WEBVTT - Taffer Sees 'Darn Good' Summer for Restaurants 0:00:00.040 --> 0:00:03.600 You're listening to Bloomberg Business Week with Carol Masser and 0:00:03.720 --> 0:00:08.119 Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. We know 0:00:08.280 --> 0:00:10.280 we've talked about this a lot on our broadcast about 0:00:10.280 --> 0:00:12.559 one of the hardest hit industries by the health pandemic, 0:00:12.640 --> 0:00:17.200 and that is hospitality, restaurants, bars, restaurants in particular. Someone 0:00:17.239 --> 0:00:19.800 who has been rescuing some of the most troubled businesses 0:00:20.280 --> 0:00:23.079 over the years is John Taffare, host and executive producer 0:00:23.120 --> 0:00:25.919 of Bar Rescue. Yes, uh, you know him well, and 0:00:25.960 --> 0:00:28.720 he joins us once again back on Bloomberg Business Week, 0:00:28.960 --> 0:00:31.280 and he joins us on the phone from Las Vegas. John, 0:00:31.320 --> 0:00:34.880 how are you hope you're doing well. I'm doing just fine. Kyle, 0:00:34.960 --> 0:00:36.640 good to talk to you again. Yeah, great to have 0:00:36.680 --> 0:00:39.280 you here. We just had on um a guest in 0:00:39.320 --> 0:00:42.000 the commercial real estate space, and we're specifically really talking 0:00:42.040 --> 0:00:44.040 about and focusing on what's going on here in New 0:00:44.120 --> 0:00:47.199 York City. Uh, we know the restaurant space, especially in 0:00:47.240 --> 0:00:49.720 major cities, especially in New York, they're really under a 0:00:49.720 --> 0:00:52.360 lot of pressure. And he's really wondering, you know, what 0:00:52.440 --> 0:00:54.800 happens on the other side a restaurant that slows down 0:00:54.920 --> 0:00:57.880 is you know, it's slow to see another one reopen um. 0:00:57.920 --> 0:00:59.920 I do want to get into specifically what you're doing 0:01:00.000 --> 0:01:02.560 with your taffer's tavern, but give us the big picture. 0:01:02.680 --> 0:01:05.480 You talk to business owners all the time. You see 0:01:05.520 --> 0:01:08.520 what's happening. You've seen other cycles. How does it feel 0:01:08.680 --> 0:01:12.800 where we are right now? Well, it's it's obviously, Uh, 0:01:12.800 --> 0:01:17.320 we're all been greatly wounded. And the issue becomes resources, Carol. 0:01:17.319 --> 0:01:20.319 I mean, do we spend resources now while the market 0:01:20.400 --> 0:01:23.000 is sort of dysfunctional? Uh, and then we don't have 0:01:23.040 --> 0:01:26.319 the resources to expend when the market comes back. Or 0:01:26.319 --> 0:01:28.679 do we hold resources now so we have them when 0:01:28.680 --> 0:01:31.679 the market comes back. You know, it's a difficult choice 0:01:31.720 --> 0:01:35.440 for operators. And the longer we sustain in this, I 0:01:35.520 --> 0:01:37.920 call it a dysfunctional markets, which is worse than a 0:01:38.000 --> 0:01:41.679 disrupted market. The longer we sustain in this, the greater 0:01:41.760 --> 0:01:45.520 the debt load and the greater percentage percentage of restaurants 0:01:45.520 --> 0:01:48.280 that we lose or Uh, you know, they're going to 0:01:48.360 --> 0:01:50.400 have to face that landlord and there's going to have 0:01:50.480 --> 0:01:53.360 to be a renegotiation if there's no stimulus package, and 0:01:53.720 --> 0:01:56.440 certainly landlords are going to have to be aggressive in 0:01:56.520 --> 0:01:59.720 retaining some of these tenants. But there's another side to this, Carol, 0:01:59.760 --> 0:02:01.760 if it will yeah, and that is, you know, we 0:02:01.880 --> 0:02:04.880 have the vaccines hitting within quality five to six weeks. 0:02:05.360 --> 0:02:08.280 Even according to Dr Fauci, we have seven hundred million 0:02:08.880 --> 0:02:11.760 by April one hitting. So let's take a look at 0:02:11.800 --> 0:02:14.840 the spring for a moment. Restaurant capacity will be down 0:02:14.960 --> 0:02:19.440 for sure, right, We're gonna lose of independent restaurants, so 0:02:19.600 --> 0:02:22.639 capacity will be down. And I suggest that the next 0:02:22.720 --> 0:02:24.800 thing people are gonna do after they get the vaccine 0:02:24.880 --> 0:02:28.200 is go to dinner. So I see a great market 0:02:28.240 --> 0:02:32.200 opportunity this spring post vaccine, and I see a much 0:02:32.240 --> 0:02:37.120 lower industry capacity. So dare I say I sense boomtown? 