Independent restaurants

Before the novel coronavirus outbreak, delivery was barely a blip on the radar for Ivan Lee, co-owner of Hawaiian grill Aloha Eats in Chicago. The family-owned restaurant only took delivery orders over the phone, which were completed by a grassroots team of drivers who delivered for a handful of area restaurants, and diners had to pay in cash. 

But when Chicago announced its stay-at-home order, Lee knew he had to pivot to online ordering — and fast. His restaurant had already used Upserve for years as a POS provider, and now leverages the restaurant management software to accept credit cards and process online orders for delivery. 

There was one change Lee wouldn’t make, however: partnering with a third-party delivery platform.

“We’re already a high-value restaurant where we dish out much bigger portions than we really should — I thank my father for that legacy,” Lee said. “The cost of food and labor, you add it all up… we’re already hustling for that slim margin, I mean all we’re doing is breaking even. We would not have stayed in business for the 16 years we have now [with a third-party]. It’s just not worth it.”

Aloha Eats doesn’t have to pay commission fees to Upserve, which instead charges a monthly flat rate to its restaurant partners. Lee says his restaurant’s current cash flow — and lack of layoffs — is possible because there isn’t a major brand taking a cut of each delivery transaction, and he continues to work with the local group of delivery drivers instead. 

“We get a delivery and when it’s done, we call them and they come in. They’re very fast and we know their faces. Familiarity definitely helps… we know that they’re a little more invested than the random DoorDash or Postmates person, which can be a real mix of people,” he said. “[It’s] one of the many reasons why we don’t really like the idea of a third-party delivery service.”

Lack of control has always been a prime industry argument against major third-party partnerships, but now that 20% to 30% commission fees are leaching shrinking sales amid the coronavirus crisis, some critics argue that these companies are wantonly parasitic. Local governments agree, with several municipalities like Washington, D.C., and Seattle passing or mulling delivery fee caps to protect restaurants.

“Desperate restaurants might see some short-term gains, but by using these third-party interlopers they will end up sabotaging themselves,” Lee said. “They’ll go out of business if they don’t already have a [strong] volume of customers and decide to partner with someone… if they have some other way to implement their online and delivery, they might be able to last a little longer.”

But while Lee’s experience echoes a dominant narrative that has arisen as the industry continues to hemorrhage small businesses, it’s not reflective of every restaurant’s experience.

The case for third-party partnerships

Nathan Casper, the co-owner of Araujos Taqueria El Paisa, a San Jose, California taqueria brand made up of two brick-and-mortar restaurants and a food truck, has experienced year-over-year growth in March by partnering with DoorDash for delivery. In the five weeks following March 17, which is when San Jose received its shelter-in-place order, sales rose 180% on DoorDash compared to the previous five weeks, which were already 15% higher than any sales they had experienced. 

“Sales have more than doubled, almost tripled,” Casper said. “Our flagship store was… probably about 60% cash-based, and the cash business has been almost completely replaced by DoorDash. We [didn’t lose] ground year over year for the month of March. We were actually up 1%, with half of the month being shelter in place.”

The first week of shelter in place still dealt a major blow to Araujos' revenue, however, with sales down about 70% at both of its restaurants. But within about five days, cash flow slowly began to reach a new equilibrium, which Casper attributes to the tech-savvy diner base of Silicon Valley.

“I would estimate that 80% of my neighbors are still working full time at full salary because they work for tech companies. So the cash flow crunch didn’t hit here as hard as in a lot of other places in the country,” he said. 

Araujos didn’t partner with DoorDash until December 2019, a move Casper said the restaurant made just in time — Santa Clara County was one of the first municipalities to restrict dining rooms. 

“DoorDash has come to the rescue and we are using everything they throw at us,” he said. 

The delivery platform has slashed commission fees for Araujos and other independent restaurants with five or fewer locations by 50% through the end of May, which Casper said is a huge help. 

This offering is one of many discounts that major third-parties have rolled out to give independent restaurants a boost in this challenging environment. Some critics, though, say the fact that Grubhub continues to charge restaurants commission fees on pre-discount ticket totals when they offer free delivery as a promotion is unfair. Grubub has temporarily deferred commission fees for independent restaurants, and Uber Eats has nixed activation costs for new partners but its commission fees remain intact. 

Araujos has also begun using DoorDash’s automated phone system because his restaurants now receive close to 300 calls a day compared to an average of 20 to 30 phone daily phone orders before the pandemic. For now, he is able to use the service and DoorDash’s pickup capabilities at no extra charge.

About 60% of Araujos' flagship store sales are now driven by delivery, and about 35-40% at its second location. The rest is pickup, which is still generated by a lot of walk-in customers. 

This surge of delivery orders has allowed Casper to retain all of his staff, some of whom have worked with the family restaurant for more than a decade, though some hours have been reduced. Still, it hasn’t been easy. 

“We're ... weeks into a serious decline and we recognize that we're very fortunate… but we're still feeling it. We're still in our reserves,” he said. “You know, payroll didn't come out of the [restaurant's] sales, it came out of our savings account. But we’ve been saving for 10 years.”

Looking to the future, Casper predicts that diner reliance on delivery will define the “new normal” for restaurants, and that it will make his brand a bigger threat to local rivals. 

“We knew that delivery was going to grow, especially in a tech area like this,” Casper said. “We were told that 15% to 20% of [restaurant] business will be delivery in the next three to five years. I think COVID-19 just made that in the next three to five weeks… It’s opening us up to new audiences. People don’t drive deep into the east side of San Jose to get tacos, but they’ll absolutely order the best tacos in town from East San Jose and get it delivered to their more affluent zip codes.”

As delivery becomes a more primary distribution channel for diners, Casper expects to see a “thinning of the herd.”

“The tiny little neighborhood restaurants that are open because they’re convenient now have to compete with the top shops in town. They now have to be able to provide the same quality, speed and flavors that I can provide,” he said. “I wouldn’t be surprised to see a lot of them go under because they can’t do delivery… and they’re going to leave all of their equipment, and we’re ready to grow. But it’s difficult to say that without sounding like a jerk.”

On Araujos' street, six or seven restaurants have already closed completely, and Casper said that neighborhood rumors suggest at least three will not turn their lights on once the city eases dine-in restrictions. 

“This will have traumatic impacts on restaurant partners down the line,” Kevin Huang, DoorDash vice president of strategy and operations, told Restaurant Dive. “There’s not a deadline when COVID-19 is over… we are constantly evaluating how we can provide more and more services that address financial relief, grow their sales, help them operate their stores.”

Restaurants that are new to DoorDash are charged 0% delivery commission fees for 30 days, and the platform has developed guidance for navigating delivery insurance, webinars about health and safety best practices like creating dedicated parking spots for drivers, specific runners that will bring food orders to Dashers and dedicated pickup areas for customers, resources that they wouldn’t have otherwise, Huang said. 

When asked why an independent restaurant should partner with DoorDash as the industry hurtles toward a much more delivery-dependent future, rather than deploy their own direct delivery or partner with an online ordering platform that doesn’t charge commission fees, Huang pointed to the breadth of DoorDash’s offerings. 

“Two years ago, the company was a one-trick pony and only offered delivery,” he said. “[Now] if you want to have your own delivery and want us to do just pure online [ordering], pure demand generation, we want you to be able to get demand and facilitate orders. If you want to have your own website, but you need folks to help fulfill those orders — so the opposite — we can do that.” 

Restaurants that are curious about the platform can try DoorDash and its various offerings without penalty to find the right fit, Huang said, adding that the company offers independent restaurants the support they need to optimize the logistics sides of their businesses. 

“You probably didn’t start a restaurant because you like marketing campaigns,” he said.

The case for online ordering

Scott Absher, CEO of gig economy platform ShiftPixy, believes that third-party delivery companies pose a growing threat to independent restaurants given the COVID-19 climate. 

“If you think about it, who are these third-party platforms building a relationship with? They’re building a relationship with the consumer, and this is the thing we’ve been talking about from the very beginning,” he said. “Why would a brand surrender their customer experience and their customer data to one of these platforms, it’s ridiculous…. And the end result is they don’t make any money on these tickets anyway.”

Absher said ShiftPixy has experienced a deluge of inquiries about the company’s direct delivery capabilities, which does not include commission fees on individual delivery orders. The company is also helping restaurants that have received Paycheck Protection Program loans shift their employees to delivery drivers to meet the federal aid’s 75% payroll requirement. The company can get a new customer set up with online ordering and self-delivery in as little as 48 hours, including a driver management platform that has an onboarding process to keep commercial insurance features activated and maintain driver data, proof of insurance and motor vehicle reports. 

Upserve provides similar services for its restaurant clients, which are almost 100% small, independent restaurants, but CEO Sheryl Hoskins told Restaurant Dive that a portion of these restaurants are still too intimidated to launch their own delivery because of the red tape of insurance and fear of diminishing control of the brand experience. Instead, many of these partners opt to offer takeout through Upserve as a means of avoiding third-party delivery, and some of these operators have returned to their pre-COVID-19 revenue with this strategy, she said. 

