P.F. Chang's CEO Says Dining Is Rebounding

same in some other major cities. Let's get more on the strategy, how the industry is doing overall and changing as a result of the pandemic. Demola Adam A. Laken. He is CEO of p F Changs. He's on the phone in Scottsdale, Arizona. He's also a partner at Paulson and Company, of course, the firm of the former Treasury Secretary Hank Paulson, and he's also at Triortists and Capital Advisers. Demas, so nice to have you here with us. How are you. I'm doing well. Thank you guys for having me. Well,

it's great to have you here. First of all, this past year tell me what it's been like for you all. Yeah, it's been a it's been a bit of a role in as you can imagine. So, you know, we ramped down our dining business, you know, last year in conjunction with the government mandates. Uh, you know, we worked through that. We drove our off premise business. We've gone through the

worst of it. We're on the rebound now, um, and so excited to be in a position where we've we've gone through the storm and we're coming on on the other side. Well, storms and moments of crisis sometimes teach us an awful lot of things or figure out strategies that we were maybe thinking about mulling over and then all of a sudden, we're like, we gotta do them. How did the pandemic impact you're thinking about what your

business needs to be going forward? Absolutely, So you know, we we we we identified off premise dining as a key area of focus for us prior to the pandemic, and so we opened our first to go actually in February of last year, which coincidentally was about a month before to Go became the only way you could eat was that Chicago that you did that correct, I was

in Chicago, the River North Chicago. UM. And so you know, we've seen that growth and consumers worth shifting towards off premise prior to Prior to COVID, it accelerated dramatically obviously with with you know, first of all, being forced to use it. But now even as dining has come back, we've seen that off premise continues to grow. So people have really changed their behavior in a much more permanent

way than just temporarily is induced by COVID. UM ye, go ahead, Well I want to ask you keep saying off premise, So you're talking about takeout right? Yeah? Sorry, So off premise means takeout, but it also means delivery, so you don't actually come to the restaurant. You maybe order on our PF Chang's app or website or on one of the third party apps. And it also means catering, so you know, a big event that you get catered, whether you call that in order, on the website, on

the app. UM. So it's it's takeout, delivery and catering is what we call off premise. So what's doing the strongest is it takeout in just in general or delivery takeout the biggest of the biggest business out of those, but the most growth has come through delivery UH and specifically delivery through our channels, so through our website and through our app um and and part of that is purposeful. That's where we we focused on oning the most. You know,

it allows us to interact directly with the consumer. It gets them the best experience um and and it creates that one on one relationship that that we cherish. UM. So we focused on growing that people have enjoyed, you know, coming directly to us UH. And that's been the highest growth theory, even though take out is the biggest business

of the three. Well, it's interesting you talking about delivery because there's all those services, right, and that has definitely been a pandemic play as everybody was delivering take out. But when you use those services, right, you lose a piece of your business. So if you can keep it in house on your own platforms UH. First of all, as you said, you're directly involved with the consumer. But it's also then you get a bigger piece of the pie.

That's correct, That's correct. You don't pay the fees, right, we now we have to deliver or or you know, solve for delivery, whether we pay somebody to do it on our behalf like nationally with ourselves. But it's still it's still more cost effective overall, you know, absolutely, um. But you know, in addition to that, there's the question of being able to know who our guest is and know what they order and and be able to identify them when they into a restaurant if they ordered from

us on delivery a week ago. So there's an important data and consumer loyalty and analytics piece of it, um that we get by working directly with the guests. Um. And then finally we can we can give them a better price overall. Because the third parties have to charge certain amount of delivery fees to kind of make their model work, we're able to do a lot better frankly because um, there's there's no middleman to to deal with.