0:02:37.760 --> 0:02:41.040 And I sensed that landlords who are aggressive now in 0:02:41.160 --> 0:02:44.440 protecting their tenants and bringing in some new ones right 0:02:44.520 --> 0:02:48.440 in key locations, will be postured to take advantage of 0:02:48.520 --> 0:02:51.079 the boomtown that we see coming this spring. Well, that's 0:02:51.080 --> 0:02:52.839 exactly what we're talking about with our last gasp, Pierre 0:02:52.880 --> 0:02:57.160 de Bas. I mean they have been renegotiating or working 0:02:57.160 --> 0:02:59.760 with landlords, working with especially when it comes through reading 0:03:00.080 --> 0:03:04.000 retailer restaurant space, basically saying give us ten. I think of, 0:03:04.160 --> 0:03:06.239 you know, your gross revenues or something for the month, 0:03:06.240 --> 0:03:08.120 and that's how we'll we'll kind of get through this 0:03:08.200 --> 0:03:11.760 period um. So it kind of is John. You know, 0:03:12.120 --> 0:03:14.120 we at Bloomberg we talked about what kind of recovery 0:03:14.200 --> 0:03:16.960 K shaped, W shaped, V shaped. It sounds like what 0:03:17.000 --> 0:03:20.320 you're saying is you're setting up or anticipating that come spring, 0:03:20.800 --> 0:03:23.040 when we do see the vaccine being used more broadly, 0:03:23.360 --> 0:03:25.480 that we could see a big recovery because there will 0:03:25.520 --> 0:03:28.240 be people pent up demand who just want to get 0:03:28.240 --> 0:03:31.960 out and use restaurants. So for those that survived, it 0:03:32.000 --> 0:03:35.120 could be a really good market environment. It could be 0:03:35.120 --> 0:03:37.480 a great market environment. But one of the issues is 0:03:37.560 --> 0:03:39.840 Kyle people are gonna lose some guest loyalty because they 0:03:39.840 --> 0:03:42.880 haven't really been interacting with their marketplace in some cases 0:03:42.920 --> 0:03:45.480 for eight months or so. So you know, I caution 0:03:45.560 --> 0:03:48.440 restaurant operators to think of this as a launch, not 0:03:48.520 --> 0:03:52.040 to reopen, so they have to reposition their brands, they 0:03:52.040 --> 0:03:55.760 have to reignite brand awareness. They should really think of 0:03:55.800 --> 0:03:58.400 this as a reopening. And that's where we get back 0:03:58.400 --> 0:04:01.000 to what we started with, which means retain some of 0:04:01.040 --> 0:04:04.760 your resources. Now so that you have them to position 0:04:04.840 --> 0:04:08.760 yourself for success in just a few months. So one 0:04:08.800 --> 0:04:11.640 of the things, man, I've you know, I've been watched binge, 0:04:11.800 --> 0:04:14.360 watched on your show. I mean, some of these businesses 0:04:14.400 --> 0:04:18.200 though they're already losing money or they're just slim margins. 0:04:18.400 --> 0:04:21.680 It's a hard heart business. How many people do have 0:04:21.839 --> 0:04:25.000 resources kind of on the sideline, a little bit of 0:04:25.000 --> 0:04:27.480 a safety net because from I feel like from my conversations, 0:04:27.480 --> 0:04:30.200 there's not a lot to do. No, there isn't a 0:04:30.240 --> 0:04:32.880 lot that does And you know, typical margins Carol could 0:04:32.880 --> 0:04:37.279 be between eight and twelve percent of revenue. Occupancy rent 0:04:37.640 --> 0:04:41.120 is typically about ten percent of revenue if the numbers 0:04:41.160 --> 0:04:44.919 work so so, and if an operation does three dollars 0:04:44.960 --> 0:04:46.760 a foot, then the rent would be about for thirty 0:04:46.800 --> 0:04:49.680 dollars a foot. When those ratios get out of whack 0:04:49.720 --> 0:04:53.640 and the rent