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Meal Plan
Image by John Ritter
In 2019, US restaurants topped $860 billion in revenues; prior to COVID-19, Americans spent more for food away from home than food purchased for at-home consumption, whether it be a pitstop at fast food drive-through, a lunchtime burrito bowl, or a leisurely three-hour dinner at a white-tablecloth restaurant. This year is looking a little different. On May 8, as some states loosened dining-in restrictions and others maintained strict guidelines for takeout and delivery only, the Bulletin held a virtual roundtable on the future of the industry with senior lecturer and restaurant investor Lena Goldberg; visiting lecturer and restaurant veteran Michael Kaufman; Christian Charnaux (MBA 2006), chief growth officer at Inspire Brands, with more than 11,100 Arby’s, Buffalo Wild Wings, Sonic, and Rusty Taco restaurants; and Keith Pascal (MBA 1992), partner at ACT III Holdings, a $300 million fund with investments in several restaurant concepts including Tatte Bakery, CAVA, Life Alive, BJ’s Restaurants and Clover Food Labs.
Christian, can you walk me through how the management team at Inspire Brands has responded to the impact of COVID-19 on the company’s 11,100 restaurants? And Keith, what has the situation been with Act III’s smaller, fast-casual portfolio of restaurants?
Christian Charnaux: We established our first task force in late February; at that point, the virus wasn’t hitting our businesses, but there was enough going on that we felt we should start trying to get on top of it by holding morning and evening standup meetings of the entire executive team, which we’ve continued with to this day.
By mid-March we were getting local and federal guidance and trying to figure out what it was exactly that we were trying to manage. With over half of all food consumed outside of the home, we felt it was critical to continue to operate—our restaurants serve 4.3 million meals a day on average. With so many of our locations already set up for drive-in, drive-through, and takeout, about 97 percent of our system has remained open throughout the crisis. Many of our brands—Sonic and Arby’s in particular—are doing well, and doing so in more compressed timeframes, because breakfast and late-night dining are no longer part of peoples’ routines.
Keith Pascal: At first, we were battening down the hatches and assessing where we were from a cash perspective, trying to get a sense of what the baseline was going to feel like. Then we started to get very creative and scrappy about taking care of people yet still running our businesses. We experimented with shuttles, for example, so people didn’t have to take public transit. We also invented some new product and business models. One brand in the Boston area is Life Alive Organic Café. It’s a plant-based, fast-casual concept that’s very health-oriented. Our hypothesis was that it was going to be more difficult for Life Alive customers, who tend to have special dietary needs, to access the food they wanted. To address that, we created three- and five-day plans with ready-to-eat, portioned meals that you could just pull out of the refrigerator. That business has really taken off. This is a $100-plus average transaction. We’re seeing repeat business from people, and the feedback has been, “Please don’t take this away when COVID ends.” Now we think we’re going to be in a new business when we come out of this; it’s also inspired us to look for investments that play off that meal-plan trend.
Restaurants are the second-largest private employer in the United States. Will the current crisis drive improvements in pay and benefits?
CC: In terms of numbers, it’s hard to see an environment where there will be meaningfully more people working in restaurants than there were 90 days ago. The willingness of customers to pay for high levels of service at the front of the house may decrease. And there’ll be additional costs to maintain that level of service due to the decreased capacity demanded by social distancing. There could be higher compensation, but most likely that would be with fewer workers. It’s not a positive picture, I’m afraid.
Michael Kaufman: In 2019 the industry had 15.3 million employees; the forecast for 2020 was 15.6 million. I don’t know that we’ll see those levels in the future—as of early May, 8 million of those jobs have been lost. I do think the question of striking the right balance in terms of compensation will be directly affected by how restaurants approach dine-in versus delivery and takeout; it will also look different in the quick-service restaurants versus the fast-casual or higher-end, white tablecloth dining segments. Restaurants are inherently labor-intensive, with more employees per dollar of revenue than almost any other industry. Balancing compensation and consumers’ willingness to pay is challenging.
Lena Goldberg: Many people are speculating that we’ll have far fewer restaurants in the fine dining segment. Reopening at 25 percent or 50 percent of original capacity will not be profitable. If social distancing restrictions remain in place, not for the next two months but the next year, how will fine dining restaurants survive? Some are contemplating continuing to emphasize curbside pickup, takeout and delivery, which could be big winners. Compensation will continue to be very tricky because revenues will be lower with fewer people dining out and restaurants operating at less than full capacity. There will be fewer restaurant employees. Compensation as a function of what restaurants should or would like to pay is one question. We all want a living wage. We all want great benefits. But even with reduced numbers of employees, how much can a restaurant afford to pay if it wants to stay in business? It’s going to take some time before we know how this is going to sort itself out.
Christian, do you have a sense of what the customer experience will be like when Inspire’s restaurants reopen?
