Crunchy Spicy Tuna Roll at Kona Grill.

Kona Grill

A surge is coming, and The ONE Group is preparing for it.

STK and Kona Grill Brace for a Dine-In Resurgence

Average capacity is now 55 percent, which is higher than October levels. 

There’s no denying guests are growing eager to return to normal life, says Manny Hilario, CEO of The ONE Group Hospitality.

The numbers tell much of the story. When COVID-19 was rising and metropolitan markets across the country began enforcing more restrictions in late 2020, consolidated same-store sales—including both STK Steakhouse and Kona Grill—went from negative 4.2 percent in October to negative 26.4 percent in December. In the same period, average capacity decreased from 51 to 38 percent.

But in January, average capacity rose to 41 percent. In turn, comps shot up to negative 13.3 percent. When capacity inched toward 46 percent in February, same-store sales improved to just negative 1.1 percent. And during the first 14 days of March, capacity lifted to 55 percent, which resulted in a 24 percent increase in same-store sales as the company began lapping initial effects of the pandemic.

In March 2020, guests left dining rooms in droves as governments implemented stay-at-home orders. A year later, big markets like Las Vegas and New York City are returning to 50 percent capacity. A surge is coming, and The ONE Group is preparing for it.

“When they choose to come into our restaurants, we are providing them with the exceptional and unforgettable experiences that they crave,” Hilario said during the chain’s Q4 earnings call. “As we look ahead, our key focus is operational readiness for what we expect will be high volumes as COVID cases continue to decline as vaccines become more widely available and restrictions are lifted.”

To handle the influx of customers, The ONE Group is optimizing operations to ensure it can serve as many as possible within the limitations.

Hilario said the busiest times are between 6:30 and 9:30 p.m. on Fridays, Saturdays, and Sundays. In that period, restaurants are receiving more demand than they can fulfill. To soften that timeframe, restaurants have tried shifting volume to 9:30 to 11 p.m. and also to 5:30 p.m.

Additionally, a new brunch daypart was utilized to shoulder the high demand on Saturdays and Sundays. The mid-morning program features items like the Lobster & Eggs Benedict, which comprises lobster, baby spinach, poached eggs, caviar hollandaise, and a toasted English muffin. The food is joined by a drink program that includes bottomless mimosas and Bloody Marys and unique cocktails. Guests are also entertained by live DJs.

“Even for a fine dining type of business like STK, where in the past, we would have looked at maybe brunch as a non-core business, we now look at brunch as a core business, because now it allows us to use less seats on a Sunday and on a Saturday, which are very high demand days,” Hilario says. “So, I think that brunch now is playing a key role in kind of how we think of the business long-term.”

Optimization also requires a focus on table turns. Before COVID, restaurants looked forward to selling the incremental drink and dessert because it would increase per person average. But in today’s environment, STK aims for 90-minute table turns while Kona targets 75 minutes. Operators are rigorously reviewing steps of service, such as the length of order times and how long it takes for cocktails to reach the table.

Historically, liquor accounted for more than 30 percent of sales, but during the age of COVID, it’s mixing between 25 and 30 percent. The lower percentage doesn’t concern Hilario as much considering more drinks means slower table-turn times.

“In our higher-volume restaurants, particularly on Friday, Saturday, and Sundays, although we'd like to sell liquor because that's good margin, we will trade having more turns on the table than holding a table back for an extra 30 minutes or two,” Hilario said. “So, a lot of the reason why the liquor mix might be a little bit less is because we are actually driving a different strategy to try to drive more traffic and bring more people through table turns.”

While The ONE Group worked to spread out demand on the weekends, it’s also looked to fill capacity near the beginning of the week. For STK specifically, Mondays through Wednesdays have been lighter because of fewer business travelers and conventions. To fill capacity on those days, the chain marketed social activities like date nights—an occasion that’s seeing “super high demand for right now,” Hilario noted.

“Relative to STK and Kona Grill, my experience so far since we've been in recovery mode is that both of them have done exceptionally well, meaning that there's a lot of demand,” Hilario said. “I do believe that Kona Grill, because of its suburban exposure, just does very well, all seven days of the week, whereas STK, with less of business travelers and group dining, is doing very well Thursday through Sunday. So, there's a little bit of a shift on how the customers use the brand.”

“But overall, I believe that both brands have done extremely well, particularly as you look at the numbers that we reported for the month of March,” he continued. So, I'm very pleased with both STK and Kona Grill and feel pretty strong about their continued recovery for the rest of the year.”

As capacity ramped up, Hilario said restaurants aren’t seeing any dramatic shifts in employment—something the chain is monitoring closely since President Joe Biden’s $1.9 trillion COVID plan extends enhanced unemployment benefits through early September.

The CEO said retention increased, which he believes will offset some of the future pressures on getting workers inside restaurants.

“I also think the fact that our operations have been very busy, I think the employees that are working in the restaurants feel very, very good about being in an active environment,” Hilario said. “So, I get a lot of compliments. And frankly, a lot of our employees will come up to me and tell me that it's good to be in an environment that gets them away from what they consider to be the general seclusion from the pandemic. So employees seem to want to come to work because that gives them an escape from other situations outside of work. So I think that's been very positive.”

Although The ONE Group is ready for more dine-in guests to return, that’s not to say it’s strayed from off-premises. Takeout and delivery represented roughly 15 percent of sales in Q4, which is 2.7 times higher than Q1 2020. Hilario attributed success to investments in technology that enabled customers to order curbside pickup or delivery from nine separate third-party delivery providers.

To drive off-premises sales, The ONE Group adapted menus, particularly STK, to have more transportable items, such as a Wagyu Cheeseburger. Hilario estimated more than 50 percent of the transactions are from new customers.

“We're totally OK with that, because as we tell the team here, let them try with the takeout menu and then when they have the birthday or the special date, or any other holiday, which is one of our areas that we do very well, they'll remember us and they'll give us a nod on the holidays,” Hilario said.

In terms of development, STK opened a store in Scottsdale, Arizona, in January. So far, the new location is averaging $180,000 in sales per week. There are currently four STKs and three food and beverage hospitality restaurants under construction. Between 2021 and 2022, The ONE Group expects to open 13 new venues. Longer term, the company has identified more than 75 additional major metropolitan areas across the globe to expand STK to 200 restaurants.

STK ended Q4 with 20 stores while Kona has 24 units.

Total revenues increased 17.6 percent to $141.9 million in 2020 from $120.7 million in 2019. The increase was primarily driven by the addition of Kona, which The ONE Group acquired in October 2019. In Q4, revenues decreased 13.8 percent to $45 million compared to $52.2 million last year.