Taffer Sees 'Darn Good' Summer for Restaurants

of Bar Rescue. Yes, uh, you know him well, and he joins us once again back on Bloomberg Business Week, and he joins us on the phone from Las Vegas. John, how are you hope you're doing well. I'm doing just fine. Kyle, good to talk to you again. Yeah, great to have you here. We just had on um a guest in the commercial real estate space, and we're specifically really talking about and focusing on what's going on here in New

York City. Uh, we know the restaurant space, especially in major cities, especially in New York, they're really under a lot of pressure. And he's really wondering, you know, what happens on the other side a restaurant that slows down is you know, it's slow to see another one reopen um. I do want to get into specifically what you're doing with your taffer's tavern, but give us the big picture. You talk to business owners all the time. You see

what's happening. You've seen other cycles. How does it feel where we are right now? Well, it's it's obviously, Uh, we're all been greatly wounded. And the issue becomes resources, Carol. I mean, do we spend resources now while the market is sort of dysfunctional? Uh, and then we don't have the resources to expend when the market comes back. Or do we hold resources now so we have them when the market comes back. You know, it's a difficult choice

for operators. And the longer we sustain in this, I call it a dysfunctional markets, which is worse than a disrupted market. The longer we sustain in this, the greater the debt load and the greater percentage percentage of restaurants that we lose or Uh, you know, they're going to have to face that landlord and there's going to have to be a renegotiation if there's no stimulus package, and certainly landlords are going to have to be aggressive in

retaining some of these tenants. But there's another side to this, Carol, if it will yeah, and that is, you know, we have the vaccines hitting within quality five to six weeks. Even according to Dr Fauci, we have seven hundred million by April one hitting. So let's take a look at the spring for a moment. Restaurant capacity will be down for sure, right, We're gonna lose of independent restaurants, so

capacity will be down. And I suggest that the next thing people are gonna do after they get the vaccine is go to dinner. So I see a great market opportunity this spring post vaccine, and I see a much lower industry capacity. So dare I say I sense boomtown? And I sensed that landlords who are aggressive now in protecting their tenants and bringing in some new ones right in key locations, will be postured to take advantage of

the boomtown that we see coming this spring. Well, that's exactly what we're talking about with our last gasp, Pierre de Bas. I mean they have been renegotiating or working with landlords, working with especially when it comes through reading retailer restaurant space, basically saying give us ten. I think of, you know, your gross revenues or something for the month, and that's how we'll we'll kind of get through this

period um. So it kind of is John. You know, we at Bloomberg we talked about what kind of recovery K shaped, W shaped, V shaped. It sounds like what you're saying is you're setting up or anticipating that come spring, when we do see the vaccine being used more broadly, that we could see a big recovery because there will be people pent up demand who just want to get out and use restaurants. So for those that survived, it could be a really good market environment. It could be

a great market environment. But one of the issues is Kyle people are gonna lose some guest loyalty because they haven't really been interacting with their marketplace in some cases for eight months or so. So you know, I caution restaurant operators to think of this as a launch, not to reopen, so they have to reposition their brands, they have to reignite brand awareness. They should really think of

this as a reopening. And that's where we get back to what we started with, which means retain some of your resources. Now so that you have them to position yourself for success in just a few months. So one of the things, man, I've you know, I've been watched binge, watched on your show. I mean, some of these businesses though they're already losing money or they're just slim margins.

It's a hard heart business. How many people do have resources kind of on the sideline, a little bit of a safety net because from I feel like from my conversations, there's not a lot to do. No, there isn't a lot that does And you know, typical margins Carol could be between eight and twelve percent of revenue. Occupancy rent is typically about ten percent of revenue if the numbers work so so, and if an operation does three dollars a foot, then the rent would be about for thirty

dollars a foot. When those ratios get out of whack and the rent becomes which is what's happening now with the revenue reduction, it's unmanageable and the landlord understands that. And it's interesting. But this is what you said earlier is the solution, and it's to get rid of the base rent and negotiate percentage rents so that in the low end, the tenant is protected. In the high end,

the landlord is rewarded. And that's a formula that really makes sense when we sit down and percentages can have plateaus right at certain levels. They can go up, they can go down and then be very creative. But that's a really logical and quick solution for a landlord and tenants right now, So John, tell us about what you guys are doing with Taffer's tavern. And you've actually had some of these. I think, is it one open up already for some training, So tell us what the concept

is and how it's going. You know, it's interesting, Kyle. We started creating this two years ago when there was no labor available, and I started by by looking at our labor model at the time there was no labor available. There was the biggest problem in a restaurant industry. We're looking at fifteen dollar minimum wages and in many cases uh candidates for jobs with New Americans and our language barriers. So I said, the casual dining model cannot sustain itself

this way. We couldn't staff the kitchens. So we went on a quest two years ago to reinvent food service with robotics. And computerized cooking systems and to completely reinvent the kitchen. And our purpose was to create back of house labor costs at of the industry norm and replacing