Upserve is currently offering free online ordering to its partners, along with social media marketing campaigns to drive diners to restaurants’ online platforms and make consumers aware that these businesses are still operating amid dining room closures. 

“We found that the average ticket has increased dramatically online versus when [restaurants] were [dine-in] so here's another advantage of just having… online ordering modulars:  they don't have to be open,” Hoskins said.

Wing Zone CEO Matt Friedman told Restaurant Dive he “feels for” restaurants that are relying solely on third-party because they are missing out on what he believes to be a powerful competitive advantage.

“It’s ultimately why we continue to push harder in managing our own delivery,” he said. “It’s more profitable. We’re collecting the customer’s data, which is invaluable… and at the end of the day, it’s just a better experience. With what’s going on right now, people are looking for safe delivery that they can trust.”

The Atlanta-based chain partners with Grubhub, DoorDash, Uber Eats, Bite Squad and Waitr, but has always offered direct delivery, which makes up 75% of its delivery orders compared to third-party tickets. 

The restaurant brand, which operates in 15 states, was already well positioned to survive the coronavirus crisis because dine-in only drove 10% of its normal business, Friedman said. During one week in March Wing Zone was up 10% in sales compared to 2019, which is significant given the fact the chain had the marketing opportunity of March Madness in 2019. The chain hasn’t had to lay off or furlough any employees, and is actively hiring new delivery drivers to keep up with demand. 

Taco Bamba, a restaurant chain with five locations in the Washington, D.C area, has turned to offering delivery drop-offs by neighborhood as a way to reach consumers that may live too far away from its restaurants to want to order pickup. 

The idea built on lunch drop-offs Taco Bamba was already doing in local office buildings before the pandemic hit, chef and owner Victor Albisu told Restaurant Dive. Beyond these lunch programs, Taco Bamba had never offered delivery and had no plans to do so, wanting to focus on the dining room experience instead. 

Now, diners can select the neighborhood location closest to them on the restaurant’s website, which includes a description of each dropoff point and accepts 15 orders per time slot. Customers are also prompted to fill out a description of the make and model of their car if they would like their meal to be delivered to their car directly at the dropoff point. 

Taco Bamba’s own employees are driving the orders to these locations, and all hands are on deck — staff ranging from bartenders to chefs are fulfilling neighborhood delivery Monday through Friday. The chain has also partnered with Grubhub, but Albisu said that the chain is experiencing a higher volume of orders for neighborhood dropoffs. 

With delivery all but guaranteed to be a more primary channel for diners going forward, Dan Fleischman, vice president of growth equity investor Kitchen Fund, is interested to see how the relationship between third-party delivery providers and restaurants evolves in a recessionary setting. 

The fact that independent restaurants are losing money on the very delivery promotions that are meant to save them, Fleischmann argues is bringing a long-standing problem into sharp focus. He calculates that Grubhub’s $10 discount would leave a participating restaurant with only a 6.7% gross margin on a $30 order compared to a 40% gross margin otherwise. 

“There are struggles on both sides of this. Uber Eats was losing $3.36 per order before coronavirus and has been moving out of markets where it isn’t in the top one to two tiers of delivery providers,” he said. “Restaurants aren’t making money either… but it’s not like third-parties are running away with huge cash flow from this. Something is broken there.”

Article top image credit: Permission granted by WIng Zone

When restaurateur Robert Micheli moved from Miami Beach to Washington, D.C., in March 2020, he was excited to take over the helm as general manager of Dirty Habit, a 10,000-square-foot restaurant attached to Kimpton Hotel Monaco in the city's Penn Quarter. He previously ran various restaurant operations, including Katsuya by Starck, for over five years, but this would be his biggest restaurant by square footage yet.

Pre-pandemic, the restaurant, which is located across from Capital One Arena, often served 500 hockey fans beer on its 7,000-square-foot patio after games. But Micheli didn't get a chance to see the restaurant function at full capacity. Shortly after he arrived in the District, Mayor Muriel Bowser ordered indoor dining rooms to shut down.

"When you take over a new business, as a general manager or restaurateur, there's always so many projects to get done. And you always say, 'Man, if I could just have a week where we weren't open then I could clean the storage rooms,'" Micheli said. "Well, I got nine months of it."

During the District's dining room closures, he developed new operations and procedures, such as changing the restaurant's orientation process and training program based on employee feedback.

When the restaurant reopened on Valentine's Day this year, everything was in place to create a relatively seamless transition under new management. This preparation paid off when patrons flocked to the dining room, even with capacity limited. 

"Guests and customers are very excited as restrictions are letting up. And we're also seeing that the amount of people coming out is growing week over week," Micheli said. "We're just not able to staff that quickly."

As of early April, the restaurant had only about 10 full-time, front-of-house employees on payroll, down from a maximum of 65 to 70. The back-of-house, which functioned with about 80 staff members pre-pandemic, currently has seven employees, Micheli said. 

The struggle to bring back and hire full-time staff is a challenge restaurants across segments face as the economy reopens, but the labor shortage is hitting full-service establishments particularly hard. In Baltimore, Atlas Restaurant Group, which currently employs 1,200 people across its 18 properties, is short 100 employees, Founder and President Alex Smith said.

A Western Pennsylvania restaurant has posted a "Now Hiring" sign on its window for six months, only to receive two job applicants. Restaurants in Wisconsin are seeing that even if they have a lot of applicants, only half show up for interviews. 

Foodservice job demand is low in major restaurant cities, too. In New York City, Rick Camac, dean of restaurant and hospitality management at the Institute of Culinary Education, emailed 200 of his closest industry contacts that he was looking for candidates to fill a management position and host role at restaurants he consults with. Camac, who also owns a restaurant in New York City, often helps clients find workers. This time, however, he received zero leads and no resumes.

Though the restaurant industry lost 2.5 million jobs during 2020, hundreds of thousands of jobs have opened up amid relaxed dining room restrictions and a swell of diners hungry for a taste of pre-pandemic life. During Q1 2021, restaurants gained 442,000 jobs, but the industry still has a long way to go to break even. Some restaurants are facing a new vicious cycle as well. With so few employees available, they have to reduce hours and some have decided to close on certain days, which will only reduce revenue.

"It's not like you flick on a switch and all of a sudden you're ready to handle, you know, 50% capacity as opposed to 35% or 25%," said Camac. "Yes, we're all welcoming and look forward to getting back to higher and higher percentages, but you need to see more ramp up time."

Unemployment benefits, COVID-19 fears are keeping workers at home

One of the biggest stumbling blocks for restaurants is searching for qualified talent. Many of these sought-after employees have moved away, experts say.

In highly populated metropolitan areas, like New York City, many long-time restaurant workers have moved to areas with more affordable costs of living. That's what happened to many of Dirty Habit's employees, Micheli said. Many moved outside of Washington, D.C., to areas like Philadelphia, Baltimore or Richmond, Virginia — making it too difficult to commute to the District, Micheli said. Some of Dirty Habit's staff also took positions with restaurants that were able to open up sooner, he said.  

The boost in unemployment benefits, on top of stimulus checks, have made it more worthwhile to stay unemployed than rejoin the workforce, experts shared.

"A lot of people can make as much money unemployed as they can working in a restaurant," said Jason Berry, founder and principal of Knead Hospitality & Design in Washington, D.C. "It's a really hard time finding employees. Now that everybody's coming back, everybody's hiring at the same time."

Many unemployed workers are making between $700 and $1,000 each week, with the addition of the $300 bonus offered by the federal government, Berry said. 

Despite the fact that over a third of the nation's population is fully vaccinated, according to the Centers for Disease Control and Prevention, workers still remain reluctant to return. Many are also waiting to be fully vaccinated themselves, Micheli said. 

"The delay in rollout has affected people being able to come back in certain counties that aren't as quick to give vaccinations to everybody [and] has also slowed down my rehiring process," Micheli said. 

The combination of higher income on unemployment and better safety at home is a disincentive for restaurant employees to return to work, SevenRooms CEO Joel Montaniel said. 

The industry's instability over the past year hasn't helped retention either, Montaniel said. COVID-19 restrictions would loosen and restaurants would bring back employees, only to lay them off again when indoor dining capacity would contract. After about two or three cycles of this, many workers have had enough, Montaniel said.

"Many of the people who aren't coming back are looking for other lines of work," Montaniel said.

The growing talent gap

An exodus of restaurant staff with 10-plus years of experience has left behind a learning gap, Montaniel said. These servers have trained a lot of staff members.

"We can't get people in quick enough. We can't get them properly trained. They're, in some cases, not as good as their predecessors because their predecessors have more experience," Camac said. "We're bringing in some people who are pure entry level and we're trying to teach them the business of hospitality and without enough time to do adequate training."

With a lack of proper staffing and training, service may suffer.

"You have less people paying attention to the guests. … The attentiveness could go down if you don't have as many people on the floor," Montaniel said.

The ripple effect is even worse in restaurant kitchens.

Landed, a mobile app that connects hourly food and retail workers with employees using AI-based technology, has seen three times the number of applicants interested in roles like cashier, host, server and carside/curbside expeditor roles, compared to back-of-house positions, Founder and CEO Vivian Wang said. On Landed, there are four times more kitchen positions available than front-of-house roles.  

