Last year was one of the worst for the restaurant industry. And while many restaurants are in a recovery phase, they’re not out of the woods yet. According to the August 2021 State of the Restaurant Industry Report from the National Restaurant Association, while sales and restaurant visits are up, operators continue to struggle with staffing, commodity prices and reaching customers amid new fears relating to the Delta variant.
In June and July of 2021, 75% of operators reported to the Association that recruiting and retaining employees was their top challenge, despite hourly wages rising. Many chain restaurant franchisees have kept their doors closed to indoor dining since the start of the pandemic. Meanwhile, wholesale food costs have climbed to their highest level in seven years, forcing operators to contend with the higher costs of running their business while simultaneously chipping away at the mountain of debt they incurred last year.
Despite all of this, and the industry being one of the hardest hit by pandemic closures, a recent Yelp Economic Average reported that 83% of restaurant and food businesses that were temporarily closed during the pandemic have reopened. Additionally, the category welcomed 19,892 new businesses in Q3 of 2021. The resiliency of the industry is shining through, and operators have never been more prepared to take on the challenge.
“Once businesses open, it’s like jumping on a train going 300 miles per hour trying to grab onto the side,” said Chris Cuomo, partner and CEO at Miami Beach-based Groot Hospitality, which owns restaurants such as Swan, Komodo and Papi Steak. “You don’t get that time to regroup.”
Most operators will agree their businesses have emerged stronger on the other side of 2020. The changes they made over the past year—whether to their technology, teams, or communication with customers—have boosted sales and improved operations. The question now is, how do you keep the momentum going?
Addressing labor struggles
The restaurant industry has always had a tough time recruiting and retaining employees. But today, staff is returning to a different environment and, for many, a different job. The server who used to greet customers, take their order, and check in occasionally, now may be taking phone orders, packaging to-go orders, delivering food curbside, checking vaccine cards and, in some cases, facing down defiant customers.
Operators understand that staff members are dealing with the same concerns about inflation and safety that they are. They’re responding the best way they know how, with higher wages, sign-on bonuses, paid leave, flexible shifts, more hours, vacation time, medical/retirement benefits and more.
Cuomo has found that his best tool for recruitment is employee referrals and word-of-mouth. “If we create a great work environment for the team, they’re going to encourage their peers to come work with us,” Cuomo said. “We still put out ads, but at the end of the day, that’s not really what’s driving the ship. What’s driving the ship is utilizing our 600 employees to refer us to the candidates who would be a good fit for the company.”
“I decided to go to a service-charge model where I give 30% of a 20% service charge to the back of the house,” said George Chen, founder, owner, and chef of China Live in San Francisco. “Now, my servers are averaging over $70 an hour, my bussers are making close to $50 an hour, and back of house is making around $25 an hour.”
During COVID, The Spot applied for and received a Paycheck Protection Program loan, according to Dennis Byrd, president of Island Famous, which owns The Spot in Galveston, Texas. The company was given six weeks to spend the money. “At that point, sales were off 95%, but we paid our people $665,000 over a six-week period, calling it the People Over Profit campaign,” Byrd said. “The week we began and told the world about it on social media, sales increased week over week by 10%.” Those on staff more than 10 years received $20 per hour and a guaranteed 40 hours per week; everyone else received $15 per hour. Everyone got hazard pay bonuses as well. “Those wages are here to stay,” Byrd said. “I’m not hiring new team members at lower wages.”
“I'm a big believer that people work for you that want to work for you,” said John Tallichet, CEO of Specialty Restaurants Corp., which owns more than a dozen restaurants, including Castaway Burbank, Whiskey Joe’s Tampa and Rusty Pelican Miami. “I used to tell a story that if the government pays lazy people to stay home, thank goodness, because our business is a tough business, and we need people that really want to care for the guests.”
Embracing new technology
During the pandemic, consumers and operators received a fast-track education in online ordering, third-party delivery and ghost kitchens. Consumers rushed to use those options and will likely keep using them, along with drive-throughs and curbside service, long after the pandemic is over.
In 2019, Carmine’s in Times Square served nearly 470,000 meals and had reported annual sales of $39 million. In March of 2020, the restaurant closed its doors and remained closed for 18 months. This past September, Carmine’s reopened to raving fans, and the brand is already generating a run rate of $22 million after only being open four weeks, according to Jeffrey Bank, CEO of Alicart Restaurant Group. Thanks to a strong takeout business, the Carmine’s brand was able to stay in the black, according to Bank. “With the downtime, we upgraded our tech stack,” Bank said. “We moved our online ordering over to Olo and added an app, we did a loyalty product, and we upgraded our Aloha POS System to the newest point of sale that they had.” Now, in addition to positive profits at the Times Square location, Carmine’s Vegas is up nearly 40%, and Carmine’s Atlantic City is up almost 20%, Bank reported.
Operators may have been thrown into the deep end of the technology pool during the pandemic, but most will keep the technologies that helped their business in 2020 and will continue to boost the bottom line into the future. “Pre-COVID, to-go orders only represented 2% of our business,” said Byrd. “Now, our to-go business represents about 10% of our business.” Because of the pre-COVID to-go numbers being so low, Byrd said they used to take all to-go orders over the phone—and still do. “We just launched a new website, and the next component of that is an online ordering system,” Byrd said. “At 2%, it wasn’t worth investing in the infrastructure, but if we’re doing a million dollars a year in to-go, we need to look at that.”
Before restaurants were closed, large on-site events accounted for 40% of sales for Specialty Restaurants Corporation. Outdoor dining helped bring some customers back when locations reopened, but Tallichet said they wanted to help guests who couldn’t get together in person celebrate for the holidays. So, they created “Zooming for the Holidays,” a promotion where food, wine, cocktails, cookies, holiday items, etc. were delivered to separate households and then friends and family members could turn on their monitors and Zoom with each other while enjoying the same meal. “It was almost like dining in our banquet space or event space, but they were all in different locations,” Tallichet said. “The option will definitely be available this year, too.”
Expanding offerings and locations
Restaurant sales got a lift in 2020 when several states gave the green light to sell cocktails for delivery and takeout. Now, the legal right to continue selling cocktails to-go has remained intact, either permanently or temporarily, in almost 30 states. Restaurant operators should focus on mixed specialty drinks that pair well with existing menus if they expect to go up against the less-expensive liquor stores that won’t necessarily welcome the competition. “Gallons of margaritas on Sundays during the forced closures represented 50% of my sales,” Byrd said. “They’re not doing that anymore, but we narrowed our offerings down to half a dozen 16-ounce drinks that travel well.” Byrd said that customers who dine in at the restaurant now even order drinks to go, making the new offering a win-win for customers and the business.
Opportunistic real estate deals ran rampant at the end of 2020, and large chains gobbled up empty restaurant spaces by the dozens. But chains weren’t the only ones jumping at the opportunity. Ample real estate, below-average prices, and low interest rates have also allowed smaller independents to expand into new neighborhoods that may have been too pricey before COVID.
China Live’s Chen said he’s eyeing a high-traffic site near Penn Station in New York City for another outpost. Tallichet said that individual brands such as Whiskey Joe’s are expanding under the Specialty Restaurants Corp. umbrella. And Cuomo recently opened three new venues, which had been put on hold due to COVID. “People are literally taking up restaurant space after restaurant space to be in the Miami market,” Cuomo said. “I think it will definitely change Miami forever.”