Before and after
Beyond real estate and landlord dynamics, the restaurant industry is facing a litany of macroscopic changes, forcing many to reflect on how they’ve been doing business and how that should change.
In Oklahoma City, restaurateur Rachel Cope has built a small empire of five concepts under the 84 Hospitality umbrella. Early March marked double milestones: Not only was it the company’s first replication of an existing concept, but it was also its first foray into a new market. But within a week of opening Empire Slice House in Tulsa, Oklahoma, dine-in bans began sweeping the nation.
Even though Cope had an area director on the ground and had herself been living in Tulsa part-time leading up to the opening, the new Empire Slice House didn’t yet have the infrastructure and brand recognition to sustain itself. That location closed so 84 Hospitality could concentrate on off-premises business for its more established concepts. Four brick-and-mortars are open for carryout and delivery, while the fifth concept is now sharing space with one of its sister restaurants.
After two days of what Cope calls “sad time,” she dusted herself off and began taking a hard look not just at her expansion strategy, but also at the core of each concept. Gun Izakaya, the most upscale in the 84 Hospitality collection, was the first one she set her sights on, especially since it’s been sharing space with Gorō Ramen amid the dine-in restrictions. That’s not to imply the restaurant wasn’t turning heads—the chef (and Cope’s business partner), Jeff Chanchaleune, was named a James Beard Award semi-finalist in February—but it had yet to become a profitable enterprise.
“It’s going to have to change if we want to see success,” Cope says. “It was doing fine, but we thought it could maybe be better. Now we’re exploring how you make this a little more casual, a little more accessible for people price-wise, because it was a special occasion–type restaurant for a lot of people.”
For Gun Izakaya, change could come in the form of adding lunch, changing the seating arrangements inside, and expanding to the patio outside. Empire Slice House could become more of a hybrid in terms of service format. As a laidback pizza concept, it has offered to-go since 2017; Cope had even considered making it a quick serve, but the space was more conducive for a full-service operation. At only about 1,600 square feet, Gorō Ramen may also retool its layout to not just increase in-house seating, but to also make room, literally, for carryout as a permanent service.
“Gorō did zero to-go before. … We didn’t think we could handle in-house dining and to-go just because we don’t have enough space,” Cope says. “But it’s been able to do about 50 percent of its normal sales volume in to-go, so we’ve been pleasantly surprised by that. Now we’re worried that people won’t accept it when we say, ‘OK, we’re going back to not doing that anymore.’”
Some foodservice operators (mostly those on the quick-service side) are calling COVID-19 the final nail in the coffin of full service as a competitive restaurant segment. But those who are actually running the brands know better. Rather than write off an entire service model, they are embracing certain aspects of limited service, much the same way chef-inspired fast casuals pulled inspiration from upscale restaurants.
Even before the coronavirus, Lazy Dog had been upping the ante on its off-premises business by taking concrete steps like streamlining operations and fine-tuning packaging. It has benefited from that foundation and kicked things up a notch.
When the brand first made the switch to takeout- and delivery-only, it condensed the menu to core items, which was still quite the selection, including some two-dozen entrées as well as starters, small plates, wine, beer, and dessert. Going a step farther, it has added a variety of pantry kits; most are interactive, DIY meals like the Pizza Night Kit and the Backyard BBQ Kit, but customers can also order the Home Essentials, which includes kitchen staples like a loaf of bread, eggs, milk, chicken breast, and, of course, toilet paper.
“I have seen these communities rally around us and use us both as a restaurant and as their supermarket,” Simms says. “People don’t want to constantly listen to the doom and gloom. Instead, they want to have that lightheartedness in their lives. We really see that in the pantry kits.”
Lazy Dog will likely continue offering these carryout packages even after the restaurants are back up and running since Simms, like many other restaurateurs, anticipates some hesitation on the consumers’ part, especially when the threat of a second wave of COVID-19 cases hangs in the air. The team is also exploring ways to integrate more technology into the dine-in experience. Simms believes some of the no-touch systems that many grocery stores and retailers have already adopted (such as RFID credit card processors) could be utilized within the restaurant environment.