This is a problem for restaurants experiencing increased order volumes as indoor dining capacity limits broaden across the country and takeout demand remains high, Wang said. 

"[The back-of-house is] understaffed and it places more strain on existing staff," Wang said. 

Kitchen staff members are wearing multiple hats and working stations they're just not fully trained for, Camac said. The additional work and strain has resulted in many of these employees turning toward front-of-house roles that are seen as more desirable and less strenuous, Wang said. 

Dirty Habit now has to closely manage its bookings and control how many seats are available on reservation platforms to accommodate its smaller team, Micheli said. The restaurant is also only open four days a week, serving dinners Thursday, Friday and Saturday nights, as well as brunch on Saturday and Sunday. 

"We would love to [serve] 500 people every single night, but especially COVID-wise, you just can't do that because you have to have distance between tables," Micheli said. "So that automatically knocks down the number of guests that you're able to accommodate."

Dirty Habit can currently service about 150 guests a night and could potentially push that number to 175 if it added an extra hour to service, but that extra hour comes with risk.

"I don't want to stretch anyone so thin that tomorrow they say, 'I can't do this anymore.' So we have to pace ourselves," Micheli said. "We have to make sure that we're really being aware of how hard we're pushing ourselves while still making the money we need to make to stay open."

Restaurants raise pay, offer hiring bonuses to attract workers

Finding staff to fill in these gaps has pushed operators to ramp up recruitment efforts, pay more than the minimum wage and lean into technology.

While Micheli said he prefers personal referrals to find qualified staff, he has also hosted recruiting events on Tuesdays and Wednesdays from 1 p.m. to 3 p.m. Anyone can stop by Dirty Habit with their resume and have an interview with Micheli or another leadership team member. The company is looking for bartenders and servers specifically because it is planning to open its patio for Cinco de Mayo. 

Atlas Restaurant Group has been hosting a series of hiring events around the Baltimore area to try and attract workers who don't have a background in the hospitality industry, Smith said. Unfortunately, a lot of hospitality career workers have left and found jobs outside of the sector because of the instability over the past year, Smith said. 

"What we need to do is go out and … create a passion for our industry again and let people know we really can make a great living in the hospitality industry and have a great career," Smith said. 

The restaurant group is taking on more entry-level people to train them from the ground up. During one recruitment event, Atlas hired 12 entry-level people, Smith said. While it won't staff all of these new employees at one restaurant, it will spread them across its 20 properties and assign them to coaches and a leadership team to train them, Smith said. 

"We're doing it slowly. I think every couple of months, our idea is to bring 12 to 15 new people who are new to the hospitality industry and teach them skills that can allow them to move up in our corporation," Smith said. 

Increasing pay is an obvious draw for these candidates, Wang said. For example, wages for back-of-house line cooks has gone up almost 20%, Wang said. Some operators are offering additional dollars to get their teams vaccinated, which can help overcome hesitancy to come back to work, Montaniel said. 

Dirty Habit is offering pay higher than the local minimum wage, Micheli said. At Atlas Restaurant Group, Smith said hourly employees are making a minimum of 10% to 15% more than they were in 2019. Front-of-house staff under tip credits are earning more too because customers are tipping more generously, Smith said. Knead Hospitality has been offering hiring bonuses to entice new workers, Berry said.

Flexible hours are also becoming more important at these restaurants.

"I'm not going to let someone go because they need to go to a birthday party that was scheduled before they got rehired," Micheli said. "We have to live in this world of push and pull all over the place so my understanding and compromise level has definitely gone up." 

But not all restaurants can afford to pay more. Many can offer pre-pandemic wages, but can't go higher than that, Montaniel said. 

While the Restaurant Revitalization Fund will help with payroll, restaurants will likely need more financial assistance to offer higher wages to attract more workers, Montaniel said. The Small Business Administration has already said the $28.6 billion program won't have enough funds available to help all eligible restaurants. 

The Paycheck Protection Program helped a lot, but it wasn't specific to restaurants and many didn't get funds through this program, Montaniel said. Restaurants also could use the funds toward operating expenses like rent and other expenses such as safety equipment and to-go packaging so there was less left over to spend on increasing employee pay, Montenial said.

The labor shortage has also pushed restaurants to invest in technology that can bridge their staffing gaps. A South Florida restaurant spent $30,000 on robots to help greet customers, show them to their seats and deliver food to tables. The robot can even sing "Happy Birthday" in four languages. 

Dirty Habit uses Bebot, which is a QR code program used in the adjacent Kimpton Hotel, Micheli said. Instead of having to call the restaurant, which can take time away from busy staff, guests at the hotel are able to order their meals through a QR code in their rooms and can pick up their food when it is ready, which helps control the amount of hotel guests coming into the restaurant.

Contactless ordering and payment is becoming more popular, especially since it can allow customers to pay at the table without needing a server, Montaniel said.

Meanwhile, business is booming

Despite the labor challenges, diners are returning in droves, and some nights at Atlas Restaurant Group's locations have felt like the pandemic didn't happen, Smith said.

"It's a lot like The Avengers. Everybody disappeared for a year and then all of a sudden it's like boom everything is back open and there's thousands of people coming out. It's been crazy," Smith said.

Smith anticipates that by fall, business will be pretty much back to normal. 

Because everyone is so excited to be out in public, tables are sitting longer as well, Micheli said. Before the pandemic, a table of two would sit for maybe an hour-and-a-half to an hour and forty-five minutes. Now they're sitting for two hours to two-and-a-half hours. One table over Easter weekend sat for almost three-and-a-half hours. 

Dirty Habit's staff is trained to gently try to get these lingering guests to move on or offer a drink for them to sit elsewhere, but "if they're not going to move, they're not going to move, and then you just have to work out your next tables around that," Micheli said.

While the lack of staff has limited Dirty Habit's dining room, it could cause even more problems during the upcoming wedding season. Dirty Habit reopened in October for micro-weddings and private events and was booking between six and eight private events a month, Micheli said. For that staffing model, the restaurant just allocated existing staff as needed and that worked out well, but that might not necessarily work for larger weddings, he said. 

"In a hotel, you have banquets and restaurants. How do you staff both of those?" Micheli said.

Weddings require one server for 10 people and one bartender for 20 to 25 people, Micheli said. For a 500-person wedding, Dirty Habit would need at least 50 servers and at least 20 bartenders. And time is running out. The restaurant is likely to have its first wedding on May 15, Micheli said.

There is also more opportunity to attract additional business. Washington, D.C., eased restrictions on live entertainment starting May 1, and Dirty Habit is considering offering live music outside or hosting drag brunches, Micheli said. The District also allowed restaurants to return to full dining capacity on May 21. 

"We're excited to see the activations of the property in general coming back. Our name is Dirty Habit. We have fun. We want people to have fun," Micheli said.

While Micheli is optimistic about the restaurant's potential, one thing will remain the same for a long time. 

"We're hiring. We're hiring. We're hiring," he said.

Article top image credit: Adeline Kon/Restaurant Dive

In the wake of COVID-19, pivoting has taken on a whole new meaning, and few restaurants represent success in this "new normal" like Bywater in Warren, RI. For their cozy, upscale casual restaurant, takeout was "a steep learning curve," said co-owner Katie O'Donnell. "It was a lot of trial and error. The reason Online Ordering has taken off for us is we've tried to stay a step ahead."

Bywater's best practices for pivoting your restaurant in a pandemic:

• Use email and social media to establish trust with your customers and guests. 

• Keep your menu and offerings interesting: partner with other restaurants, chefs, and businesses to keep your customers ordering every week.

• Pay attention to your Pmix (product mix) on a daily basis, people want different food on different days of the week.

Building and optimizing an online ordering menu

When setting up their first online ordering menu, Katie looked at her Upserve Menu Magic Quadrant. "We went into Upserve to pull our best sellers that we knew people would come back for," she noted. "We set up our online menu so we could keep labor costs low, streamline our menu, and sell the crap out of everything to keep revenue high and costs down."

As the pandemic dragged on, Katie kept an eye on her Pmix to make sure they were constantly iterating on their menu to improve revenues. She noticed that guests preferred to buy cocktail mixers at a lower price point vs. to-go cocktails which had a smaller revenue margin. "People have vodka in their house," she said with a laugh. "So even though we can sell the whole cocktail, it made more sense financially to just sell the mixer. The profit margin is so different when you have to think about packaging."

She's also constantly testing the order and organization of her Upserve Online Ordering menu. "We run the Pmix in Upserve every night to see what's selling and look at the graphs," Katie said. "We refine the graph to just show the top five things and break it down, so I'm using the Upserve Menu Quadrant more than I ever used to."

Katie has found that they need to be more nimble because take out is different than dine-in in terms of attention span. "You get more direct feedback with to-go, especially with a pared-down menu," she said. "If you don't have the thing they want, you won't make the sale. They'll click over to a different restaurant."

Katie and her staff are using Upserve analytics to take a hard look at who their regulars are, who the highest spenders are, and how to keep both engaged through a mix of hard data and anecdotal feedback. One insight she has uncovered is that they may be switching up their menu too quickly. "We keep underestimating how popular things will be," she said. "Last week we took our fish and chips off the menu and we had a 40% drop in sales and non-stop calls about it. People want what they want! So we brought it back and sales were back up. If we were open for dine-in we'd never run a single menu item for this long."