So you know, for a number of reasons, it's a better experience for the guests, it's in a better situation for us. And so that's where we've kind of focused our attention in terms of growth, what kind of activity are seeing here in New York, Because we're trying to assess what's going on in terms of people coming back to work here in New York City. We've got about forty seconds. We'll do some news and then come back. But just initially, what kind of demand are you seeing,

especially for lunch. Yeah, we're seeing it start to rebound. You know. I'm starting to see more catering orders come, which is a wonderful sign. And uh, starting to see more lunch traffic pick up. Uh. You know, office was about five to ten percent occupied through the first core of this year. That's starting to pick up. Um. You know. Our feeling is that Labor Day is kind of a flag, a marker that's been planted in terms of when folks will really start to come back into the office post

summer holidays, etcetera. So we're seeing improvement, but really I think the step function improvement will occur likely around Labor Day and that that should be a wonderful time for for all of us and who you know who live in or visit New York City. Yeah. I feel like in so many ways, we're all just going to put a big red circle around Labor Day, uh, in terms of what it means for the reopening of our economy and kind of going back to quote unquote more normal

I want to get back to our guests. We're talking to the CEO of PF Change, Demola Adam A. Laken. He is still with us on the phone in Scottsdale, Arizona. So where do you go from here? How much do you expand this smaller model that you folks are doing at p F changs this to go locations, uh, you know, around the country. Sure, so you know, we're gonna ramp up the openings for for that concept. It's been met with a lot of great enthusiasm in the markets where

we've opened it. Um. So we're intending to have twenty open by the end of this year. We have eight eight at present, so we have um, you know, we have about twelve that that we're gonna open you know for the rest of the year. Uh. And that's going to be mostly concentrated in the Dallas and the Florida markets. We have one actually opening next week in last Collinas in Dallas. Um and uh and so that's that's the plan.

And then going forward from for next year, will open about thirty and and ramp up this concept, uh, you know, fairly quickly here um and to be able to reach more custom consumers. And more parts of the country a lot more quickly. All right, so it sound like it sounds like you're trying to reach out to consumers in a big way. Is the endgame also the ultimately spinning this puppy off and go in public. No, not to

spit enough. So we managed this. Uh, you know, the secret sauce here is that it's the same exact p F Chang's food. It's the same kitchen staff by the same people. You know, you can move a chef from a traditional b strore to it to go and buy versa, and it's the same recipes. Um. You know, we we share technology, they're managed by the same multi unit managers, which makes the model really work, right. Um, you can

you can guarantee quality and you can guarantee consistency. H So separating the business would would kind of go against what's making it work. So it's not in the plans. It's gonna it's gonna remain co managed and code cohabitated here in Scottsdale. Um. In terms of you know, going public or capital plans, you know that's still under under you know conversation. You know, PF Change once upon a time was public and UM, so it has a history

in the public markets. It's kept a lot of the infrastructure in terms of um, you know, the reporting standards, etcetera. So it's something that's a viable alternative. But you know, we'll we'll watch and we'll see and we'll continue to manage the business and and and see what comes going forward. What's the biggest change in the real estate space as a result of the pandemic that stays with us. Is

it just that real big jump onto digital platforms. And it was interesting during the pandemic that were upscale restaurants that would never do take out that all of a sudden, we're doing take out. Sure. Yeah, a lot of folks are forced to learn. You know againfortunately something we knew how to do coming into the pandemic has been an

area of focus for us. You know, you mentioned I used to work a partners Paulson, So as part of the you know, I led the transaction to acquired p F Changs and so, you know, that was part of our thesis when we bought the company was that off premise was going to be a key part of the future. It was going to drive growth. So we spent a

year kind of building out the infrastructure. So it's been part of our core thesis prior to COVID, and that's really worked out obviously, even though nobody saw COVID coming, but we did have the infrastructure in place, uh to to allow us to transition guests to off premise pretty seamlessly. Did you look at did you look at a lot of realists? Did you look at a lot of different restaurants? And if so, why did you choose this model or this company or this brand. It's it's an incredible brand.

