until 4 a.m., he promises.

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