No restaurant owner would choose to be in this predicament, but focusing purely on Online Ordering has shifted how Katie plans to run dine-in at Bywater going forward. "We're so focused on changing it up, that we've overlooked the long-term audience for certain dishes or specials," she said. "Now, only when sales start to drop organically do we take things off the menu."

Diversifying revenue and finding new customers

Looking at models from restaurants like Canlis, Bywater put together a box of local produce, wine, and treats that could be tacked-on to a to-go order. They sold out of their first run and made $13,000 in the first week – all money that stayed in her small community of business owners. 

"The first CSA boxes were huge," Katie said. "We let it be an organic, social media-driven thing which was good because we reached our bandwidth in terms of what we could produce." They quickly pivoted to special occasion boxes for Mother's Day, which quickly sold out and generated press and buzz for the restaurant. Now, they're formulating a subscription box service that would provide a curated box every month with different partners. 

Katie suggests restaurants trying on this tactic focus on an on-brand theme for each box and then work around that theme to fill it. For their Father's Day box, Bywater went for a grilling theme. They worked with a local butcher to provide prime cuts of meat, packaged alongside classic Bywater sauces. "What great wine goes with that? Is there a book about grilling that fits? It all builds around what we would do at Bywater," she says, ideally making the boxes an extension of their dine-in experience. They also promote the boxes with social media components: a video from a local pasta maker, preparation suggestions for the vegetables, or even a live wine tasting on Instagram. 

"We're trying to recreate normalcy but have fun with the fact that it's not normal," she said. "If people want Bywater in their lives, but takeout gets boring, the boxes create a way to bring Bywater in peoples' homes."  

Article top image credit:

Bywater/Jen Lial Photography

As the dust of 2020's pandemic disruption begins to settle and a permanently altered restaurant landscape comes into focus, operators are still asking a major question: What technologies will become table stakes for indoor dining?

Restaurant experts and operators agree that amid fluctuating COVID-19 spread, which in turn seesaws dining room restrictions and consumer comfort level with eating indoors, it's difficult to predict. But it's clear that technology will transform traditional aspects of the full-service dining room in 2021 and beyond to cater to new diner expectations for convenient, contactless experiences. 

"There's a reluctance to lose that human component [in the full-service sector] and any technology takes time to realize how you can use it properly," Carolyn Richmond, co-chair of Fox Rothschild LLP’s hospitality practice group, said. 

"But I think the times and the state of the industry is going to financially necessitate that fine dining restaurants also get better at implementing technology, and that will very well be in the dining room."

Sit-down restaurants have traditionally abstained from digital innovations and other kinds of consumer-facing technology out of fear that these changes could cheapen the diner's experience and undercut their value proposition, but David Sherwyn, law professor at Cornell University School of Hotel Administration and the director of the Cornell Center for Innovative Hospitality, Labor and Employment Relations, said these operators are already changing their approach.

"[In-store technology] reduces labor costs and you can use it as a marketing tool," Sherwyn said. "Some [restaurants] are going to use as much tech as possible to give you an excellent experience with little or no touch."

One-hundred percent of foodservice operators reported in a December Panasonic survey that the pandemic has intensified their sense of urgency to adopt transformational technology, and respondents are implementing tech that prioritizes safety and self-service in response. 

"There's been a lot of technology that's surrounded off-premise, whether that be [for] order ahead for delivery, with… third-party delivery companies. But there hasn't been a lot of technology that has been broadly adopted inside the restaurant. And we think that the time for that is now," Laurent May, head of Ready, a payment and order processing commerce platform, said. 

Much of the restaurant industry's investments in in-store tech have gone toward contactless payment solutions through QR codes or tableside ordering technology to minimize customer contact with restaurant workers, but operators are also experimenting with cutting-edge air filtration and surface cleaning technologies to make diners more comfortable when sharing space with a crowd. 

"There will be some restaurants that will say 'We've got the greatest air filtering system. We wipe down our tables with this… solution that kills all viruses for 90 days … and you can have an experience here without ever really interacting with the server,'" Sherwyn said. "The question is, will my kids … tell their kids about the days when servers used to come to your table and interact with you … or will keeping the air clean and the touchless stuff be more based on cost, convenience and desire and less on fear."

QR codes are proliferating, and some diners accept them as standard

Forty-percent of restaurant operators surveyed by the National Restaurant Association say they added a contactless mobile payment option since last March to minimize person-to-person contact, according to the group's 2021 State of the Restaurant Industry report.

This prioritization seems to directly reflect diner sentiment, with 21% of consumers planning to dine inside a restaurant reporting that contactless payment options would factor into their restaurant choice. This is especially true for younger consumers: 29% of Gen Z diners said contactless payment solutions would influence where they eat compared to 24% of millennials and 18% of Gen X consumers. 

Restaurants can streamline these solutions and further cater to diner interest in reducing touchpoints with waitstaff and traditional, physical menus by implementing tableside ordering solutions as well, experts suggested. CardFree, for example, is a company that sets up restaurants with a combination of contactless solutions including pay-at-table QR code technology and text-to-pay technology.

"Consumers are not only expecting [this kind of technology] and wanting it to be there going forward, but the brand is also realizing 'Hey, I'm turning tables faster, tickets are already going up,'" CardFree CEO Jon Squire said. "They are realizing the convenience and saying 'Why did I wait so long?'"

Though many low-tech restaurants are often hesitant to implement new payment technology, diners can easily adapt, Richmond said. 

"[Ordering at a table is] not all that inconvenient. If you've ever traveled overseas outside of the U.S., credit cards are dealt with at the table with technology," Richmond said. 

Many restaurants have quickly implemented this solution by adding QR codes to their tabletops. MustHaveMenus CEO Jim Williams said that his company, which helps restaurants design menus via its online design tools and printing service, rushed to offer the technology shortly after the start of the pandemic in response to surging operator demand. 

"It was like a bolt of lightning. The interest in QR codes happened overnight. It was really a scramble for restaurants," Williams said. 

Fifty percent of full-service restaurant operators said they have added digital menu access via QR codes since March 2020, according to NRA's 2021 State of the Industry Report. But it hasn't become a point of differentiation in the mind of the consumer — only 1 in 5 diners said the option of accessing a restaurant's menu through their phone or a QR code would make them more likely to choose one restaurant over another in the next few months. 

Michael Jacobs, partner at New York-based, upscale restaurant chain The Smith, said the company has seen mixed success with QR code menus since rolling them across its locations last spring. 

"We've found that a number of guests do not want to do that. We keep … paper with the menu for those that either didn't have a smartphone, didn't want to deal with the QR code and weren't comfortable with it. Some people just wanted a piece of paper," Jacobs said. "While we offer it … my sense is that it is something that will not continue much beyond pandemic times. Certainly it will be available, but so many people are used to sitting down and having a physical menu in their hand."

Diners at The Smith often won't search for menu subcategories through QR codes, either. 

"Depending on the type of restaurant and the complexity of the menu, guests have questions. … There's only so much that you can put on a menu that people will read on a small device," Jacobs said. "People were less inclined to look up drinks, cocktails and wine through the QR code, so more often than not we would drop the beverage menu with each guest [that featured] a QR code for the food menu, and if they wanted a [physical] food menu it was available upon request."

Menu QR codes are printed on small tabletop tents and are posted at the host stand at The Smith, and payment QR codes are printed on the checks dropped off at the end of the meal. Diners can then pay with their Apple device, Google Wallet or credit card. 

Jacobs said that some diners have also been reticent to use QR codes to close out their dining experience. Prior to the pandemic, The Smith deployed tabletop payment devices to customers who wanted to be able to close out on their own time, and the restaurant offers these as an alternative to QR code payment. 

Some consumers also simply request that waiters take their credit cards the traditional way. Jacobs said that use of QR codes, pay-at-table devices and traditional payment is an even mix between customers. 

"I do sense that that technology will stick going forward because I think people have appreciated the ability to close out the check and take care of things on their own. It definitely has sped up the process," Jacobs said.

WIlliams argues that QR codes are an easy way for restaurants to become digitally integrated because they are inexpensive and easy to implement, adding that MustHaveMenus can have a restaurant client set up with QR codes for digital ordering in about three minutes. 

"We've just trained a whole consumer culture to look for QR codes. And that training is a big deal," Williams said. "The reason QR codes didn't take off in the first place is because people … just didn't bother. But now we have to… and it's really opening a door for restaurants."

Restaurant perspectives are evolving as well, with many operators now beginning to value digital integration above table presentation, May said. 

"Evolution of both consumer adoption and merchant adoption of technology was forced by the pandemic … we heard [pre-pandemic] 'We don’t want an ugly QR code on our beautiful table, that's part of the hospitality experience,'" May said. "Those attitudes have completely changed. The functionality of an NFC tag or a QR code on a table brings so much digital transformation opportunity that maybe the aesthetic that used to be a primary concern is now a secondary concern."