becomes which is what's happening now with 0:04:53.720 --> 0:04:57.840 the revenue reduction, it's unmanageable and the landlord understands that. 0:04:58.000 --> 0:05:00.000 And it's interesting. But this is what you said earlier 0:05:00.160 --> 0:05:02.440 is the solution, and it's to get rid of the 0:05:02.480 --> 0:05:06.840 base rent and negotiate percentage rents so that in the 0:05:06.920 --> 0:05:10.760 low end, the tenant is protected. In the high end, 0:05:10.839 --> 0:05:14.080 the landlord is rewarded. And that's a formula that really 0:05:14.120 --> 0:05:17.120 makes sense when we sit down and percentages can have 0:05:17.240 --> 0:05:19.680 plateaus right at certain levels. They can go up, they 0:05:19.680 --> 0:05:22.279 can go down and then be very creative. But that's 0:05:22.279 --> 0:05:25.919 a really logical and quick solution for a landlord and 0:05:25.960 --> 0:05:28.200 tenants right now, So John, tell us about what you 0:05:28.200 --> 0:05:31.359 guys are doing with Taffer's tavern. And you've actually had 0:05:31.680 --> 0:05:33.920 some of these. I think, is it one open up 0:05:34.000 --> 0:05:36.839 already for some training, So tell us what the concept 0:05:37.000 --> 0:05:40.600 is and how it's going. You know, it's interesting, Kyle. 0:05:40.640 --> 0:05:43.599 We started creating this two years ago when there was 0:05:43.640 --> 0:05:47.200 no labor available, and I started by by looking at 0:05:47.200 --> 0:05:49.799 our labor model at the time there was no labor available. 0:05:49.880 --> 0:05:51.800 There was the biggest problem in a restaurant industry. We're 0:05:51.800 --> 0:05:55.160 looking at fifteen dollar minimum wages and in many cases 0:05:55.560 --> 0:05:59.799 uh candidates for jobs with New Americans and our language barriers. 0:05:59.800 --> 0:06:03.600 So I said, the casual dining model cannot sustain itself 0:06:03.600 --> 0:06:06.280 this way. We couldn't staff the kitchens. So we went 0:06:06.320 --> 0:06:09.400 on a quest two years ago to reinvent food service 0:06:09.680 --> 0:06:14.800 with robotics. And computerized cooking systems and to completely reinvent 0:06:14.880 --> 0:06:17.240 the kitchen. And our purpose was to create back of 0:06:17.360 --> 0:06:22.120 house labor costs at of the industry norm and replacing 0:06:22.160 --> 0:06:25.320 it with technology. So we then worked for two years 0:06:25.320 --> 0:06:29.760 in test kitchens and with great technology partners UH in 0:06:30.000 --> 0:06:35.160 equipment technology partners, transactional technology partners like SHIFT for in 0:06:35.240 --> 0:06:39.240 middle being companies like that, and we reinvented the restaurant 0:06:39.240 --> 0:06:43.240 model and created a product quality that's that's incredibly consistent 0:06:43.279 --> 0:06:46.640 because it's all done by computer. So now we opened 0:06:46.640 --> 0:06:50.360 our first one in Alpharetta, Georgia. We've sold almost twenty 0:06:50.360 --> 0:06:53.279 franchises around the country. We're opening in Boston and Washington, 0:06:53.360 --> 0:06:55.560 d C. And kind up scale, right, I've I've seen 0:06:55.560 --> 0:06:58.960 some images and I've you know, like, what's the market 0:06:59.000 --> 0:07:02.520 you're going after. So we're going it's a franchise. We're 0:07:02.520 --> 0:07:05.120 going in a middle market. It's a very very nice 0:07:05.240 --> 0:07:07.920 upscale environment at a at a mid scale price point. 0:07:08.040 --> 0:07:10.360 But it's interesting cow because it reconnects to what we 0:07:10.360 --> 0:07:13.600 were talking about earlier about the landward situation. We've been 0:07:13.640 --> 0:07:17.000 selling franchises and you think during a pandemic you wouldn't 0:07:17.040 --> 0:07:20.280 be selling restaurant franchises right now would be a logical assumption. 