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Business Observer Friday, May 22, 2020 6 months ago

Restaurants face steep climb to get back to 'normal'

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Clean and safe are the new industry buzzwords.
by: Mark Gordon Managing Editor

A gallows humor joke is making the rounds of the executive offices at First Watch.

“We’ve been saying we’ve never worked harder than we have in the past two months,” First Watch President and CEO Chris Tomasso says, “but ironically, we haven’t had any restaurants open.”

‘When you lose March and April profits, that’s the money you use to get through August, September, October and hurricane season. [The industry is] going to see some really tough times in the next five to six months.’ Grant Phelan, Phelan Family Brands

East Manatee County-based First Watch, one of the largest daytime restaurant chains nationwide, with some 380 locations and more than $350 million in annual revenue in 2018, made a counterintuitive decision two weeks into the pandemic-induced shutdown: It closed all its company-owned locations, spread through 31 states. 

Up until Easter Sunday, April 12, the company had done what many others were doing, staying open for curbside pickup and delivery with a skeleton crew of mostly managers. It punted that plan April 13, reasoning, Tomasso says, that the small amount of sales wasn’t worth the obstacles. “It was wearing out our people and putting our people at risk,” he says.

That meant temporarily closing 344 stores, with 39 franchise-owned locations remaining open under their own decision. And that’s when Tomasso and a group of leaders and managers at First Watch, including an in-house COVID-19 task force that initially met every day, really went to work. The goal was to create a reopening plan, something nimble but with strict rules on food safety and store cleanliness, that would accomplish three things: Keep employees safe, keep customers safe, and restore some level of normalcy to a restaurant service sector turned upside down by the coronavirus pandemic.

Courtesy/Chef David Robbins. In order to meet social distancing rules, the team at Harvest & Wisdom at Shangri-La Springs created outdoor seating with umbrellas on the lawn in addition to seating on the terrace.

First Watch joins hundreds of others, from giants like Tampa-based Bloomin’ Brands to Harvest & Wisdom, a farm-to-table restaurant inside the Shangri-La Springs resort in Bonita Springs, in forging a reopening path. First Watch opened 18 corporate locations, in the Sarasota-Manatee region and in Nashville, in mid-May. The others are scheduled to open June 1, a bit later than many other chains. Tomasso says the time is worth it to make sure the interior of each restaurant is retrofitted properly to handle safety protocols — a project costing in the high six-figures companywide.

“We have to earn the return,” Tomasso says. “That’s our motto. We want to open right not fast.”

Profit pinch

The pandemic hole restaurants are in is deep and wide. A May report from commercial real estate firm CBRE says the $2.5 trillion food and beverage industry has been hit harder than any other sector, accounting for 60% of the 16.8 million jobs lost between March 19 and April 9. The National Restaurant Association estimates the industry lost more than $50 billion in sales in April from closures.  

Locally, Phelan Family Brands, a Bonita Springs-based company that operates several entities, including Pinchers, has been down 95% since early April, CEO Grant Phelan says. The firm, which includes 12 Pinchers crab-themed restaurants on the west coast of Florida and in Key West; two Texas Tony’s Rib and Brewhouse spots, in Cape Coral and Naples; and two Deep Lagoon Seafood locations, in Fort Myers and Naples, did $71 million in revenue in 2019. Given April is one its busiest months, that’s at least $6 million in lost sales.  

Even worse, Phelan laments not only the lost sales but also the effect on the entire industry. Although Phelan Family Brands, Phelan says, has the scale to get some concessions from landlords and vendors, and some cash in reserves, smaller operators usually don’t have that kind of cushion.

“When you lose March and April profits, that’s the money you use to get through August, September, October and hurricane season,” Phelan says. “[The industry is] going to see some really tough times in the next five to six months.”

The Phelan family has some experience in tough times: Although not a pandemic, Phelan’s dad, Tony, closed a chain of five Irish-themed restaurants in Texas in the mid-1980s due to the state’s oil bust. The family relocated to Southwest Florida in the late 1980s, and they opened the first Pinchers in 1997. “This is by far the biggest challenge we’ve ever been presented,” Grant Phelan says. “We opened the first Pinchers 23 years ago, and I hope we’re still operating Pinchers 23 years from now.”

Jen Whyte, who runs Fort Myers Brewing Co. with her husband Rob, is also facing the business challenge of a lifetime. The brewery has grown from a tasting room in 2013 to a big-time player in the Southwest Florida beer scene, with a 30-barrel brew system, among other features. It fills taps for a variety of clients in the region, including spring training stadiums and the JW Marriott Marco Island Beach Resort.

