RFW Around the Industry Blurb

To kick off Restaurant Finance Week, panelists took a look around the industry during the popular quick-hit panel dubbed Around the Industry in 60 Minutes. Like just about every business conversation these days, it was heavily focused on the impacts and opportunities of the COVID-19 pandemic.

Larry Reinstein of LJR Hospitality, Dave Bennett of Mirus Restaurant Solutions and Bill McClave of Birchwood Resultants all contributed to a snapshot of the COVID-era restaurant industry from their own unique perspectives.

To start, Reinstein talked through all the various operational tweaks and pivots endemic during the pandemic. The smaller menus helped make things more efficient, expanding patio dining brought diners back and kept alcohol sales, and family meals buoyed tickets as traffic lagged. There were so many one-off ideas like steakhouses becoming butchers and subscription services for coffee and beer (two pandemic essentials), but one thread ran through nearly all of the success stories.

"In most all cases, enhanced technology has been key in making the experience fast, safe and efficient," said Reinstein.

He said leaning on existing tools or hasty upgrades helped power everything from digital-only limited time offers and opening up virtual brands to keep the kitchen staff working.

Looking ahead, Reinstein sees two paths for restaurants: convenience or experiential. If those sound a lot like what advisers were saying last year, they are. COVID-19, however, has changed how both sides of the restaurant industry will play out. Convenience has changed. Pinto, a 10-location restaurant based in Florida, just went from long ordering lines to QR codes for ordering and paying. Servers then bring the food. It's a hybrid of casual and fast-casual but more convenient than both. The big change on the experiential side is opportunity, various brands like the putting-green themed Puttshack and bowling-themed Pinstripes have more real estate options and exceptionally eager consumers. In short, diners have new demands for convenience and bigger expectations for experiential dining.

At an industry level, there is still a long way to recovery depending on trade areas and vertical. Bennett dug into the industry sales and traffic he watches at Mirus for a little summary of what he saw as four key periods of sales and traffic recovery.

"We detect four phases of the recovery so far. The initial phase started before March was even over. It was very quick recovery, we went from 66 percent down all the way back up to about 30 percent sales loss in a couple months," said Bennett. "It was a really quick recovery, I had hope that even by the end of the third quarter that we'd be back. Of course, that didn’t happen because of the summer slow."

That initial boost when people emerged from their pandemic panic pantries was fast, but the recovery slowed fairly dramatically in the summer months as the virus spread and more jurisdictions put new rules in place to slow the spread.

Then came August and Bennett saw another surge starting the next phase that carried through mid-September—it was a nice bump in business, but no V-shaped recovery. He said the current phase, phase four, is happening right now.

"Currently, we're in a bit of decline, the rate of improvement is slowing down and we have more volatility. School has returned, and people are adjusting again and new patterns are developing," said Bennett. "That has contributed to a slower growth."

QSR is about even or better than last year; fast-casual remains about 7 percent down. Table service is still down about 27 percent, with some brands doing better than others.

Non-traditional spots are doing the worst. The pandemic has had an outsize effect on travel-focused locations, cinema and mass retailers like malls. Outlets in those areas remain down in sales by about 50 percent.

McClave tapped Birchwood Resultants data to explore that tricky question of data at a deep level. He echoed Bennett's assertion that mass-retail centers and downtown daytime business centers were especially hard hit, while drive-thru heavy QSR thrived.

McClave had five key real estate lessons. The first: make darn sure to have a varied customer base with daytime traffic, shopping and residential.

"If you're evaluating real estate on models based on pre-COVID, and that’s the vast majority, those models and the usefulness are out of touch with the current environment. First you have to look at your trade areas for today and tomorrow. We believe you need balanced trade areas," said McClave. "The residential today needs to be strong enough for your targeted returns, at the same time you need both of those other two bases, not for the short term but when we come out of COVID people will come back and you'll need to hang on to those sales."

Second, restaurateurs need to pay a lot more attention to site-specific variables. Where the location is, visibility, ingress and egress have always been important, but in an era of fewer trips and less shopping means those things are more important. A site in comparison with competition is key, too, not just how they're doing but what a potential site looks like relative to them. When a site ranks better, the sales outcomes are better by a nearly two-to-one margin, said McClave.

The third lesson, and a key one for operators looking to invest now, is all about where to put that capital. Essentially, invest in things like curbside service, patios or drive-thrus where you'll see the greatest impact.

"It's exciting to put out these spots in our lowest stores first. But the fact is the lowest-volume stores are sitting on low quality real estate. Our advice is to take those changes to your highest performers first so you can get the greatest benefit early," said McClave.

The fourth lesson: forecast sales twice. Once for COVID and once for pre- or post-COVID. And the last: just operate well. He pointed to Freddy's Frozen Custard and Steakburgers, which shortened drive-thru wait times by 25 percent and saw a 44 percent increase in sales.

Restaurant Finance Week, a virtual finance conference produced by Franchise Times and the Restaurant Finance Monitor, continues through November 13. Access the conference portal here to watch previous sessions and view upcoming panels.

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