0:07:20.800 --> 0:07:24.760 But sophisticated operators are buying franchises, Chris. They're saying, right 0:07:24.800 --> 0:07:29.240 now there's an opportunity to get great sites across America 0:07:29.400 --> 0:07:33.600 that are being lost. Well, so that is so they're 0:07:33.640 --> 0:07:37.480 looking to to obtain great landmark locations due to the 0:07:37.520 --> 0:07:41.040 turnover of the pandemic. Right it's an it's funny because well, 0:07:41.040 --> 0:07:43.400 it's not funny because I hate to see anybody, you know, 0:07:43.440 --> 0:07:47.160 kind of struggle through this environment. But you know, there 0:07:47.160 --> 0:07:49.520 are opportunities that are created. We always see it. You 0:07:49.560 --> 0:07:52.600 know at any market when there's distress, there are investors 0:07:52.720 --> 0:07:55.280 or you know, entrepreneurs who can figure out some opportunities. 0:07:55.360 --> 0:07:56.960 But I want to understand is tell me how it 0:07:56.960 --> 0:08:00.720 all works. So is it all technology or limited kitchen staff? 0:08:00.720 --> 0:08:03.800 How does it work? It's a limited kitchen staff, but 0:08:03.880 --> 0:08:08.040 they're operating equipment, they're not handling food. So because of that, 0:08:08.120 --> 0:08:11.080 when we were when we were finished about a year ago, 0:08:11.200 --> 0:08:14.520 we realized, holy how when COVID hit, we had the 0:08:14.600 --> 0:08:19.720 safest kitchen in America because we were completely compactless. Uh 0:08:19.800 --> 0:08:22.680 So we put an unbelievable technologies that you put your 0:08:22.680 --> 0:08:25.080 hands under. It scans your hands and if there's any 0:08:25.160 --> 0:08:28.120 viral of bacterial content on your hands, you're sent back 0:08:28.200 --> 0:08:32.520 to wash again. We put an unbelievable transaction technologies and 0:08:32.559 --> 0:08:37.760 we compartmentalize the business to make certain each compartment was safe. 0:08:38.040 --> 0:08:40.360 And you know it's not only for COVID. You know 0:08:40.440 --> 0:08:42.960 next year we're going to have another flu. When somebody 0:08:43.040 --> 0:08:46.440 sneezes in an inside room. After this, people are going 0:08:46.480 --> 0:08:48.559 to look at them with scorn, you know, coughing and 0:08:48.640 --> 0:08:51.280 an inside in a movie theater, forget about it. So 0:08:51.640 --> 0:08:53.679 this is an environment today that people are going to 0:08:53.760 --> 0:08:58.360 continue with sensitivity I think, to keeping healthy environments along 0:08:58.440 --> 0:09:02.320 after COVID. That is just fascinating. So you've gotten in Atlanta, 0:09:02.400 --> 0:09:04.880 tell me and you said, you're selling franchises. And you said, 0:09:04.920 --> 0:09:08.080 did you sell? You said you sold about twenty. Yeah. 0:09:08.120 --> 0:09:11.160 So we we sell territories. So we sell markets of 0:09:11.200 --> 0:09:15.200 five units obviously the very qualified investment groups and operators. 0:09:15.600 --> 0:09:19.320 And we have now the Boston franchise in the Washington franchise. 0:09:19.480 --> 0:09:21.480 I say this with a smile on my face. They're 0:09:21.559 --> 0:09:25.640 racing to be number two, which which is terrific. And 0:09:25.640 --> 0:09:28.400 they're finding that there are great locations out there, and 0:09:28.440 --> 0:09:32.600 sophisticated operators are reacting. You know, it's almost like a 0:09:32.600 --> 0:09:35.480 forest fire count you know that everything burns down, but 0:09:35.520 --> 0:09:38.559 then you see the little green buds pop up right, 0:09:38.640 --> 0:09:41.800 and it's sort of the evolutionary process. And for many 0:09:41.840 --> 0:09:44.880 restaurant operators, keep in mind, the bars are there, the 0:09:44.920 --> 0:09:47.960 kitchens are there, so it's more of a retrofit than 0:09:48.000 --> 0:09:52.640 a complete construction project. So there's opportunities for restaurateurs to 0:09:52.679 --> 0:09:56.600 go into pre built out spaces and just remodel them, 0:09:57.040 --> 0:10:01.000 which reduces the opening cost. Heck, like John Listen, one 0:10:01.040 --> 0:10:02.520 of the things I like, you