Alexander Washut, co-owner of two-unit Jake's Restaurant in Massachusetts and MustHaveMenus customer, said that making his menu available via QR codes has saved on printing costs, and that younger consumers have been vocal about their appreciation for a contactless way to browse Jake's offerings. 

Once the pandemic ends, however, Washut hopes that QR codes can supplement traditional hospitality instead of replace it. 

"[QR codes] do lose that connection with our servers … that banter, that spiel at the table, that connection. So I think there's a balance going forward, even years after. I don't think it's going away, but I don't think it's going to take the center stage [like it has] for the past 10 months or so," Washut said. 

Self-service ordering can increase ticket size, customer satisfaction

May sees this technology as a supplement to, not a replacement for, waitstaff at sit-down restaurants whether in the casual or fine dining segment. When given the option of ordering from a waiter or from their phone or a tablet at the table, most diners still prefer the waiter, NRA research shows. And among diners who plan to eat inside a dining room or fast food concept in the next few months, 64% say they would sit in the section that offers traditional table service. 

The convenience of the technology, even as a supplement, comes with hospitality challenges. 

"It's always been our thought process to create an experience for the guest, and that has a beginning when they check in, a middle as we go through service, and an end when we thank them and we say farewell," Jacobs said. "The challenge with pay-at-the-table is you come back to wish them farewell sometimes and they're not there anymore … it does feel a little impersonal at times."

This concern about impersonality is why The Smith does not offer QR codes for ordering. After viewing the menu, guests still place their meal requests with a server. 

"That's something that, certainly fast casual or casual restaurant chains, national companies, would use … it's another opportunity for there to be as little interaction, which goes against everything in my hospitality genes," Jacobs said. 

Allowing diners to order and pay at their tables without a waiter, however, could have a material impact on sales and diner satisfaction, he said, because it takes pressure off restaurant employees and diners when the dining room is very busy. This is especially valuable now, as restaurants contend with a major labor shortage. 

"Restaurants need to become more efficient and run their operations with less labor. When you're able to match service levels with demand through self-service technology… we see customer satisfaction going up, we see average order size going up and we see labor costs going down. And that’s a pretty wicked value proposition," May said. 

This can also be achieved through self-service tablets at the table, an extension of the kiosk technology that had become widely adopted by QSR chains prior to the pandemic to cut down on lines, free up employees for tasks beyond taking orders and reducing operator reliance on labor. 

Order-at-the-table devices were already being deployed by casual chains prior to the pandemic as a way to streamline the ordering process for waitstaff. For example, Red Robin CEO Paul Murphy said at a recent ICR conference that the chain’s handheld ordering technology — used by its waiters, not customers — has sped up the ordering process and allowed diners to order more than before, raising guest satisfaction levels. Murphy also believes that the technology will help lift alcohol sales because increased waiter availability allows diners to order a second beer or glass of wine before their food arrives. 

In a pandemic and post-pandemic environment, self-service ordering and payment technology can achieve similar results, May said. 

"There was a stat we were able to generate that paying on your own device rather than waiting for a server to drop off the check actually saves 21 minutes of table time on average across our network … and that’s great for a restaurant because they have the ability to increase their revenue per hour per seat," May said.

Digital integration at the table also primes diners to become more loyal customers and gives restaurants greater customer ownership in and outside of the restaurant, May said. 

"When I sit down and pay my bill, I can scan the QR code, and I can sign up for loyalty automatically, just by signing in with Apple Pay or Google Pay. I can automatically redeem my offers and my coupons from a loyalty program. And from a digital transformation transformation perspective, I'm now a user within that restaurant's ecosystem," May said. "So that means online I can be provided offers that are tailored and personalized to what I had [during] the meal at the restaurant."

Clean air could help peace of mind, give a marketing edge

While many diners are looking for front-of-house solutions to reduce their proximity to waitstaff at full-service restaurants, fear over shared breathing space with fellow patrons — even in dining rooms with reduced capacity — could remain. But in some ways, this stumbling block is easier to overcome because the solutions are rooted in back-of-house technology that doesn’t disrupt the traditional upscale dining experience, Sherwyn said. 

"Especially in places that don't have an outdoor component… they're using extremely efficient and effective air filtering… [and] it's going to become a point of advertising," Sherwyn said. "Because [it adds] safety but it doesn’t diminish my experience."

Restaurateur Ivan Kane, who owns Forty Deuce in Ohio, installed an AiroDoctor air filtration system as soon as he was allowed to reopen his dining room in May after initial COVID-19 lockdowns. The system cost about $4,000, which Kane said is well worth the peace of mind that the technology offers both his employees and his customers. 

He keeps the system, which kills 99% of viruses including the coronavirus, in the main dining area, and says it isn't disruptive. 

"I'm trying to do everything in my power beyond government mandate to keep customers safe and keep employees safe… it gives a sense of security to the customers knowing we have this technology," he said. "You can’t leave any stone unturned because this is an unprecedented situation with revenue dropping drastically, so you’ve got to do everything humanly possible to drive business."

Kane added that he believes his marketing around the filtration technology has attracted more customers. 

Kane also uses hospital-grade, ultraviolet, germicidal lamps to clean surfaces within his restaurant. The lamps are so powerful that if someone were to look at them directly the light would burn their corneas, so the lamps are only used after hours and are set on a timer. He has 15 lamps spread throughout Forty Deuce to ensure every part of the restaurant is fully cleaned after each day.

Some experts believe that air technology within restaurants could eventually become featured design elements as well. In a recent interview, designers at restaurant design-focused Blueplate Studio at Wilson Associates said they envisioned a futuristic dining concept that uses motors to force strong air currents from floor to ceiling that could create a wall of air pressure between tables to prevent airborne particles from floating between parties. 

These kinds of technologies could help increase diner confidence so restaurants can take full advantage of strong pent-up demand for indoor dining experiences. According to NRA data, 85% of adults believe going out to a restaurant with family or friends is a better use for down time than cooking at home, and 67% of consumers surveyed between Dec. 4-6 reported they aren't using restaurants as much as they'd like. 

"I just think at this point … we as guests don't know where our heads are or where they'll be, and the restaurateurs are doing their best to anticipate what the demand is going to be," Sherwyn said. "Consumer adoption and merchant adoption [of technology] really came together through a crisis. … A new standard has been set. And everyone is going to expect some level of technology in the restaurant moving forward."

Article top image credit: Albert Hu. (2020). [Photograph]. Retrieved from Unsplash.

Prior to the July 2020 relaunch of Cotton Blues Kitchen & Marketplace in Hattiesburg, Mississippi, the restaurant received a special visit by local pastor Father Tommy Conway. As restaurant staff gathered around, some sitting on bar stools and others standing at a safe distance, Conway, dressed in black and donning a mask, blessed the restaurant. 

"I think even though this is a very challenging time ... it's a time for … thinking differently about keeping people safe," Conway said. "And after a tour around here, you're certainly thinking outside the box."

For Cotton Blues owner Chris Ortego, thinking outside the box meant changing the entire dining experience. After the coronavirus pandemic hit, Ortego closed Cotton Blues for two months and transformed the full-service restaurant into a new concept that includes a grocery market, ready-made meals, grab-and-go salads, a soup bar manned by employees with tastings available and a small dining area for guests to order chef-made meals. 

But shifting to more takeout-friendly models and offering items to customers beyond a traditional sit-down isn't just limited to pandemic times, Ortego said.

"It was a trend restaurants were going in, and I think that a lot of our … eating habits have changed," Ortego said. "I felt like this was going to be a direction that we needed to head."

Cotton Blues, which opened about a decade ago, is a local institution in Hattiesburg, Ortego said, serving regulars at its high-end private dining room for special events and also offering Sunday Brunch mimosas and pancakes for customers in sweatpants. 

"I still need to be something for everybody, but I need to be something for everybody in the new world of COVID-19 that we might have to put up with for the next year," Ortego said. 

Converting the traditional model for COVID-19 times

For two months after the pandemic hit, Cotton Blues tried an all takeout model offering family meals and provided meals for four for $50 on a limited basis on Easter and Mother's Day, Ortego said. Staff, which consisted of about six or seven people, could only produce 55 to 60 meals even though the business had demand for even more, and this channel didn’t really pay all the bills, Ortego said. 

Ortego realized his expenses weren't going down and that he needed to find a way to use 100% of his building. 

So with the help of funds from the Paycheck Protection Program, Ortego instead decided to close his restaurant and renovate. Unlike many other restaurant operators, Ortego owns the building and parking lot, which also made transitioning to a remodel much easier as he didn’t need permission from a landlord.

The renovation wasn't the first time that Ortego pushed beyond the boundaries of a traditional restaurant. A couple of years after Cotton Blues opened, it also became known for its cheesecakes created by pastry chef Shaun Davis. The cheesecakes were so popular that Ortego spun it off into another business, bringing the desserts into local grocery stores and partnering with Goldbelly to provide national distribution.

This time around, however, Cotton Blues' business model changes were made to adapt to ongoing dining room restrictions that would make it difficult to return to pre-COVID-19 profits. In Mississippi, the governor loosened restrictions in May 2020, allowing for 50% dining room capacity. 

