Speaker 1: You're listening to Bloomberg Business Week with Carol Masser and
Speaker 1: Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. We know
Speaker 1: we've talked about this a lot on our broadcast about
Speaker 1: one of the hardest hit industries by the health pandemic,
Speaker 1: and that is hospitality, restaurants, bars, restaurants in particular. Someone
Speaker 1: who has been rescuing some of the most troubled businesses
Speaker 1: over the years is John Taffare, host and executive producer
Speaker 1: of Bar Rescue. Yes, uh, you know him well, and
Speaker 1: he joins us once again back on Bloomberg Business Week,
Speaker 1: and he joins us on the phone from Las Vegas. John,
Speaker 1: how are you hope you're doing well. I'm doing just fine. Kyle,
Speaker 1: good to talk to you again. Yeah, great to have
Speaker 1: you here. We just had on um a guest in
Speaker 1: the commercial real estate space, and we're specifically really talking
Speaker 1: about and focusing on what's going on here in New
Speaker 1: York City. Uh, we know the restaurant space, especially in
Speaker 1: major cities, especially in New York, they're really under a
Speaker 1: lot of pressure. And he's really wondering, you know, what
Speaker 1: happens on the other side a restaurant that slows down
Speaker 1: is you know, it's slow to see another one reopen um.
Speaker 1: I do want to get into specifically what you're doing
Speaker 1: with your taffer's tavern, but give us the big picture.
Speaker 1: You talk to business owners all the time. You see
Speaker 1: what's happening. You've seen other cycles. How does it feel
Speaker 1: where we are right now? Well, it's it's obviously, Uh,
Speaker 1: we're all been greatly wounded. And the issue becomes resources, Carol.
Speaker 1: I mean, do we spend resources now while the market
Speaker 1: is sort of dysfunctional? Uh, and then we don't have
Speaker 1: the resources to expend when the market comes back. Or
Speaker 1: do we hold resources now so we have them when
Speaker 1: the market comes back. You know, it's a difficult choice
Speaker 1: for operators. And the longer we sustain in this, I
Speaker 1: call it a dysfunctional markets, which is worse than a
Speaker 1: disrupted market. The longer we sustain in this, the greater
Speaker 1: the debt load and the greater percentage percentage of restaurants
Speaker 1: that we lose or Uh, you know, they're going to
Speaker 1: have to face that landlord and there's going to have
Speaker 1: to be a renegotiation if there's no stimulus package, and
Speaker 1: certainly landlords are going to have to be aggressive in
Speaker 1: retaining some of these tenants. But there's another side to this, Carol,
Speaker 1: if it will yeah, and that is, you know, we
Speaker 1: have the vaccines hitting within quality five to six weeks.
Speaker 1: Even according to Dr Fauci, we have seven hundred million
Speaker 1: by April one hitting. So let's take a look at
Speaker 1: the spring for a moment. Restaurant capacity will be down
Speaker 1: for sure, right, We're gonna lose of independent restaurants, so
Speaker 1: capacity will be down. And I suggest that the next
Speaker 1: thing people are gonna do after they get the vaccine
Speaker 1: is go to dinner. So I see a great market
Speaker 1: opportunity this spring post vaccine, and I see a much
Speaker 1: lower industry capacity. So dare I say I sense boomtown?
Speaker 1: And I sensed that landlords who are aggressive now in
Speaker 1: protecting their tenants and bringing in some new ones right
Speaker 1: in key locations, will be postured to take advantage of
Speaker 1: the boomtown that we see coming this spring. Well, that's
Speaker 1: exactly what we're talking about with our last gasp, Pierre
Speaker 1: de Bas. I mean they have been renegotiating or working
Speaker 1: with landlords, working with especially when it comes through reading
Speaker 1: retailer restaurant space, basically saying give us ten. I think of,
Speaker 1: you know, your gross revenues or something for the month,
Speaker 1: and that's how we'll we'll kind of get through this
Speaker 1: period um. So it kind of is John. You know,
Speaker 1: we at Bloomberg we talked about what kind of recovery
Speaker 1: K shaped, W shaped, V shaped. It sounds like what
Speaker 1: you're saying is you're setting up or anticipating that come spring,
Speaker 1: when we do see the vaccine being used more broadly,
Speaker 1: that we could see a big recovery because there will
Speaker 1: be people pent up demand who just want to get
Speaker 1: out and use restaurants. So for those that survived, it
Speaker 1: could be a really good market environment. It could be
Speaker 1: a great market environment. But one of the issues is
Speaker 1: Kyle people are gonna lose some guest loyalty because they
Speaker 1: haven't really been interacting with their marketplace in some cases
Speaker 1: for eight months or so. So you know, I caution
Speaker 1: restaurant operators to think of this as a launch, not
Speaker 1: to reopen, so they have to reposition their brands, they
Speaker 1: have to reignite brand awareness. They should really think of
Speaker 1: this as a reopening. And that's where we get back
Speaker 1: to what we started with, which means retain some of
Speaker 1: your resources. Now so that you have them to position
Speaker 1: yourself for success in just a few months. So one
Speaker 1: of the things, man, I've you know, I've been watched binge,
Speaker 1: watched on your show. I mean, some of these businesses
Speaker 1: though they're already losing money or they're just slim margins.