it with technology. So we then worked for two years in test kitchens and with great technology partners UH in equipment technology partners, transactional technology partners like SHIFT for in middle being companies like that, and we reinvented the restaurant model and created a product quality that's that's incredibly consistent because it's all done by computer. So now we opened our first one in Alpharetta, Georgia. We've sold almost twenty

franchises around the country. We're opening in Boston and Washington, d C. And kind up scale, right, I've I've seen some images and I've you know, like, what's the market you're going after. So we're going it's a franchise. We're going in a middle market. It's a very very nice upscale environment at a at a mid scale price point. But it's interesting cow because it reconnects to what we

were talking about earlier about the landward situation. We've been selling franchises and you think during a pandemic you wouldn't be selling restaurant franchises right now would be a logical assumption. But sophisticated operators are buying franchises, Chris. They're saying, right now there's an opportunity to get great sites across America that are being lost. Well, so that is so they're looking to to obtain great landmark locations due to the

turnover of the pandemic. Right it's an it's funny because well, it's not funny because I hate to see anybody, you know, kind of struggle through this environment. But you know, there are opportunities that are created. We always see it. You know at any market when there's distress, there are investors or you know, entrepreneurs who can figure out some opportunities. But I want to understand is tell me how it all works. So is it all technology or limited kitchen staff?

How does it work? It's a limited kitchen staff, but they're operating equipment, they're not handling food. So because of that, when we were when we were finished about a year ago, we realized, holy how when COVID hit, we had the safest kitchen in America because we were completely compactless. Uh So we put an unbelievable technologies that you put your hands under. It scans your hands and if there's any viral of bacterial content on your hands, you're sent back

to wash again. We put an unbelievable transaction technologies and we compartmentalize the business to make certain each compartment was safe. And you know it's not only for COVID. You know next year we're going to have another flu. When somebody sneezes in an inside room. After this, people are going to look at them with scorn, you know, coughing and

an inside in a movie theater, forget about it. So this is an environment today that people are going to continue with sensitivity I think, to keeping healthy environments along after COVID. That is just fascinating. So you've gotten in Atlanta, tell me and you said, you're selling franchises. And you said, did you sell? You said you sold about twenty. Yeah. So we we sell territories. So we sell markets of five units obviously the very qualified investment groups and operators.

And we have now the Boston franchise in the Washington franchise. I say this with a smile on my face. They're racing to be number two, which which is terrific. And they're finding that there are great locations out there, and sophisticated operators are reacting. You know, it's almost like a forest fire count you know that everything burns down, but then you see the little green buds pop up right,

and it's sort of the evolutionary process. And for many restaurant operators, keep in mind, the bars are there, the kitchens are there, so it's more of a retrofit than a complete construction project. So there's opportunities for restaurateurs to go into pre built out spaces and just remodel them,

which reduces the opening cost. Heck, like John Listen, one of the things I like, you know, watching when you're doing your show is you know, you're sitting down, you're looking at the you know, understanding the finance, the business part of like how you run it. I mean, and often you come into a situation or scenario where people are losing tons of money and that's obviously not a

sustainable way of running a business. What I'm wondering too, when you look at the financial equation of increasing the technology, reducing to some extent right labor or not to some extent, you are reducing labor, So what's the financial model. What how does all of this impact the margins of running a restaurant. It increases margins by about twelve, which in

very many cases can be increase in margins. The biggest expense we have is labor costs in the industry, which will run typically thirty Our second biggest expenses food costs, which can also run If you think about it, that's costs before I even paid for rent, utilities, insurance, maintenance, any of those the things. So that's where the costs get eaten up the most in those two big ones, food costs and labor cost Yeah, it's just in fascinating.

It's just kind of interesting to see. And I found it interesting that you were doing this two years ago because of labor shortages. Yes, and it's interesting how the model worked out. By reducing human involvement in the kitchen, we created a really safe environment, which was a consequence of our work. But this was really a labor of necessity, we thought at the time. Yeah, it's really fascinating. Do you feel like a year from now things will be

significantly different in this space? I do? You know? It depends upon some of it, upon government actions, upon how quickly this happens. About three weeks ago, I interviewed President Trump for the hospitality industry and we talked about four key programs, and I was hoping it would happen after the election, even before the inauguration, but apparently it's not. And of course, the p p P program was discussed with about six months of debt relief in it. That

would be a big deal. There's an employee retention X credit that now affects a very few types of restaurants. There was a commitment to broaden the scope of that, which is significant. And then President Trump and I'm not sure about President elect Biden's position on domestic travel incentives, but if they proceed with domestic travel incentives the right PPP plan and they look at employee retention, I think yeah. I think the p PP digs us out and the

other programs will get us going. All right. Can I leave it on that note. Good luck, John. Nice to check in with you. John taff Our host and executive producer Bar Rescue on the phone from Las Vegas.