"If 20% of the general population decides they're not comfortable eating in restaurants until there's a vaccine, … that’s really devastating to our industry," Ortego said. "If we're limited at 50% [dining room capacity] it makes it almost impossible to make money."

With the economic and health conditions of 2020, Ortego said he realized it could be at least a year before the restaurant hosts a 30-person rehearsal dinner or other events in the private dining room.

So Ortego transformed the private dining room into a small grocery store, setting up shelves and filling the rest of the building with fresh produce, grab-and-go sandwiches and salads, ready-to-heat meals and specialized items from around the country delivered from wholesaler Faire for consumers to discover, Ortego said. 

"A lot of people aren't going to be traveling so we're going to try and bring a little bit of that to them here," Ortego said. 

While Ortego doesn't anticipate anyone wanting to use the private dining room soon, if there was a request to hold an event after hours, it could be transformed back into a private event space, Ortego said. 

For breakfast, Cotton Blues offers coffee stations, muffins, chocolate croissants, and grab-and -go sandwiches and salads available for people to take home and eat later, Ortego said. The restaurant also has a full-service bar and menu with a lot of its favorites like blackened fish tacos and blue plate specials that change depending on the day of the week. New additions include a daily soup bar that transforms into a serving station after 2 p.m. for one-pot meals. Masked and gloved staff provide tastings and serve guests these menu items in to-go containers. 

Soon after it reopened, Cotton Blues added a steak program in which customers would fill a basket with items from the market that included steak provided by a local rancher, seasoning and a potato. Then a chef would cook the steak meal to the customer's liking, Ortego said.

As part of the renovation, Cotton Blues installed a kiosk where people can drive up and pick up their orders without leaving their cars. The company also offers contact-free payment options, like Apple Pay.

"Maybe we can peel off some of that drive-thru business that's so popular right now," Ortego said. 

As for its huge parking lot, the team at Cotton Blues converted a portion into a 4,500-square-foot outdoor picnic area, called The Lot, where people can play games while they eat.

"I think there'll be people that would be more willing to go out to eat or hang out if they're outdoors and not just a patio that’s screened in, but a real outdoor area," Ortego said. 

 

In addition to the physical space, Cotton Blues changed its hours as well, with breakfast — a daypart the restaurant didn’t previously offer outside of Sunday Brunch — starting at 7 a.m. and closing at 7 p.m. instead of 11 p.m.

It didn't make sense to keep the restaurant's old hours and only be busy for four hours of the day at 50% capacity, Ortego said. The restaurant removed Sunday Brunch because that business tended to come from large groups of families and friends coming after church, Ortego said.

"We have now become more busy during the work week with our family meal concepts since the opening," Ortego said.

The renovation also meant changing the full-service menu. The previous restaurant was a higher-end venue with $15 burgers and $32 prime ribs, Ortego said. 

"When you can get an $8 or $10 burger to go, why get this one that is served on a fancy plate and has a busboy … and server attached to it?" Ortego said. "You can't compete to-go wise with a $15 burger when Five Guys can give you a great burger for much less. So we had to develop our food and our menu to what makes sense."

While these items are still on the menu, the burger costs $11 and the ribs are about $20. 

Even with lower menu prices, Cotton Blues is better equipped to stay open and profitable even than it was before.  

"I hope we don't ever get ordered to shut things down again," Ortego said. "But if we do, I think I'll be part market and I might have to shut my restaurant part of the concept down, but I'll be so much [better] positioned for meals to go and a market … so I don't have to fully shut my door down."

'Tweaking and tuning' with the customer

Before Ortego decided to change his restaurant, he sat down with each of his roughly 30 employees to tell them why he wanted to switch up the concept. He asked his staff to stick with him through it, but added that if the employee wanted to work at a traditional restaurant, there would be no hard feelings. Everyone, however, was on board and has been committed to making this new hybrid restaurant work, Ortego said. 

"These guys have worked so hard to make this work, and they have such a sense of pride," Ortego said. "When they tour the customers through, the customers buy in because [the employees] buy in and they’re sold on it."

The staff's enthusiasm helped ease customers into the new model, especially if those customers missed their favorite dishes that were no longer on the menu or expected to see the old restaurant, Ortego said. 

"I don’t like it when somebody's disappointed, but when I see them disappointed the first time, but then they come back in the next day to go shopping … it feels good," Ortego said. 

As staff showed guests around, providing tours of the new features and explaining why the restaurant needed to change, customers quickly changed their tune. The concept has also been popular among millennials and parents who have to cook at home, Ortego said. 

"Everybody felt like it was forward-thinking and wise," Ortego said. 

The reopening also provided some quick lessons on what customers wanted. Cotton Blues originally offered counter service instead of having a server coming to a table in the first few days of the launch. While this model worked better for the grocery market and to-go meals, it was too awkward for dine-in guests, Ortego said. Instead, the restaurant now asks customers to get their own drinks from the fountain machine or in the refrigerated area and then servers will take food orders and bring the food, Ortego said. Food servers are also equipped with an iPad and credit card swiper and can handle twice the amount of tables as before, Ortego said. 

"You just keep tweaking and tuning with your customers," Ortego. "You're silly if you think you're going to force what you want onto your customers. You have to listen to them and do what you can to meet their needs."

Initial sales from its first day exceeded Ortego's expectations given how little the company marketed or advertised. By the end of the day, very little actually passed through the kitchen, leaving the chef surprised by the total sales, Ortego said. He added that the chef didn’t realize a customer that ordered an entree from the kitchen may have also bought a pre-made salad or sandwich for a spouse. 

"We just have so many different sources of revenue now, whether it be a frozen meal or a sandwich or salad that’s premade," Ortego said. "People are coming in and eating and then shopping and … maybe they get a blue plate special."

Ortego remains optimistic about how this concept will do in the community. 

"Based on the initial numbers that I’m seeing … this tells me that this will absolutely be financially solid," Ortego said. 

And given the fact that the the restaurant industry lost $240 billion in 2020, being more financially sound will only give Ortego's restaurant a leg up. 

"I think everybody who's in the hospitality industry right now is in a fight for their life over the next year or two," Ortego said.

Article top image credit: Permission granted by Cotton Blues Kitchen & Marketplace

Never before have the lights gone out at so many independent restaurants in such a short amount of time. But there may be opportunity for some to bring their kitchens back to life — in the dark.

There's no question that more restaurants big and small are embracing dark kitchens amid the pandemic. The number of eateries using these concepts grew from 15% pre-pandemic to 51% in May 2020, according to Technomic data.

But while major chains are entering the space to open up another revenue stream or expand into new markets at a reduced cost, plenty of small operators are turning to ghost kitchens just to survive.

The trend may already be having a ripple effect on the industry. Over the past year, third-party ghost kitchen platforms serving independent restaurants have grown — and are growing — substantially. 

Demand for virtual kitchen companies is growing

Reef Kitchens, which manages food truck-like hubs that can host up to six restaurant brands, has seen an uptick in interest from independent restaurants since the pandemic hit in March. The company expanded its capacity by doubling its kitchens in its top markets, and planned to sign over 100 restaurants in 2020. COO Carl Segal said local brands now make up about 20% to 30% of the business, while regional and national restaurants comprise 70% to 80%.

"Pre-COVID-19, we had a good percentage [of] our own digital-only brands that we created to get our system up and running. Throughout the past few months, we started to [shift focus from] our brands and amp up the intensity around local, relevant brands because of demand," Segal said.

Denver-based ChefReady, which rents delivery-only kitchen spaces, has also experienced a "tremendous" amount of interest since the pandemic hit, ChefReady co-founder Nili Malach Poynter said.

"Before COVID-19, the ghost kitchen model was growing, especially in major cities. Now that COVID-19 has shaken things up, more people are looking into it. Previously, a lot of independents couldn't wrap their head around this new model, but the devastation they've experienced has changed that. I think the pandemic has opened up everybody to at least consider it," Poynter said.

Even online ordering and website design company BentoBox jumped into the ghost kitchen space in 2020 after experiencing an increase in such concepts using its services. BentoBox recently signed up about 30 ghost kitchen concepts and has launched four websites — Thai Now, Artisans Oven, Heavenly BBQ and Drunk Chicks Chicken.

"Prior to COVID-19, we worked with several ghost kitchens, but we've seen a large increase over the past couple of months as restaurants look to reduce operating costs and financial risks," CEO and founder Krystle Mobayeni said. 

Bringing independents back to life

The lower-cost model ghost kitchens offer has been a lifeline for some smaller concepts throughout the past few months, either because they've been forced to close or because their off-premise business from delivery and carryout has only generated a fraction of pre-COVID-19 revenues.

Segal points to James Beard Award-winning chef Michelle Bernstein as an example. She voluntarily closed her Miami-based Café La Trova due to the coronavirus, but has partnered with Reef Kitchens to "bring it back to life," Segal said.

Restaurateur Michael Schwartz, who temporarily closed all of his Genuine Hospitality Group restaurants in the Miami market during the pandemic, has also partnered with Reef to keep business (and, in some cases, employment) going.  

"A lot of independents have been forced to close. Some are reopening, but they're doing so with skepticism about whether they should open and how they should open. We're able to be an extension of their brand and, in some cases, we've hired their employees to help work on their brands," Segal said.

