The exec says future models must include contactless delivery.
A dozen years ago, Michael Abt led more than 1,000 Arby’s restaurants through the Great Recession as senior vice president of operations.
Now serving as the CEO of Huddle House and Perkins Restaurant & Bakery, Abt says his experience during the recession doesn’t come anywhere close to what’s transpired the past two months amid the COVID-19 pandemic.
“What’s happened in the last nine weeks is like a Category 5 hurricane that lasts three days versus a Category 1 hurricane that blows through your town in three hours,” Abt says. … “There’s no comparison. The Great Recession dented sales by maybe up to 10 percent for a while and then it bounced back. This obviously had a much greater front end impact and in my opinion, it will have a much longer lasting impact to this and other industries.”
For his full-service brands specifically, sales plummeted once dining rooms were shut down, and it’s been a slow climb ever since. Similar to other restaurants, his chains quickly pivoted to carryout and delivery, which mixed under 10 percent pre-COVID.
Although sales were low, company-run units have remained open to keep general managers in place. Abt’s team engaged landlords about deferrals and created extra streams of revenue, such as selling to-go family meals and pantry items like eggs and toilet paper. Abt says same-store sales recently reached negative 10 percent.
The CEO expects consumer behavior to return to normal eventually because of their short memory.
“If there’s no pandemic eight or nine or 10 months from now, or a big spike, people are going to go back to what they used to do,” Abt says.
As for the future of the casual-dining industry, Abt notes customer convenience will continue to be a top priority.
Going forward, Abt says chains must have a business model that’s capable of meeting the consumer’s needs for contactless pickup in their parking lots, like directing traffic flow with cones and using the front door as a drive-thru pickup window.
“You want to be ready to promote and market that to your guests,” Abt says. “If you already have a well-developed digital platform going into this, you want to create content that helps the guest understand how they can navigate your business safely. … And then maybe a little bit of modifying products so that they are a little bit more portable, but I think most of that can be taken care of with great packaging and not necessarily reinventing the menu. But we might consider scaling down the menu and making it more easy to execute in stores so that we’re more effective and efficient in service times overall.”
Abt also notes that the pandemic has accelerated plans for ghost kitchens in the casual-dining segment.
A franchisee of Famous Dave’s opened a ghost kitchen in Chicago in mid-April and plans to open more. Eatertainment chain Chuck E. Cheese essentially started a ghost concept under its own roof with the launch of delivery-only brand Pasqually Pizza & Wings on Grubhub. Applebee’s has done the same with a brand called Neighborhood Wings.
“I think you’re going to see brick and mortar restaurants, some of them, slowly fade away. Some will not reopen,” Abt says. “Some will reopen and realize they can’t sustain any longer and go away. For those restaurants that are open, it’s going to be helpful because there’s going to be less competition, which is one of the challenges the industry has had in the last five to 10 years—just the pure number of restaurants that have opened relative to the increase in consumers who are spending money at restaurants. I guarantee you that executive teams like us are trying to figure out, OK, how do we quickly create a model where there can be a contactless delivery of products on our lots and to the guests.”
When it comes to the relationship between restaurants and third-party delivery providers, Abt expects consolidation. That shift may come sooner rather than later with recent news of Uber’s interest in purchasing Grubhub.
Abt theorizes that the use of ghost kitchens may be a way to circumvent delivery fees, which reach 30 percent or higher in some areas.
“If I have a ghost kitchen, and all I have is food prep people and a manager, maybe I can afford to have some drivers to get food out the door and saving that 15 to 20 to 28 percent,” Abt says. “That’s an interesting idea.”
Governments in Seattle, New York City, San Francisco, and Washington, D.C. have implemented emergency caps on third-party fees to provide relief for restaurants facing thin margins.
However, Abt wonders where this type of regulation may lead.
“It’s really a slippery slope when local jurisdictions are governing the rates that somebody can charge for their service versus traditionally it’s been the invisible hand of competition that’s regulated those costs,” Abt says. “… What’s to say that the city doesn’t somehow limit the margins that restaurants can increase their prices versus their costs? What’s the difference? What’s next? It’s a bit scary.”
Abt says trust between consumers and restaurants boils down to execution, which traditionally means great service, high-quality products, and well-groomed employees. In other words, customers judge whether the value received is worth the money being spent.
All of those factors will play a role in the post-pandemic world, but Abt says the definition of trust will expand.
“It goes beyond the handwashing and the food safety of the past,” Abt says. “Now, it’s are you clearly creating visible cues of safety and security inside your restaurant that makes me feel comfortable. And that definition is different for some people. Some people are cool going out to restaurants with no masks; others go out to restaurants with hazmat suits as an extreme.”
“I think trust is going to be one, execution, and two, customers being able to clearly recognize that you’re aware of their safety concerns and you are providing them a safe environment in the dine-in or that you are delivering products that look safe, sealed if you’re in the carryout, delivery segment,” he adds.