Kona Grill's comp sales grew 8.6 percent in October.
Capacity restrictions have been tough on restaurants, but The ONE Group, parent of STK Steakhouse and Kona Grill, is determined not to let those limits dictate its success.
CEO Manny Hilario said the company has a logistics planning team that works with restaurant management to plan capacity daily. The collaboration has resulted in a combination of creativity and efficiency.
For example, restaurants—which average 50 percent capacity—have positioned tables in front of bars in a T shape. Hilario said this strategy provides on average 16 more seats of dining room capacity. It also means the loss of about 20 to 25 bar seats, but those low revenue seats are being replaced with higher revenue tables.
Restaurants try to keep a two-minute time frame between customers leaving and staff working to reset a table. Stores also enforce a nine-minute window for table maintenance.
“So every day before the restaurant ever opens up, we present a very thoughtful, thorough plan as to how we want the dining room to turn,” Hilario said during the company’s Q3 earnings call. “So I do think that in times we have limited capacity, having selected that process as part of our core operational approach, it really has helped.”
The strategy appears to be working as comp sales grew 4.2 percent in October—8.6 percent at Kona Grill and 0.3 percent at STK. Since April, roughly 3,000 furloughed employees have been called back.
In Q3, combined same-store sales were down 15.6 percent, an improvement from 66.7 percent in Q2. For Kona Grill specifically, comps decreased 7.3 percent in Q3, a major upswing from its 52.8 percent decline in Q2. At STK, same-store sales went from down 81.4 percent in Q2 to a slide of 24.2 percent in Q3.
Here’s how same-store sales have trended:
- Q3: –15.6 percent
- Q2: –66.7 percent
- Q1: –14.1 percent
- Q4: 6.5 percent (Kona Grill joins The One Group)
- Q3: 9.3 percent
- Q2: 6.4 percent
- Q1: 8.6 percent
- Q4: 15 percent
- Q3: 6.9 percent
- Q2: 7.5 percent
- Q1: 7.3 percent
In October, STK units in the comp base saw average weekly sales push past $215,000. If excluding markets hit hard by COVID—Las Vegas, New York, and Miami—comp sales increased 14.6 percent in September and 17.9 percent in October. Hilario said management is leveraging social media to interact with customers in new ways and taking advantage of its more than 1.5 million loyalty members to send multiple emails and digital marketing campaigns.
At Kona Grill, Hilario attributed the elevated performance to the roll out of a new focused menu, launch of a revived bar and timing program, use of more active music, and pursuit of marketing activities that utilize social media.
Hilario said The ONE Group has seen a significant response to off-premises because of the brand’s investment in technology. Customers are now able to use delivery from nine different third-party partners and curbside pickup. Menus have also been adapted to become more transportable.
The upcoming holiday period is expected to be tougher, so the company is testing ways to drive sales in Q4, like experimenting with brunch at STK and Kona Grill units. It’s expected to launch companywide in the U.S.
“We're trying to extend the utilization of the space over more hours,” Hilario said. “So we're trying to deal with the state of capacities by increasing some of the utilization hours of the restaurants. Kona Grill already has a pretty good lunch business. So you know, the limitations there are a little bit less impactful than in STK where we don't really have lunch business.”
Currently, 34 of 36 U.S. restaurants have in-person dining. The Kona Grill in El Paso is expected to resume in-person operations after operating off-premises only and the STK store in San Juan, Puerto Rico, is expected to open when conditions allow it. Three international STK restaurants have returned to in-person dining and three more will do the same in December.
Hilario said rising COVID cases have played a factor in how some restaurants are operating, but there hasn’t been an overwhelming financial headwind.
“There's a lot of talk about new curfews, but it is what the reality of this environment is,” Hilario said. “We basically have a daily meeting, we go through this, there's a lot of different shifting in a lot of the communities, but we have not yet seen a major tightening yet. However, in Europe, we did see London shut down again for one month, and we did see Milan enact stricter curfews with a 6 p.m. cut off. So we have seen some stuff, but not dramatic to the overall performance of the company.”
Looking toward the future, there’s about 10 STK stores in the pipeline that are either licensed or management deals. Hilario viewed it as “the best pipeline we’ve had in a long time.”
There is no development plan around Kona Grill, but Hilario said there has been much interest. Some landlords are even approaching The One Group and providing ideas.
“I do have some landlords that have figured out that our restaurants are very successful in their projects now,” Hilario said. “And so, I have existing landlords, at least four or five of our projects for Kona Grill are now saying, ‘Hey, wait a second, you guys are definitely doing something with the brand.’ I mean people have noticed that the brand has become fun and it's exciting. It's more vibrant with change, the menus have changed, the music program have changed, the approach with the beverage, we've definitely made substantial changes and improvements in service style.”