So you know, first of all, it's it's uh, it's there's a couple of things that are very difficult to replicate. Number one is the strength of a brand. And you mentioned Nike and there for Formans today. But that's an incredible brand that's going to keep growing because it's got so it's got a it's got a meaning to consumers that it's hard to to recreate or duplicate or or or break as long as they're smart about their product and their position in which which they are um and

so that's something that PF. Chang's has right is is the brand name the residents, it means something, uh, you know, it really pioneered Asian American cuisine here in the United States. Um, it's got a history. Uh so you know we love that. Um, you know, we we thought there were things we could do in terms of the experience and the restaurants to to make that to improve that. Right. So the food was great, it scored really well. We thought we could make the restaurants a lot more fun to be to

be frank right. Um, So we spent a lot of time, you know, remodeling the restaurants, investing in the guest experience, theater at the table we call it, but making dishes exciting fun um, and you know, things like birthday celebration sparklers. So we've done a lot of things to kind of bring the life enthusiasm back into the into the restaurant, maintain the super high quality of food and that's resonated

really strongly with the guests in the restaurant. And then in addition to that, we we observed you know, off premise and the growth that was happening in that channel, and we thought this was a perfect you know type of food for off premise. You know, Chinese takeout cuisine is something that has been part of you know American

culture again for a long time. Um, and there was work to do in terms of the technology, in terms of the infrastructure, building an app which you know we didn't have when we bought the business, um you know, the website, etcetera. But we we did all that work, you know, fortunately prior to covid um, which has allowed us to not only improve the experience in the restaurants,

but also improve our off premise business. And then launched this new concept p F Chang to Go, which again has been met with with a great deal of enthusiasm everywhere that we've opened it. And what happens to the bistro model, we we're gonn we're gonna keep opening those as well, you know. So so those have done really well.

Uh you know during covid we do off premise out of the bistro restaurants and we do dine in so so um, you know, there's there's gonna be a future for opening more of those who actually have one opening in Houston in a couple of months, we have one opening in Hawaii and Honolulu. So the plan will be too open b strows, open to goes and and you know, let the guests choose how they want to interact with us, right, they want to come in uh and have a meal

in the restaurant, we're there for them. And if they want to order to go from our restaurant or from our one of our PF chains to go, you know we're we're available for them as well. Does the to go model for people to like ordering for home or for takeout? Does that help you see a clear line? Did you guys are tracking what's going on with your customers directly? Do you see that helping fuel the bistro model? Well? Together? Absolutely so we will have mortkets that own that have both.

And the thing is is it's all about brand residents and people seeing PF chains and having to be more top of mind. So having more units, having more cars with the p F chain's um, you know car toppers, being a being more available and more ubiquitous in the market, is a good thing for for the strength of the brand. Right And and so you know I mentioned Dallas, that's what we're opening it to go next week. But we'll have restaurants, will have two goes, and we'll be just

more present and more available from more places. You know, you might have a guest who could have ordered at home but couldn't from work because where their office is located. But now they can because it is to go in that market. Um, so they're they're able to interact with us more often and as much as as they like, and they'll think about us more because we'll be more present. All right, So what keeps up at night? The restaurant space is a tough one, as you know. I mean,

are you guys profitable in what you're doing? And just got about forty seconds left. Yeah, yeah, no, we we're doing very well from a from a profitability standpoint. Um. You know, we got a lot smarter operationally during the crisis. You mentioned something to the effect, I've never waste a crisis, but but we did get a lot smarter and a lot more efficient, and that's paying off now because a sales rebound. We're more profitable than we were pre covid Um.

In terms of what's been a struggle, you know, staffing has been a challenge throughout the industry. I think that's something I'm sure you've heard from from other folks in the space. We're working through it. And then that's that's something where you have to be as good an employer as you can. But something we're working through. But but certainly a challenge just quickly ten seconds. Are you having

to pay workers more to get them in? You know, we've we've always been at the higher end because our food is more complicated and it's it's it's it's more more work frankly to work at up one of our restaurants in some other places. So we've always been competitive. What we're doing is focusing on making the job, um, you know, as easy for them as possible, giving them technology and tools, uh, and making sure they have time to spend with their families. Were given them fourth or

lie off this year? Is that? Yes? Or no? Though? Are you paying more? Just quickly? Wages have gone up? Absolutely? All right, Gonna leave it there, a great conversation. Come back and talk more and let us know how it's going. We're talking with and I'm like in the CEO p F changs. Have a great weekend. Everyone a safe one. This is Bloomberg