On Independent Restaurants
Hey there!
It has been a minute since I’ve written a note. My apologies. Like most of you we’ve been fortune to be so busy this year, and so the writing has slipped a bit.
I’ve decided to tweak the format a little going forward: these will get a bit shorter but they’ll come more frequently. We’re going to bulk up our efforts on trend-spotting; share more of what we’re reading, watching and listening to; and include an occasional travel guide to some of our favorite cities around the U.S. Of course we’ll still be offering plenty of snappy commentary. I hope the effect will be a more enjoyable experience for all.
I am writing this on a flight to Chicago for the fall ULI meeting (email me if you are here and want to connect). Attendance for the conference feels down from prior years, but I can assure you that airport crowds are not . . . I already miss the 2020 version of practically-private Delta planes.
It seems like forever ago that I wrote about the problems of retail customer acquisition costs. That note easily got the most responses to anything I’ve written. Even the Wall St Journal got to talking about it.
And that subject brings me to one of my favorites— independent restaurants— because it turns out that retailers arem’t the only ones facing generational change. Among the many challenges facing American restaurants today, two stand out: technology and personnel. Both issues have been simmering for some time but Covid brought them to a boil. As much as the one (technology) is always floated as a solution for the other (people), in this case I’m not sure the medicine won’t kill the patient.
Restaurant of the future?
Let’s start with people.
Neighborhood bistros, creative cocktail joints, supper clubs, coffee shops, gourmet food trucks, ego-driven temples built to win James Beard awards. . . we’ve seen small independent restaurants flourish since the Great Recession. These small operations rarely have more than a couple of locations, but they’re the places you go when you don’t know where else to go. Where you go on Tuesday when you don’t feel like cooking. Where they know your name and let you order off the menu. I would argue that independent restaurants are the essential building blocks of the modern urban(e) experience. More so than any other ground floor use.
It turns out that the 2010s saw the greatest growth in independent restaurants since the rise of national chains after World War II. When Krog opened in 2014, the oldest tenant had been in business for just six years. Yet it was an all-star lineup of some of the best operators in the city. A year later I was on a panel with a well-respected local bar owner who asked “how are we going to staff all of these new restaurants?” I didn’t know the answer then, but I do now: we aren’t.
Maybe you didn’t know, but a restaurant can be a crummy place to work. Long hours, low pay, few benefits, ungrateful customers, sharp objects, toxic bosses. . . it’s a wonder anyone does it at all. There are plenty of restaurateurs who don’t believe in that Churn & Burn employment model. But there are still plenty that do (and the nicest boss in the world can’t protect you from angry customers). After a long day of washing bar mats, an office job behind a desk can seem pretty fantastic.
A lot of hospitality employees stuck with it because they told themselves they were “passionate” about the business. I don’t have the data to prove it, but I’ve long believed that more restaurant employees dream of being the boss than in any other industry. No offense to accountants (may father was one), but you just don’t meet a lot of young CPAs who say “my goal is to run an accounting practice in a few years.”
Oh sure, I’m working on the Actuarial Value of Accumulated Plan Benefits now. But soon I’ll be calculating Contingently Convertible Shares. And then I’ll own the company and will have other guys handling Indirect Effects of Changes In Accounting Principals. And that’s when the big bucks start rolling in.
Covid put paid to those dreams. It isn’t over-generous unemployment benefits or under-vaccinated customers that are keeping hospitality workers on the sidelines. It’s the work. More employees have left the hospitality industry in the last year than any other sector. And I’m telling you now: many (most?) aren’t coming back.
Recent case in point: some friends opened a high end steak & seafood place this year. This is a national group with high-end brands in multiple states. Benefits, PTO, health insurance, profit-sharing: these people are pros. They know how to open and run successful restaurants.
They had 90% staff turnover in the first five months.
Obviously this presents a bit of a problem. It’s hard to run a restaurant without people. Remote lawyering may be a thing but remote bartending isn’t. Unlike an iPhone, you can’t make chawanmushi in Singapore and ship it here for dinner (which is a shame, because the chawanmushi at Meta is supposed to be delicious). You need staff somewhere relatively close by (more on that later).
Also not deliverable: sea snails with rose petals from Noma
To compensate, restaurant wages are going up. This is a good thing. $8 an hour is a tough way to live. But doubling your labor costs creates bottom line stress, and margins were already thin. Food costs are up, 10% this year by some estimates. So is the rent. Are you ready to spend $12 on hamburgers and $17 for salad bowls? Maybe you are. But a lot of you, I bet, are not. This is not a good thing.
Many restaurateurs are hoping to solve these personnel and profitability problems with technology, using it to streamline operations, reduce overhead, and increase output. I’ve run out of room in this note so I’ll deal with delivery apps, ghost kitchens and virtual brands in the next one. It is a strange new restaurant world.
But be warned: the Algorithm Economy came for books and cabs, and now has its eye on the trillion dollar restaurant industry. It turns out that the last decade brought us a Golden Age of small independent restaurants. There will have to be a lot of changes to the industry if we want the next decade to be nearly as kind.
We have a new venture in the works: among the things that have been keeping me away from writing notes is a new restaurant management company model we are working to perfect. You’ll be hearing more from me on this soon.
And we are hiring again: we’ve added to our staff in Atlanta and opened offices in LA and New York in the last year. Now we’re looking for really smart and creative retail people in Chicago. If you’re interested, or know someone who is, let us know!
Microwave Egg Custard
Microwave cooking is here. David Chang even has an entire cookbook about it. You may not be able to get chawanmushi topped with uni delivered to you from Singapore, but you can make a delicious Japanese-style egg custard in the comfort of your own microwave (thanks to Lucas Sin for the recipe).
1 egg
1/2 cup of stock (or water)
A couple of pinches of salt
Combine ingredients in a small microwave-safe bowl and beat vigorously until combined. No runny streaks!
Remove any bubbles from the top with a spoon
Microwave on 80% power for 2-3 minutes. When done the egg should be barely set and jiggly.
Top with whatever you like (scallions, peppers, soy sauce, mushrooms, etc.)
As always, thanks for reading! If you’ve enjoyed this please forward to a friend.
I run a retail development and consulting company in Atlanta, and write (semi-) regularly on issues facing the retail real estate industry. If you’re getting this for the first time and want to sign up, just click here.
If you’ve got a retail project that could use some new thinking, or just some thoughts on the future of independent restaurants, we’d love to hear from you.
Cheers,
G