Systemwide same-store sales declined 25 percent in July.
The ONE Group Hospitality CEO Manny Hilario knows people always ask about the future of fine dining—or as the company phrases it, vibe dining.
Although the environment isn’t as friendly right now because of COVID and capacity limits, Hilario believes the in-restaurant experience is what’s separating STK and Kona Grill from the competition right now.
“I think frankly, the people who come out now really want to have fun as one different experience,” Hilario said during the brand’s Q2 earnings call. “If you just want to eat, everybody learned in March and April, they can just get pretty much anything at your house through the delivery services. So, I think differentiation and execution now are really the key players in the restaurant space.”
“ … It’s become pretty apparent that there's a subgroup of the population who just feels like they've been locked in for a long time,” he added. “So, you're seeing just people wanting to get out to the patios and just having a good experience there.”
The situation is much better than it was early into the spring. The ONE Group cut its workforce of about 4,000 employees to fewer than 100 workers. At the time, Hilario said there were only about two to three people working in some units. However, after a few months and subsequent increases in sales, 3,000 employees have returned.
In April, STK same-store sales cratered 95.6 percent, but improved to a decline of 70.2 percent in May and a drop of 40.1 percent in June.
Kona Grill comps nosedived by 85.2 percent in April, but decreased 52.5 percent in May and lowered 21.9 percent in June. Hilario attributed Kona’s momentum to its suburban footprint and various initiatives like new menus, aggressive marketing and promotions, and better restaurant execution. The ONE Group completed the purchase of Kona in October for $25 million.
In July, systemwide comps slid 25 percent. That breaks out to a 36 percent decline at STK and a 16 percent slip at Kona Grill. Each brand has been boosted by an off-premises channel that has grown from 5 percent of sales to 13.7 percent.
Quarter-to-date, 34 of 36 Kona Grill and STK units in the U.S. are open. The two that remain closed—STK Miami and STK San Juan (Puerto Rico)—will open soon, Hilario noted. Internationally, the company resumed in-person dining at six of eight STK restaurants.
The company isn’t without its obstacles, however. Hilario said New York and Miami are the most challenged STK markets. Because of rising COVID cases, neither area is allowing in-restaurant dining. Comps are decreasing 54 percent in those areas and the brand doesn’t have access to roughly 80 percent of its seating capacity in the markets.
STK Las Vegas is facing its own set of issues. The 50 percent capacity limit has prevented the store from meeting customer demand. Hilario said the location has to turn away as many as 100 to 200 people per night because there aren’t enough seats. Same-store sales slid 34 percent at the flagship unit in July.
But with that said, the company was still able to achieve positive restaurant-level margins. And if you exclude New York, Miami, and Las Vegas, mainland domestic STK units in July would’ve decreased 17 percent.
“I think the general environment is extremely complicated and challenging right now,” Hilario said. “But I just think the team has done an exceptional job of going out and retooling our marketing because the marketing in this environment is different. There's no business. There’s no real tourism business. So we have to re-shift or shift our marketing resources and our programs towards more social occasions, date night, birthdays, and such type of occasions.”
To expand Hilario’s comments on marketing, the company is leveraging STK’s loyalty database of more than 1.5 million users to deploy email campaigns and boost its social media presence. It’s done the same for Kona Grill, which has more than 300,000 loyalty members.
The ONE Group also launched STK Meat Market in April, a program that allows customers to purchase a variety of meat, including signature, choice, prime and Wagyu steak cuts for delivery.
Regarding growth, the company is close to opening a restaurant in Scottsdale, Arizona. It’s also hoping to open a unit in Bellevue, Washington by the end of 2020.
Hilario said there’s no internal plan to expand Kona’s footprint, but he indicated there has been a high amount of interest. But right now, the goal is to move Kona to flat same-store sales.
“Our next big milestone is to really have a very strong holiday season with all brands,” Hilario said. “And then we'll figure out what growth comes after that. But there's a lot of demand. I mean, there’s—believe it or not—there’s now places that landlords are starting to get concerned about—if they're going to be empty—and they're asking. And our answer to them is, give us a little time to see what happens, and we'll get back to you.”
In Q2 overall, systemwide comps dropped 66.7 percent after sinking 14.1 percent in Q1. Prior to that, the ONE Group had more than a half-dozen straight quarters of positive growth, each one increasing more than 6 percent. Q2 revenue dropped from $23.6 million to $16.7 million, or a decline of 29.4 percent.