Like a lot of peers, 2020 was shaping up to be a stellar year for Fort Myers Brewing. Then came the coronavirus. “That shut us down suddenly and abruptly in mid-March,” Whyte says, adding three of the company’s biggest clients soon canceled orders, which meant “68% of our business went to zero overnight.”

Whyte declines to disclose a specific revenue loss, saying only by the time this is over — whenever that is — the hit to Fort Myers Brewing Co. will be in the seven figures.

Space it out

In earning customer’s return for the now, meanwhile, restaurants are getting master degrees in cleanliness.

At Pinchers locations, for example, employees are disinfecting menus after every use and offering paper menus on request.  Each restaurant has added sanitation stations, and employees are required to wash hands every 30 minutes, Phelan says. On the physical side, they’ve removed all barstools and complied with all the 6-feet spacing regulations.

The scene is pretty similar at Bloomin’ Brands, which operates more than 1,4000 Outback, Carrabba’s, Fleming’s and Bonefish locations in the U.S. and worldwide. The company altered seating plans in all its restaurants, a Bloomin’ spokeswoman says, and has taken numerous other steps, including:

• All employees have been recertified in safe food handling;

• Conducting daily wellness checks on employees. No one with symptoms will be permitted into the restaurant;

• Frequent sanitizing of high-touch surfaces and items, including door handles, bathrooms, soda machines and payment terminals. Each restaurant has one person dedicated to overseeing that task;  

• Increased hand washing by employees;

• Provided all employees with face coverings and gloves;

• Switched to one-time use paper menus; and

• Using disposable condiments such as salt and pepper.

Harvest & Wisdom, part of the Shangri-La Springs resort in Bonita Springs, doesn’t have the resources that Bloomin’ Brands has. But the 860-square-foot eatery, General Manager Lee Bellamy says, is doing many of the same things, especially cleaning all high-touch areas every 30 to 60 minutes. With such a small space, too, Bellamy says one challenge remains serving enough customers to break even. They’ve moved some tables outside, but that’s a solution that creates another problem, in Florida summers. “As long as you can handle the heat,” he says, “we have plenty of seats outside.”

Whyte, at Fort Myers Brewing Co., is another cleaning machine. “We have hand sanitizers all over the place,” she says, and even with all outdoor seating, she and Rob Whyte “are going around cleaning tables every 10 to 15 minutes. It’s exhausting.”

Jen Whyte has even "hired" two people to help her with the constant cleaning: her parents. They’ve been coming in every day and grabbing a cloth and spray.

Pay it back

Like Phelan, First Watch’s Tomasso says the closing, and reopening, has been the toughest challenge of his career, by far.

“We have to earn the return," First Watch President and CEO Chris Tomasso says. "That’s our motto. We want to open right not fast.”

First Watch, on reopening, is doing many of the things Phelan Family Brands, Bloomin’ and other chains are doing. They will offer no contact pick-up, hand-sanitizing stations and single-use and digital (iPhone and Android) menus.

On the staffing side, all employees are required to undergo a pre-shift screening, including a temperature check. And employees are also required to wash their hands prior to starting their shift and then every 30 minutes.

Staff will be provided with and required to wear personal protective equipment, including face coverings and gloves. Securing the PPE has been a challenge, Tomasso says, because big as First Watch is, it’s not at the front of the line of PPE suppliers, which are working with billion-dollar brands first. “We’ve had to be really scrappy,” Tomasso says.

Also on the employee side, First Watch has taken several steps to maintain some kind of normalcy. The company, after shuttering its corporate locations, announced it would continue covering manager’s existing health care benefits, in addition to covering 100% out-of-pocket medical costs to any employee with a COVID-19-releated issue. The company also committed to making its managers financially whole, by providing a bonus upon their return that would close the gap between federal and state benefits and their First Watch salary. Those benefits stem from both cost reductions and pay cuts to senior leadership through the rest of the year.

More pandemic challenges loom, for First Watch and others. Notably, child care is bound to be an issue for many employees. Also, Whyte, at Fort Myers Brewing, says she consumes a significant amount of data from other countries, in trying to sense if there will be a second COVID-19 wave in the U.S.    

File. Fort Myers Brewing Co. was the first brewery and taproom in Southwest Florida, when it opened in 2013.

On the opposite side of what can go wrong, several restaurant executives also keep in mind what’s gone right. Tomasso, for example, has been inspired and impressed with First Watch employees’ resiliency, teamwork and get-it-done attitude.

“We have been a high growth, high-trajectory business for a long time,” Tomasso says. “This was the first time our company has really dealt with adversity, and I’m really proud of how the team responded.”

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