The Local Culinary, a virtual restaurant group with more than 50 delivery-only concepts operating in the same kitchen, has also seen a remarkable increase in demand from independents throughout this past year. In fact, the pandemic is the reason the company expanded its business from company-operated concepts into what it calls the first-ever ghost restaurant kitchen franchise model. This decision was explicitly made to help independent restaurants survive, according to founder Alp Franko.

"We give independents access to up to 50 of our designed-for-delivery brands. We train and assist them throughout the process. Our goal is to help these independent restaurant owners bring in additional revenue on top of their existing revenue stream to be able to pay their bills and stay in business," Franko said. "Since launching the franchise in July [2020], we have received hundreds of potential leads from independent restaurant owners."

One of those restaurant owners, Richard Leteurtre, from Bistro 1902 in Hollywood, Florida, shut down for two months at the start of the pandemic. He then brought 16 of The Local Culinary's brands into his existing restaurant to bring in extra sales. Franko said the ease at which Leteurtre was able to incorporate so many brands illustrates why the franchise model is so beneficial. There is cross prep for several of the key items and ingredients across concepts. So, for example, the same recipe used for crispy chicken might be used in the tacos at another brand.

"In the first month alone, Richard attributed 15% to 20% of his total business to The Local Culinary," Franko said. "He also plans to add five to eight new brands in the coming months and will implement our ghost kitchen concepts in his new restaurant that will open soon."

The Local Culinary has also seen an increase in orders at its flagship South Florida ghost kitchen locations since March 2020. Because of this demand, the company started to grow beyond that home market, signing three locations in San Francisco and eyeing a few locations in New York City, for example.

Branden McRill, founder of Philadelphia's Fine-Drawn Hospitality, has also jumped into the ghost kitchen space amid the pandemic. The Commons virtual food hall, comprised of several restaurant concepts grouped together into one digital platform, opened earlier this month. The Commons' layout was created by executive chef Jack Peterson, who conceptualized the ability to arrange the cooking line into six separate, completely differentiated menus. Though it's early days, McRill is confident in the long-term viability of the model, especially as consumers grow more comfortable interacting with brands digitally. 

"One could say we're pivoting for the current moment, but the other side of this is we're actually working on developments for the next step from a business perspective," he said. "I don’t like putting patches on a sinking boat. I'd rather pull the boat back to port, rebuild the boats to be faster and stronger and put it back out to sea. That’s really what we're more focused on doing. I’m not trying to buy time."

McRill, whose Fine-Drawn Hospitality has seven years' experience running concepts like Walnut Street Cafe, The Post and Sunset Social, adds that now is the perfect time to take a risk in launching a concept like this. 

"It's the perfect time period for people to try new things because people are the most open-minded to anything you’re going to do," he said. "You're going to get the most open-minded, forgiving audience you've ever had." 

The benefits virtual concepts hold for small operators

There are a lot of upsides for independents entering the ghost kitchen or virtual brand space, and chief among them is the lower costs — for occupancy, labor, equipment and more. As operators navigate cost pressures exacerbated by the pandemic, saving on occupancy rates — which can take up to 8% to 10% of a restaurant's gross sales — can ease a significant burden on a low-margin business. 

"Ghost kitchens are not the solution, but they are certainly one solution for restaurants that are looking to lower expenses and avoid uncertainty around reopening," said Mobayeni. “Because of this lower overhead, we predict that ghost kitchens are here to stay."

That's not to say these concepts will replace brick-and-mortar. Segal said some of the restaurants he has worked with have replaced their physical locations with a virtual brand, but most are leveraging the model to augment their presence.

"Those that have kept their brick-and-mortar running have done so at a reduced capacity, so this is supplementing their business and bringing back some lost revenues," Segal said.

Ghost kitchen models may not be a silver bullet for a devastated segment, either. Without a physical independent restaurant scene, the industry loses its community hubs. The lack of a brick-and-mortar location also means that marketing efforts become more critical to entice digital-native customers, which may be challenging for a previously low-tech eatery to execute well.

Conversely, however, ghost restaurants could inspire even more menu creativity from chef-owned independent concepts. According to Fast Company, traditional restaurants can risk around $800,000 to test new menu items, but if a menu fails at a ghost restaurant, it only costs about $25,000.

"Most independents are owned by chefs and all they want to do is cook. They care about food and creativity. I foresee this model, because of its flexibility, as a big benefit to allow them to continue to do just that," Poynter said. "I would even argue this is opening up more doors for aspiring chefs who want to work for themselves as it requires significantly less capital."

That said, McRill believes the future will offer traditional opportunities for brick-and-mortar experiences, but alongside the new digital frontier.

"There's a hell of a lot of ambience in Katz's Deli at two in the morning, but if I just want a sandwich, that doesn't need to be part of the experience," he said. "I think [ghost kitchens] are 100% upon us and are going to continue. And there's going to be times and places for experiences, and there's going to be times and places for nourishment and just eating."

The ghost kitchen model is here to stay for independents  

The growth of the ghost and virtual kitchen model should continue for some time and impact the entire industry. Poynter said this is especially true as more operators become anxious about reopening.

"COVID-19 has put a lot of fear into a lot of restaurateurs and independents to realize this could all be taken away. They're more apprehensive now and will be more mindful in making sure they have a stronger bottom line and keep their costs down as much as possible," she said. "Habits are being created, for both consumers and restaurateurs, and that will be hard to change."

Those habits include staggering growth in delivery, which facilitates these ghost kitchen models. Plenty of customers are finding that it's more convenient to get their favorite restaurant's food, or even exciting new options from virtual concepts, brought to them with just the push of a button. Or, they may just be anxious to dine out as the pandemic relentlessly lingers throughout the country. Either way, the timing seems right to have a lower-overhead, delivery-only model in place.

"The truth is it's an entirely different game now than it was just a year ago. The biggest change we've seen from pre-COVID-19 to now is now there is a greater sense of urgency. Independents have gone from having a conversation about this to realizing this is something they may need to do," Segal said. "When an independent restaurant closes its doors, they instantly sever their relationships with their customers. The customer just can't access them anymore. Period. This offers a lifeline for independents to bring back those relationships by delivering their food to their customers' homes."

 

Article top image credit: Kendall Davis/Restaurant Dive

When Delaware Gov. John Carney initially shut down restaurant dining in March 2020, Heirloom Restaurant owner Meghan Lee called her dad to figure out what to do. She had over a dozen people on salary, many had been with her for two to five years ago, when the restaurant opened. During her conversation with her father, she realized she'd have to lay everyone off so they could go on unemployment. 

"I literally was like, 'I'm going to throw up.' Some of [my staff] have children. It just sent me into a panic," Lee said. 

In addition to making sure unemployment was filed quickly on her end, Lee gave her staff food from her pantry and raised $40,000 through a GoFundMe campaign, which she distributed equally among her employees. Since she knew the restaurant would eventually be allowed to reopen, she created odd jobs for her workers in the meantime, such as power washing the patio, and paid them in cash. 

Her efforts have paid off. During a time when many independent and chain restaurants are struggling to rehire and attract new employees, Lee has retained her team. Many restaurants are also experimenting with tactics to make sure their culture is welcoming for workers, boosting benefits and developing cross-training to build up workers' skills.

Experts say retention is one of the best cost-saving labor strategies, as well.

"It's the self-defeating loop as the main reason that companies should look at this. If you don't focus on retention, you're always going to be focusing on attraction and hiring," Dan Sines, Traitify CEO, said. Traitify works predominantly with high-volume restaurants, retail and hospitality companies to help with hiring. 

For national QSRs with 100% to 200% turnover rates, this could be a $20 million to $40 million problem, which could substantially impact bottom lines, Sines said. 

"If you can refocus your efforts, making sure you're providing a better work environment for these people, paying these people more, keeping them excited about the positions that they're in, and showing them upward mobility, that cost goes way down," Sines said. "And it becomes something that, I think, is a real ROI generator for the business."

Improving training, staff communication

Once employees are brought onto the job, proper training is key to retention, especially when it comes to career progression. Cross-training is becoming more common in QSRs, where it is easier for employees to swap roles because most employees tend to work behind the counter either in the kitchen or at the cash registers, Vivian Wang, Landed CEO, said. Landed is a mobile app that helps match hourly food and retail employees with employers.

Front-of-house staff are trained in back-of-house so they can be deployed in either role, Wang said. This tactic can also help employees gain the skills they need to move up. For example, positions like kitchen management still have a heavy emphasis on customer service, and those skills can be learned by interacting with customers at the cash register.

"We're seeing those employers [offering cross-training] are more successful in employee happiness and lower attrition," Wang said. 

Lee uses this strategy at Heirloom, where her sous chef can run food out to customers while food runners can make cheese boards, for example. 

"Anytime anybody new comes into the building, they are completely 100% cross-utilized," Lee said. "If you are running a tight ship and a small staff, everybody knows how to do everything."

Another way to decrease turnover is by improving the manager-employee relationship, Sines said. Traitify launched a tool during the pandemic called Engage that is designed to help solve this issue. It offers 90 days worth of development tips based on an employee's personality and ways to better interact with their co-workers and managers, Sines said. The idea behind this tool was to help with voluntary turnover, especially in QSRs, he said. 