CC: The industry as a whole is entering a new phase of uncertainty as we begin to consider what dining-in looks like. Inspire has restaurants all over the country, so for us it’s going to be a jurisdiction-by-jurisdiction decision in terms of when and how we reopen. In Georgia, where I’m based, we’ve seen staged re-openings of some restaurants, but so far there’s not a huge pickup in the numbers of people eating out. Customers are being very, very cautious, and rightfully so. In that sense, you can lose a lot of money being closed, but you can lose even more by being open. And remember, when we come out on the other side of this, we’re going to be in a recession. Getting across the finish line of the COVID-19 crisis does not mean you’ve won. Some restaurateurs might consider waiting until more is known before they brave reopening in the current environment.
From a sociological perspective, I would just add that everyone’s habits have been broken at this point. Your morning coffee habit. Your lunch habit. The bars you went to at night. And sadly, the places you used to frequent may not be there when we’re all back. In that sense, there’s a huge opportunity for those coming out of this with some financial strength, because I don’t think people’s desire to have food away from home is going to fundamentally shift. It may take a while to get back to the same levels of demand we had 90 days ago, but that demand may be chasing less supply, which means there could be new consumers up for grabs.
MK: As of April 24, data I have seen show that Starbucks’ weekly revenue was down by about 74 percent versus last year, and at Dunkin’s by close to 28 percent. But Keurig is doing well. And when I placed an order with Nespresso, I got a message that it would take two weeks to arrive, so clearly its business is booming. We’ll need to watch carefully those changes in habits; consumers may find there are less expensive ways to eat and drink at home. Families are eating together more now than they have in the past. Until we can return to restaurants as gathering experiences, restaurants may look for ways to provide a value-driven, convenient way to meet that demand with family-size takeout meals.
What other trends might emerge from this time?
LG: If takeout and delivery continue to hold strong, I think you’ll see changes in two areas: menu design, in terms of the items offered, and packaging. Consumers are going to become much more driven by who is providing the food they want, and they will want tamper-proof containers that can be easily and safely stored and reheated. They’ll also want assurances that the people making and delivering their food followed health and safety protocols.
CC: Order-ahead for pickup will continue to hold strong, but I’m a little more skeptical on the topic of third-party delivery providers [such as GrubHub, UberEats, Door Dash]. At the moment they have a captive audience, little to no street traffic, and large check sizes, because as Michael pointed out, you’re feeding a family.
KP: In my opinion, the model for third-party delivery is broken and exists only because it’s been subsidized. I think we’ll see more delivery in the future, but it will be a brand-based experience with ideal packaging and branding, right down to the person who brings it to you. Domino’s is a special, purpose-built machine for pizza delivery, and it’s a damn good machine for that price point and product. The brands that focus on takeout and delivery and execute it really well will survive.
As restaurants began to consider when and how to reopen, we asked our roundtable what they've been missing about the dining experience—and what will be their first spot to visit
Lena Goldberg: More than any one restaurant, what I miss most is getting together with a group of friends, enjoying good food and wine, and having a great conversation. Restaurants are a third space where you can form a sense of community, whether it’s a really quick bite at a fast-food place or a sit-down dinner at a white tablecloth restaurant. They are a space designed for connecting with one another, and I miss that.
Keith Pascal: I’m a creature of habit. Just outside Chicago there’s a wonderful Italian restaurant that’s just a hole in the wall—it’s actually called Francesco’s Hole in the Wall. There’s a table in the back of the kitchen that’s my favorite place to sit. I love the safety and security you feel from walking into a little place, knowing a few people, and sitting at the same table.
Michael Kaufman: Just the idea that we can gather in a restaurant would be the most important thing to me. My wife is as a physician, and she can’t imagine going to a restaurant right now. I want to get us, as a country, to feel good and safe about dining out again. It may happen sooner rather than later as we look at protocols for reopening. Ironically, my last restaurant meal was with Lena in Cambridge at a wonderful Italian restaurant. Our guests at our HBS class on March 12 included Thomas Keller and his company’s CEO, Joe Essa, so we had dinner that night with Thomas, Joe, and two wonderful Boston-based chefs, Jody Adams and Joanne Chang. A pretty heady group for our last restaurant supper!
Christian Charnaux: In Georgia, we’re at the tip of the spear, whether you think it’s a good idea or not. A local steak house in Atlanta opened up this week and we decided a group of us would go in a show of solidarity to see how they’re operationalizing a fine dining experience. It was their first seating, their first day open, and we found out that people had made reservations weeks in advance to be there. The servers were wearing masks, we had disposable menus, and there were protocols for coming into the restaurant. Sitting in the restaurant with friends and having food that you can’t replicate at home—I don’t care how good you are at making a steak—it was great. There is something so human and basic about the surprise and delight of being served.
One thing I’m looking forward to is returning to New York City, where I spent a lot of time after college. There are a number of hole-in-the-wall places that I’m excited to get back to, partly because it means they’ve survived and partly because if I’m having dinner in New York, the epicenter of the virus, it probably means we’ve kicked this thing. I can’t wait for that.
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