Speaker 1: It's a hard heart business. How many people do have
Speaker 1: resources kind of on the sideline, a little bit of
Speaker 1: a safety net because from I feel like from my conversations,
Speaker 1: there's not a lot to do. No, there isn't a
Speaker 1: lot that does And you know, typical margins Carol could
Speaker 1: be between eight and twelve percent of revenue. Occupancy rent
Speaker 1: is typically about ten percent of revenue if the numbers
Speaker 1: work so so, and if an operation does three dollars
Speaker 1: a foot, then the rent would be about for thirty
Speaker 1: dollars a foot. When those ratios get out of whack
Speaker 1: and the rent becomes which is what's happening now with
Speaker 1: the revenue reduction, it's unmanageable and the landlord understands that.
Speaker 1: And it's interesting. But this is what you said earlier
Speaker 1: is the solution, and it's to get rid of the
Speaker 1: base rent and negotiate percentage rents so that in the
Speaker 1: low end, the tenant is protected. In the high end,
Speaker 1: the landlord is rewarded. And that's a formula that really
Speaker 1: makes sense when we sit down and percentages can have
Speaker 1: plateaus right at certain levels. They can go up, they
Speaker 1: can go down and then be very creative. But that's
Speaker 1: a really logical and quick solution for a landlord and
Speaker 1: tenants right now, So John, tell us about what you
Speaker 1: guys are doing with Taffer's tavern. And you've actually had
Speaker 1: some of these. I think, is it one open up
Speaker 1: already for some training, So tell us what the concept
Speaker 1: is and how it's going. You know, it's interesting, Kyle.
Speaker 1: We started creating this two years ago when there was
Speaker 1: no labor available, and I started by by looking at
Speaker 1: our labor model at the time there was no labor available.
Speaker 1: There was the biggest problem in a restaurant industry. We're
Speaker 1: looking at fifteen dollar minimum wages and in many cases
Speaker 1: uh candidates for jobs with New Americans and our language barriers.
Speaker 1: So I said, the casual dining model cannot sustain itself
Speaker 1: this way. We couldn't staff the kitchens. So we went
Speaker 1: on a quest two years ago to reinvent food service
Speaker 1: with robotics. And computerized cooking systems and to completely reinvent
Speaker 1: the kitchen. And our purpose was to create back of
Speaker 1: house labor costs at of the industry norm and replacing
Speaker 1: it with technology. So we then worked for two years
Speaker 1: in test kitchens and with great technology partners UH in
Speaker 1: equipment technology partners, transactional technology partners like SHIFT for in
Speaker 1: middle being companies like that, and we reinvented the restaurant
Speaker 1: model and created a product quality that's that's incredibly consistent
Speaker 1: because it's all done by computer. So now we opened
Speaker 1: our first one in Alpharetta, Georgia. We've sold almost twenty
Speaker 1: franchises around the country. We're opening in Boston and Washington,
Speaker 1: d C. And kind up scale, right, I've I've seen
Speaker 1: some images and I've you know, like, what's the market
Speaker 1: you're going after. So we're going it's a franchise. We're
Speaker 1: going in a middle market. It's a very very nice
Speaker 1: upscale environment at a at a mid scale price point.
Speaker 1: But it's interesting cow because it reconnects to what we
Speaker 1: were talking about earlier about the landward situation. We've been
Speaker 1: selling franchises and you think during a pandemic you wouldn't
Speaker 1: be selling restaurant franchises right now would be a logical assumption.
Speaker 1: But sophisticated operators are buying franchises, Chris. They're saying, right
Speaker 1: now there's an opportunity to get great sites across America
Speaker 1: that are being lost. Well, so that is so they're
Speaker 1: looking to to obtain great landmark locations due to the
Speaker 1: turnover of the pandemic. Right it's an it's funny because well,
Speaker 1: it's not funny because I hate to see anybody, you know,
Speaker 1: kind of struggle through this environment. But you know, there
Speaker 1: are opportunities that are created. We always see it. You
Speaker 1: know at any market when there's distress, there are investors
Speaker 1: or you know, entrepreneurs who can figure out some opportunities.
Speaker 1: But I want to understand is tell me how it
Speaker 1: all works. So is it all technology or limited kitchen staff?