know, watching when you're 0:10:02.520 --> 0:10:04.199 doing your show is you know, you're sitting down, you're 0:10:04.200 --> 0:10:07.000 looking at the you know, understanding the finance, the business 0:10:07.040 --> 0:10:08.560 part of like how you run it. I mean, and 0:10:08.600 --> 0:10:10.920 often you come into a situation or scenario where people 0:10:10.920 --> 0:10:12.960 are losing tons of money and that's obviously not a 0:10:12.960 --> 0:10:16.960 sustainable way of running a business. What I'm wondering too, 0:10:17.080 --> 0:10:21.120 when you look at the financial equation of increasing the technology, 0:10:21.280 --> 0:10:24.520 reducing to some extent right labor or not to some extent, 0:10:24.559 --> 0:10:27.800 you are reducing labor, So what's the financial model. What 0:10:28.040 --> 0:10:31.240 how does all of this impact the margins of running 0:10:31.480 --> 0:10:37.240 a restaurant. It increases margins by about twelve, which in 0:10:37.600 --> 0:10:42.240 very many cases can be increase in margins. The biggest 0:10:42.280 --> 0:10:44.959 expense we have is labor costs in the industry, which 0:10:45.000 --> 0:10:49.679 will run typically thirty Our second biggest expenses food costs, 0:10:49.679 --> 0:10:54.920 which can also run If you think about it, that's 0:10:55.360 --> 0:10:59.319 costs before I even paid for rent, utilities, insurance, maintenance, 0:10:59.360 --> 0:11:02.760 any of those the things. So that's where the costs 0:11:02.760 --> 0:11:05.080 get eaten up the most in those two big ones, 0:11:05.440 --> 0:11:09.120 food costs and labor cost Yeah, it's just in fascinating. 0:11:09.280 --> 0:11:10.920 It's just kind of interesting to see. And I found 0:11:10.960 --> 0:11:12.640 it interesting that you were doing this two years ago 0:11:12.679 --> 0:11:17.040 because of labor shortages. Yes, and it's interesting how the 0:11:17.040 --> 0:11:20.800 model worked out. By reducing human involvement in the kitchen, 0:11:20.840 --> 0:11:24.120 we created a really safe environment, which was a consequence 0:11:24.160 --> 0:11:27.200 of our work. But this was really a labor of necessity, 0:11:27.200 --> 0:11:29.840 we thought at the time. Yeah, it's really fascinating. Do 0:11:29.840 --> 0:11:32.000 you feel like a year from now things will be 0:11:32.040 --> 0:11:36.080 significantly different in this space? I do? You know? It 0:11:36.160 --> 0:11:38.800 depends upon some of it, upon government actions, upon how 0:11:38.880 --> 0:11:42.120 quickly this happens. About three weeks ago, I interviewed President 0:11:42.120 --> 0:11:45.079 Trump for the hospitality industry and we talked about four 0:11:45.160 --> 0:11:47.320 key programs, and I was hoping it would happen after 0:11:47.360 --> 0:11:51.960 the election, even before the inauguration, but apparently it's not. 0:11:52.200 --> 0:11:54.640 And of course, the p p P program was discussed 0:11:54.640 --> 0:11:57.120 with about six months of debt relief in it. That 0:11:57.160 --> 0:12:00.199 would be a big deal. There's an employee retention X 0:12:00.240 --> 0:12:03.920 credit that now affects a very few types of restaurants. 0:12:04.440 --> 0:12:06.640 There was a commitment to broaden the scope of that, 0:12:06.679 --> 0:12:09.440 which is significant. And then President Trump and I'm not 0:12:09.480 --> 0:12:15.280 sure about President elect Biden's position on domestic travel incentives, 0:12:15.280 --> 0:12:18.360 but if they proceed with domestic travel incentives the right 0:12:18.480 --> 0:12:23.720 PPP plan and they look at employee retention, I think yeah. 0:12:23.800 --> 0:12:26.200 I think the p PP digs us out and the 0:12:26.240 --> 0:12:28.240 other programs will get us going. All right. Can I 0:12:28.320 --> 0:12:29.920 leave it on that note. Good luck, John. Nice to 0:12:30.000 --> 0:12:31.920 check in with you. John taff Our host and executive 0:12:31.920 --> 0:12:34.600 producer Bar Rescue on the phone from Las Vegas.