Necessity, Invention and the Restaurant Industry

We got the chance to chat with Seth Gruschow of Togather Restaurant Consulting about how the food service industry has been impacted by the COVID-19 health crisis, successful adaptation strategies and where the industry is headed.

Can you speak to the various ways that restaurants have been adapting to the new COVID regulations? 

Every restaurant is having a different experience and it’s difficult to make broad statements. The transition looks different based on what your model looked like before and some places haven’t opened up at all since the shut down.

Then to zoom out, do you think there are any common feelings being shared by business owners?

Yes. As a small business owner, I can speak to what I’m feeling, which is a lot. First of all, being a small business owner is one of the hardest things to do. To build a positive reputation. Luckily, we were able to really establish ourselves on a state level and local level. It’s a small business getting off the ground, but we were feeling ahead of the work… and now it’s back to square one. Just starting over. Re-invest, re-adjust – and move forward. But with those feelings come a lot of excitement. There is almost this feeling that is similar to how I felt when I first started my business. The questions I’m asking myself like, “What am I going to offer?” and “How am I going to present myself?” – What’s happening now for small businesses is a re-evaluation across the board.

Can you go into what you mean by “Re-Evaluation”

Businesses-and restaurants especially are having to really look at who they are. What they want to do moving forward and how they want to operate. Certain operations that are going to have to think completely outside the box to make the transition. But again, this goes back to what their business model looked like before the pandemic. To give some context, the restaurant industry has been on life support the last 10-12 years. Business models have become less and less effective, profit margins become slimmer, turnover increased, growing disparities between front and back of house employees, the cost of goods and labor has risen, government regulations- all these factors raise the burden on business owners to survive. Some businesses only had a safety net of 1 week. Then when that thin safety net was gone: doors had to close. I believe we need to use this as an opportunity to adapt our business models. 

Do you have advice on some of the specific aspects of business models that need to be re-evaluated?

Absolutely. While every business is different, here are a some key areas to focus on:

Your Space. We are seeing resiliency coming out of the public houses and restaurant clusters. Bringing in multiple smaller operations, with smaller footprints into a larger common space. This won’t work for everybody but this could become a standard model in the future. A small footprint allows a restaurant to flourish and reduces the costs of doing business as well as prime costs (labor and cost of goods). Honestly, we need to have a new standard of prime costs that’s closer to 45-50% to give restaurant owners a higher margin. Along with thinking about your space comes the consideration if you want to continue doing table service. That aspect of a restaurant comes with so many variables; it creates a more complex operation and require a deeper management structure. Public House is a local institution that’s leading the way in this area and their model is the wave of the future. Ghost kitchens, collaborations, large shared outdoor areas and in-house delivery services are going to become much more widespread.

Take Revenue Management Seriously. There’s so much passion, love and artistry that go into a business, and sometimes it’s easy to forget the business side of things. We need to recognize that it’s a big part of the failure rate in the industry. Obviously you need good guest service and a good product to survive, which are results of love and artistry, but if you aren’t technically minded for the business, you’re going to struggle.

Embrace Technology. The customers have and business owners need to as well. Technology has been swiftly moving into the industry and changing the way we do business. Technology investment can take many different forms: it can mean getting the right equipment, such as: tablets, online ordering systems for delivery, custom apps, etc. But the future of restaurants is also robotics and it’s coming faster than we anticipated. A few years ago, it was expected to be 10 to 15 years out, but now I bet it will be widespread in 6 to 8 years. It won’t work for everybody, but it will work well for some. Basic tasks like prep cooking, chopping and flipping burgers will eventually become human assist. We’re already seeing burger flipping robots hitting the market and some hotels using fully automated ‘omelet making’ machines.

Simplify your menu for consistency’s sake. Easy, more manageable, not a lot of variables, really concentrate on one or two items with variations. That will help create a more consistent product and experience that customers will enjoy and consistency is key. It will also lower labor and production cost- as well as the cost of goods. MOD Pizza or Chipotle are great example of this, as are may food trucks. A wonderful local example of a restaurant who has embraced these ideas is Plank Town. They were extremely consistent before COVID. Consistently good and quick service, consistent good quality food and a focused menu: these kind of places are going to do well.

Can you speak to the local closures our business community has experienced? 

There have been a few locally, like Barnlight and Turtles, but the Portland area has seen a much larger number of closures. And those closures weren’t just new restaurants. Some legendary restaurateurs, some who have been in the business since the 80’s are closing down. Not looking to re-invent themselves: they’re done. The prediction I hear is that we may lose about 20% of the storefronts from people being unwilling to adjust, and that is largely because they weren’t in a good market position before the pandemic. But make no mistake, nobody is coming out of this unscathed. 

Anything else you’d like to add, any closing thoughts?

People aren’t going to stop spending money; they’ve just become more selective about where they spend it. I don’t want to sound all doom and gloom, because it is disheartening to see all the love and passion that goes into a business only to have it close. I love the industry and the people in it, but we want to bring to a message of realistic optimism to the situation. I’m excited to see how we change and adapt because a stronger industry will be the result. If we maintain status quo, we won’t come out strong. We really have to step back look at our business models, figure out what’s working- what’s not- and adjust to the market. I won’t sugar coat what’s going on or what’s going to happen. Going back to the old way would be the easy thing to do, but it wouldn’t be the wise thing to do. We love you guys, we’re here to support – but we have some work to do. 

A big thanks to Seth Gruschow of Togather for sharing with us his insight on the status and future of the restaurant industry. Also kudos to Seth for being a part of our adhock Back to Business committee! Check out Togather’s website for more information on how they can help you re-evaluate your business model and thrive.