Speaker 1: How does it work? It's a limited kitchen staff, but
Speaker 1: they're operating equipment, they're not handling food. So because of that,
Speaker 1: when we were when we were finished about a year ago,
Speaker 1: we realized, holy how when COVID hit, we had the
Speaker 1: safest kitchen in America because we were completely compactless. Uh
Speaker 1: So we put an unbelievable technologies that you put your
Speaker 1: hands under. It scans your hands and if there's any
Speaker 1: viral of bacterial content on your hands, you're sent back
Speaker 1: to wash again. We put an unbelievable transaction technologies and
Speaker 1: we compartmentalize the business to make certain each compartment was safe.
Speaker 1: And you know it's not only for COVID. You know
Speaker 1: next year we're going to have another flu. When somebody
Speaker 1: sneezes in an inside room. After this, people are going
Speaker 1: to look at them with scorn, you know, coughing and
Speaker 1: an inside in a movie theater, forget about it. So
Speaker 1: this is an environment today that people are going to
Speaker 1: continue with sensitivity I think, to keeping healthy environments along
Speaker 1: after COVID. That is just fascinating. So you've gotten in Atlanta,
Speaker 1: tell me and you said, you're selling franchises. And you said,
Speaker 1: did you sell? You said you sold about twenty. Yeah.
Speaker 1: So we we sell territories. So we sell markets of
Speaker 1: five units obviously the very qualified investment groups and operators.
Speaker 1: And we have now the Boston franchise in the Washington franchise.
Speaker 1: I say this with a smile on my face. They're
Speaker 1: racing to be number two, which which is terrific. And
Speaker 1: they're finding that there are great locations out there, and
Speaker 1: sophisticated operators are reacting. You know, it's almost like a
Speaker 1: forest fire count you know that everything burns down, but
Speaker 1: then you see the little green buds pop up right,
Speaker 1: and it's sort of the evolutionary process. And for many
Speaker 1: restaurant operators, keep in mind, the bars are there, the
Speaker 1: kitchens are there, so it's more of a retrofit than
Speaker 1: a complete construction project. So there's opportunities for restaurateurs to
Speaker 1: go into pre built out spaces and just remodel them,
Speaker 1: which reduces the opening cost. Heck, like John Listen, one
Speaker 1: of the things I like, you know, watching when you're
Speaker 1: doing your show is you know, you're sitting down, you're
Speaker 1: looking at the you know, understanding the finance, the business
Speaker 1: part of like how you run it. I mean, and
Speaker 1: often you come into a situation or scenario where people
Speaker 1: are losing tons of money and that's obviously not a
Speaker 1: sustainable way of running a business. What I'm wondering too,
Speaker 1: when you look at the financial equation of increasing the technology,
Speaker 1: reducing to some extent right labor or not to some extent,
Speaker 1: you are reducing labor, So what's the financial model. What
Speaker 1: how does all of this impact the margins of running
Speaker 1: a restaurant. It increases margins by about twelve, which in
Speaker 1: very many cases can be increase in margins. The biggest
Speaker 1: expense we have is labor costs in the industry, which
Speaker 1: will run typically thirty Our second biggest expenses food costs,
Speaker 1: which can also run If you think about it, that's
Speaker 1: costs before I even paid for rent, utilities, insurance, maintenance,
Speaker 1: any of those the things. So that's where the costs
Speaker 1: get eaten up the most in those two big ones,
Speaker 1: food costs and labor cost Yeah, it's just in fascinating.
Speaker 1: It's just kind of interesting to see. And I found
Speaker 1: it interesting that you were doing this two years ago
Speaker 1: because of labor shortages. Yes, and it's interesting how the
Speaker 1: model worked out. By reducing human involvement in the kitchen,
Speaker 1: we created a really safe environment, which was a consequence
Speaker 1: of our work. But this was really a labor of necessity,
Speaker 1: we thought at the time. Yeah, it's really fascinating. Do
Speaker 1: you feel like a year from now things will be
Speaker 1: significantly different in this space? I do? You know? It
Speaker 1: depends upon some of it, upon government actions, upon how
Speaker 1: quickly this happens. About three weeks ago, I interviewed President
Speaker 1: Trump for the hospitality industry and we talked about four
Speaker 1: key programs, and I was hoping it would happen after
Speaker 1: the election, even before the inauguration, but apparently it's not.
Speaker 1: And of course, the p p P program was discussed
Speaker 1: with about six months of debt relief in it. That
Speaker 1: would be a big deal. There's an employee retention X
Speaker 1: credit that now affects a very few types of restaurants.
Speaker 1: There was a commitment to broaden the scope of that,
Speaker 1: which is significant. And then President Trump and I'm not
Speaker 1: sure about President elect Biden's position on domestic travel incentives,
Speaker 1: but if they proceed with domestic travel incentives the right
Speaker 1: PPP plan and they look at employee retention, I think yeah.
Speaker 1: I think the p PP digs us out and the
Speaker 1: other programs will get us going. All right. Can I
Speaker 1: leave it on that note. Good luck, John. Nice to
Speaker 1: check in with you. John taff Our host and executive
Speaker 1: producer Bar Rescue on the phone from Las Vegas.