It also helps provide managers with more perspectives on how employees see things, and vice versa, helping teams find ways to get on the same page, Sines said.  

"We've been able to see that by really just taking that time to show you care, [employees] are far more likely to stay and stick around," Sines said.

Traitify has helped the companies it works with reduce involuntary turnover by 30% by providing personality assessments that help employers match people into the best roles, which can help eliminate firing, Sines said. It's also seen an uptick in the amount of time workers are staying. Typically staff stay about three months at a restaurant, but are now staying about a year or longer after using tools like Engage, he said.

Landed has been working with its clients to help train them on ways to better manage staff. So instead of one general manager overseeing 120 employees at a single fast food restaurant, management would expand to include an assistant manager or a shift lead who can have closer relationships with and better manage hourly employees, Wang said. 

Restaurants are also making it clear there is a chance for upward mobility for employees and that restaurant roles can be long-term jobs, Sines said. 

Chipotle offers transparent career paths that include certified training at every level, and crew members sometimes become a manager of a restaurant within 18 months, Marissa Andrada, Chipotle's chief diversity, inclusion and people officer, said. Last year, the company promoted 13,000 employees in the organization and 70% of its general managers come from hourly workers. In May, the company announced it has created a path for hourly crew members to become restaurateurs, the highest general manager position, in as little as three and a half years. 

"When we talk to our employees, [we ask] what is it they want to be able to grow and develop and be successful and productive human beings," Andrada said. 

Once an employee starts at Pajco Inc., a convenience store and franchise operator of Midwest chain Imo's Pizza and Rally's, they learn about the company's growth trajectory during onboarding and training phases, Brett Anderson, vice president of operations and business development, said. This helps communicate that the company believes in its future, and isn't just putting on a facade to attract workers, he said. 

In order to create a more consistent experience, the company brought on a director of people and culture earlier in 2021 to make sure that onboarding and training is not just telling a good story but an accurate story about the company, Anderson said. 

"We certainly have our struggles, but I think ultimately, we have hired the [right people] for a very long time and it's paying some dividends for us, but it's still more difficult than it’s ever been," Anderson said. 

Boosting benefits reduces turnover

Many chains and their franchisees are using same-day pay apps to offer an additional perk to employees and entice them to stay, while others like Chipotle and Starbucks are offering a number of educational and health benefits. 

Tapcheck, an on-demand pay mobile app founded in 2019, integrates with existing payroll processing programs to gauge an employee's earnings as they go through the pay cycle and allow them to receive their pay when they want it, Co-Founder and CEO Ron Gaver said. Tapcheck works with chains like McDonald's, Burger King, Dunkin' and Little Caesars, as well as full-service restaurants. 

Offering flexible pay schedules is making restaurants more competitive with the gig economy, which offers same-day or next-day pay as well, he said. It's also doubling the amount of applications a company receives and is helping reduce turnover by 48%. Employees are picking up more shifts and absenteeism is reducing by 78%, Gaver said. 

Tapcheck offers financial education for employees in its app, including 1,000 articles and video courses that discuss topics like budgeting, saving for goals, spending less credit, creating an emergency fund, banking and credit cards, Gaver said. 

Full-service chain Beef O' Brady's is doing a series of focus groups and surveys to make sure the company doesn’t miss any benefits or perks the employees find important. Frequency of pay is one area the restaurant is considering, CEO Chris Elliott said. Beef O' Brady's is looking into how weekly pay might benefit its workers. The company is also considering technology that would allow servers to get their tips sent to their bank accounts at the end of their shifts.

One of the most impactful benefits to Chipotle's retention has been its debt-free educational program, which it has offered since 2019 through a partnership with Guild, an education and upskilling company. Employees that have been with the company for four months and work 15 hours a week on average are eligible to participate, Andrada said. As of early April, Chipotle has seen a 3.5 times higher retention rate among students enrolled in the program, according to a press release. Crew members are also 7.5 times more likely to move into a management role if they use this benefit.

"This is a key benefit that is not only helpful for us in terms of developing leaders for the company, but leaders for life, whether they're here or they decide to go somewhere else," Andrada said.

The company also offers English as a second language and GED completion programs for all employees and families, Andrada said. 

Chipotle started a quarterly bonus program in 2019, which gives eligible employees a week of extra pay each quarter if the store meets specified goals. During the first few months of the program, 2,600 employees qualified to earn the bonus, and the chain saw a reduction in employee turnover at the management and crew level. In August, the company offered nearly $6.5 million in discretionary bonuses to field leaders, apprentices and managers. 

Additionally, Chipotle offers a healthcare concierge for all of its employees and families, regardless of whether they are enrolled for the company's healthcare benefits. That program helps employees access mental health counselors, including for telehealth appointments, for a nominal cost if the employee doesn't have insurance, Andrada said. For those with insurance, the concierge can also troubleshoot billing issues and help employees get a second opinion or appointment, among other services. 

"When you take care of your people, they will take care of the experience and the experience will translate to growth in the business," Andrada said. "The only way you can run a successful restaurant — and we have 2,300 of them — is that they have to be fully staffed." 

Why culture matters

For many restaurants, their most impactful retention strategy has been creating a positive company culture. At Beef O' Brady's, culture means employees are treated like valuable assets and not commodities, management has a strong rapport with their employees, orientation and training is done well, and employees are offered competitive wages and benefits, Elliott said. 

"The culture in the store is key to minimizing turnover," Elliott said. "Minimizing turnover is the key to being able to stay properly staffed."

Culture begins with the interview process, how a job offer is made and what the first day is like, Elliott said. Did someone meet them on their first day to show them around? Did they get to meet the other staff members? Were they trained properly or do they have the proper experience in the job to effectively perform in their new role? Did they get good performance feedback? Is their pay competitive? Is there recognition and awards for good work? What's the environment of the restaurant? Is there good camaraderie? Is it a fun place to work? 

"The reason why we're emphasizing the culture piece is that's really the piece that has to be in place to ultimately solve this challenge that our owners are facing," Elliott said. 

Beef O' Brady's stores that are doing well have employees who have worked at these locations for over a decade, he said. One owner will make a birthday cake for each employee on their birthday, for example. 

"People will tell you the culture at that store is second to none because the owners treat the employees like an extended family and they love working there," Elliott said. "And [the employees] have a lot of loyalty to the owners. They're not going to quit and go down the street for 50 cents more per hour."

Creating a family atmosphere has helped with retention at Pajco as well. The average tenure of its management teams is 17 years, Anderson said. With about half of its employees starting out as customers, that atmosphere starts with greeting people as they walk through the doors and thanking them when they leave, Anderson said. 

"A lot of people talk about [how] there's nobody out there that wants to work. I'm here to tell you, they're out there. You just have to find them," Anderson said. "Are they willing to come into your four walls? Are you willing to recruit them by doing it the right way? Your company culture speaks for itself. The proof is in the pudding, so to speak."

Diamond Hospitality Enterprises — a multi-unit franchise operator that owns over 30 Hardee's restaurants in four states — decided during the height of the pandemic to not lay off any employees, owner Rob Schmidt said. The company, which employs about 800 people, shifted labor to focus on creating a great drive-thru service when dining rooms were closed, he said. 

"If we had laid off 25% of our employees or had closed restaurants, we certainly would not be in a position like we are today where we're saying, 'Hey we're ready to grow, we need more. We want to add employees,'" Schmidt said. 

Schmidt recounts a story from earlier this year when he sent his office manager out to visit all of the company's restaurants in Mississippi and Alabama. He told her to bring doughnuts, coffee and do something special. She was to go in and do nothing but give everyone a pat on the back, fists bumps and tell them they are doing a great job and are appreciated. 

"It was one of the most impactful things we did," Schmidt said. "My restaurants had a high-level executive person who's not normally in the restaurants who went out of [her] way, took a bunch of time away from her family to go visit restaurants and just thank our people for being there for working hard, and doing the job that they're doing."

Employees later sent emails and text messages saying how much that meant to them, Schmidt said. 

The company has such a positive perception within the local community that Schmidt is already receiving phone calls from prospective employees who heard about its partnership with Tropical Smoothie and its plans to open 16 locations, he said. 

Heirloom's owner has also found success in creating a culture of respect with her staff, which have become an extended family, she said. Since the pandemic, Lee has found ways to help boost employee earnings and make sure they can get as many shifts as they can without cutting any other staff. 

Lee, for instance, changed her approach to her front-of-house staff to boost individual earnings. Instead of bringing on five servers per shift, she brought on more support staff. Each shift would have three or four servers working alongside a busser and a runner, allowing the waitstaff to earn more in tips, Lee said. Instead of cutting staff when capacity was reduced by the governor, she reduced the number of shifts available per employee while offering them shifts if the restaurant was busy over the weekend. 

"I've been really lucky that I've kept the same people, and I really take care of them," she said. "That's my goal and they know that. They are very loyal to me and I'm very loyal to them."

Article top image credit: Permission granted by Chipotle/ Design by Adeline Kon/Restaurant Dive