Shared services have their limitations, they say
Operating multiple restaurants, even multiple brands, certainly has its advantages, but not everything translates from one concept to another, so operators still need to treat each one as an individual.
That was the advice from multi-concept operators in the latest Live Learning webinar hosted last week by Nation’s Restaurant News.
The bimonthly series focuses on the needs of emerging restaurateurs who are poised for growth. That growth is particularly challenging these days as restaurant traffic is declining and the cost of doing business continues to rise.
“The last couple of years have been the hardest,” said Andrew Smith, managing director of private equity firm Savory Growth Fund, which invests in and gives operational assistance to emerging restaurants — usually of around five units at the time of purchase. Smith has spent 27 years as an entrepreneur.
Savory, which currently operates nine concepts, is a sponsor of the Live Learning Series.
The other sponsor is GuestXM (formerly Black Box Intelligence), and its vice president of insights & knowledge, Victor Fernandez, painted a picture of just how difficult business is these days.
He said guest traffic at chain restaurants has been declining by 2.2% on average annually since 2016 as consumers turn to other sources for prepared foods, including supermarkets and convenience stores.
Although there’s good news in that the Federal Reserve is no longer predicting a recession for this year, the robust job market, and the fact that unemployment is at its lowest rate since the early 1950s, means there’s no let-up in sight of the labor crunch, and wages are rising even faster than inflation.
Off premises sales, which started rising before the pandemic, now account for 58-59% of sales at limited-service restaurants, and it’s around 20% at full-service restaurants. Not only are such transactions more costly for restaurants, but customers aren’t as satisfied, according to GuestXM research. Fernandez said half of customer reviews give four- or five-star ratings when they eat at the restaurants, but nearly half of all off-premises occasions get one-star reviews, with the main complaints being wait times, food temperature, and order inaccuracy.
Whether positive or negative, Fernandez said getting reviews was important: Restaurants with the most traffic growth get five times the reviews of the bottom performing restaurants (in terms of traffic), much more than the 3.5% increase in traffic that those restaurants are getting
“It starts with creating an experience that people want to talk about,” he said.
Employee turnover remains high, Fernandez said, noting that operators said that “job abandonment” — just not showing up for work — is the most common way employees quit.
Restaurateurs said that while back-of-the-house workers often left due to low pay, servers front-of-house workers are more interested in work-life balance.
“It’s important to have those conversations with your employees to understand what's important for them to try to lower that turnover,” he said, particularly since lower turnover correlates with more traffic and higher sales.
Smith summarized the current state of the restaurant business.
“We're getting hit from every single angle,” he said, including costs of goods and labor, employee sentiment, the political landscape, construction delays and more.
“Nobody’s escaping that,” he added.
Having a large enough business to hire experts in real estate, construction, operations, marketing, finance, new restaurant openings, and other specialty areas does allow for a robust staff that can support multiple concepts, especially as the needs of different restaurants ebb and flow as they grow.
“But the idea of shared services doesn't work forever,” he said, because each restaurant brand has its own needs, and as it grows it requires experts with a deep understanding of its customers, its marketing voice, key design elements, etc.
Warren Thompson, founder of Thompson Hospitality Services, based in Reston, Va., said there are other advantages to having large operations, too.
His company has 1,800-2,000 joint-venture operations with onsite operator Compass Group, including corporate dining, schools, and hospitals. Thompson Hospitality also provides foodservice for 25 colleges and universities on its own, plus facilities support for onsite operators. It also owns 65 restaurants under 18 different brands.
He said operating different concepts allows his business to provide for customers’ different needs at different times.
“I wanted to be able to take care of that customer when it's a fine dining experience or a quick-casual burger, or a slice of pizza on the run,” he said.
For onsite operations, having his own brands means he can license his own brands.
“We're better off now being able to put our Wize Guys Pizza on a college campus or in a corporate account or in a hospital public facing venue so we keep that royalty stream within the company.”
Additionally, with 50 restaurants in the Washington, D.C., area, and plans for another 50 within the next three years, “it really allows a lot of concentration and efficiency, whether it's marketing, purchasing dollars, or even something as simple as maintenance,” he said. “When that maintenance truck can pull up and service multiple restaurants without having to move, those are the hidden efficiencies we often don't think about but really have an impact on P&L,” he said.
He has leveraged those advantages by focusing on markets within the D.C. area and South Florida.
Cameron Mitchell Restaurants have a similar advantage in their stronghold of Ohio in general and Columbus in particular. The group has 63 restaurants under 22 brands, with 30 locations in Columbus, according to its president and chief operating officer, David Miller.
He said operating multiple brands was really less about a mapped-out strategy and more about an interest in flexing their creativity muscles.
But by developing different concepts, they can occasionally come across one that resonates with many consumers and can be scaled. That happened with Mitchell’s Fish Markets, which expanded to 19 units before it was sold to Ruth’s Chris Steak House in 2008.
The group’s latest national concept, the fine-dining steak and seafood concept Ocean Prime, is now at 19 locations in 14 states.
Although each concept is different, Miller said the group’s centralized purchasing team is still useful.
“Olive oil is olive oil, and there are things like that that we can cross-utilize throughout our restaurants and utilize our size and scale to drive a lot of purchasing power, whether it's trash [removal], or linen — whatever it may be,” he said. “That has certainly been an advantage as we have grown the different brands over the years”
Dallas-based FB Society’s multiple brands, including Twin Peaks and Velvet Taco, which it has since sold, also was based on a drive to be creative, according to CEO Jack Gibbons. Now they have creative concepts such as Whiskey Cake, Son of a Butcher, Sixty Vines, Mexican Sugar, Ida Claire, and Haywire, as well as Legacy Hall in Plano, Texas, and Assembly Hall in Nashville.
“It's where our talent lies,” he said. “We're brand creators. We’re into the whole [intellectual property] of a brand, and the branding of it, and the life cycle of it.”
Although he agreed with Smith that eventually each brand needs its own separate infrastructure, shares services really help a brand get its footing.
This and other webinars in the Live Learning series can be watched for free at NRN.com/livelearning.
Contact Bret Thorn at [email protected]
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