For Eureka!, embracing technology more wholeheartedly serves the double purpose of easing customers’ minds and cutting costs. An online system for to-go streamlines the process, helping the back of house organize orders and cut prep times while freeing up staff to do other tasks instead of fielding phone calls. Nedelman thinks the pandemic has already nudged some consumers to be more tech savvy, pointing to his own parents as an example; they have become infinitely more comfortable using smartphones in just a few months.
But for as much as Nedelman is embracing cutting-edge technology, Eureka!’s future will be a throwback to the past in many ways; the restaurant was founded in the height of the Great Recession. Simplifying the menu, cutting fixed costs where it can, and becoming a leaner concept overall are some of the ways it’s returning to its roots.
“Everything should be on the table, including things that were untouchable pre-crisis. I believe you need to be a blank slate. Now you get to look at everything you do,” he says.
Like many industry professionals, Nedelman saw the restaurant world ballooning toward an unsustainable girth. Simply put, the number of restaurants had outpaced consumer demand. Under this line of reasoning, the pandemic only hastened the inevitable. “This COVID-19 virus is like an accelerated Darwinian reality for restaurants. Anything that was going in that direction is sped up by like five years, whether that’s technology, whether that’s the pressures associated with certain costs at full service versus limited service or fast casual,” Nedelman says. “There are going to be fewer seats out there, so those [restaurants] that are really scrappy should thrive post-crisis.”
He predicts the new restaurant landscape will be heavily populated by concepts that marry the best of full service (high-quality food, nice atmosphere) with the best of limited service (quick throughput, competitive prices) and bring a strong bar program to boot.
As bleak as the upcoming year or longer may be, the restaurants that weather the storm could be rewarded with favorable conditions, from a more stabilized market to better growth opportunities.
For example, when 84 Hospitality began laying the groundwork in its second market, Cope found it difficult to find and attract employees for the Tulsa location of Empire Slice. Like most places in the U.S., the city was already filled with restaurants, plus the brand didn’t yet have the street cred in Tulsa that it enjoyed in Oklahoma City. Cope imagines that once the dust settles, the group will not only have a larger labor pool to hire from, but it will also have more real estate options at competitive prices.
“It’s not really the silver lining because, no matter what, it’s sad for restaurants across the country. But in some of these areas where things were so saturated and there was such high demand, … the rent was astronomical. That’s going to change now,” Cope says. “There are going to be a lot of restaurants that close, and [the spaces] are going to be available. They already have the infrastructure built instead of having to build something in a blank shell, that costs a lot more. … It might allow us to do some expansion for less than it would have been before.”
Although real estate prices will likely fall across the country, emerging brands might still do better keeping growth closer to home, even if that means passing up opportunities to plant flags in far-flung locations at a bargain price.
For East Coast Wings, the coronavirus has marked an inflection point in its expansion strategy. The chain was already concentrated in the Carolinas, with outlier operations in more distant markets of Texas and Pennsylvania. Until a vaccine is developed, it will refrain from selling new franchises, but even after that, the company won’t seek partners thousands of miles away.
“This pandemic has allowed me to really look at the brand, at its strengths and weaknesses ... and say that over the next 5–10 years, East Coast Wings + Grill is going to look like more of a super-regional franchise model instead of a national model. And we’re going to stay in the Southeast,” Ballas says. “There’s enough market share in that piece of the United States that this brand could probably have as many units as the national players. By making that call now, I think it will make the brand much stronger because it will help us not only with supply chain focus, but also with managing any type of future catastrophe like this again.”
But for all the operational refinement, strategic adjustment, and general preparation, restaurants are playing a game of chance, trying to divine what the future will look like both in the coming weeks and months, as well as much farther down the line. Firebirds’ Loftis says the fate of many restaurants—all the way from mom-and-pop independents to emerging brands to 100-unit chains—could very well hinge on a relatively short time frame.
“If this thing is [improving] by maybe mid-June, and if folks were able to bridge that gap with some stimulus money and additional revenue, maybe they’re in a bit better personal income shape to come back out and dine and get back a sense of normalcy,” Loftis says. “If this thing goes on through August or September and consumers are dipping into savings or living paycheck to paycheck, which is the vast majority of folks, I think it’s a very different conversation.”