Since the start of the COVID crisis and the shutdown, I’ve been co-hosting a regular Zoom call with Sam Goldfinger and Andy Peskoe, good friends and veterans of the hospitality industry, we’ve called “Hospitality Squares.” For those of you old enough to remember the TV show from the 60’s and 70’s, the idea was to get 9 people on a Zoom call so you’d see a 3 by 3 grid on your screen, just like when Paul Lynde was in the middle.
More importantly, it brings together an intimate group, allowing for an open-ended, interactive conversation about the crisis, how to survive until reopening and recovery, and how to evolve in the post-pandemic world. It also provides a way for peers and old friends top reconnect and say hello during a time when doing so in person has been impossible.
We’ve hosted 14 episodes so far, and expect to continue throughout the remainder of the summer and into the fall. While the conversations have shifted as events have unfolded, and evolve based upon the participants, six core themes have emerged through “Hospitality Squares”:
1) Restaurant Closures: Without additional local/state/federal support for the hospitality industry, a large percentage of restaurants, particularly those which are independently owned and operated, will likely close forever. We’ve talked about an over/under of 25%, but many think the number will be substantially higher.
2) Real Estate Impact: The dynamic between restaurants and landlords has shifted dramatically, particularly in New York City and other coastal cities. In recent years, demand for space was abundant, and real estate owners were able to set the terms. However, demand has dropped precipitously, and it would be better for owners in many cases to restructure leases with existing tenants than to take back their space, find a new viable tenant in a weak market, and incur the expenses of a new build out. For operators with multiple units, they have been closing underperforming locations with less favorable lease terms, thereby better positioning themselves for an eventual recovery.
3) Shifting Business Models: Restaurants have had to adapt their business models to address the lost revenue from the limitations on indoor dining. This includes take out/delivery, meal kits, online classes, offering curated groceries, and take out wine, beer and cocktails. While some of those activities may stop once we get to a full recovery, operators are finding that they have in many cases enhanced their relationships with their customers and that these innovations may result in a more robust and balanced business once the pandemic subsides.
4) Industry Advocacy: Advocacy for the hospitality has been strong, with groups such as the Independent Restaurant Coalition, Relief Opportunities for All Restaurants (ROAR), The New York City Hospitality Alliance, and the James Beard Foundation playing leading roles in lobbying local, state and federal government for the importance of the industry to an economic recovery. Those efforts led to a shift in the deployment and payback periods for PPP loans, and have advocated for an industry specific relief fund in the next stimulus package.
5) Service Preference Shifts: Across the industry, full service, fine dining restaurants have been most negatively impacted, while quick service (“QSR”) and fast casual operators, which lend themselves much better to a focus on delivery and take-out, have generally fared much better.
6) Experience and Opportunity: There has been consensus that weaker operators, whose business models were marginal prior to the crisis, are likely to not survive, leaving more experienced and capable owners with access to capital to possibly flourish in a less competitive environment once the crisis ends. Aurify’s recent purchase of the US operations of Le Pain Quotidien out of bankruptcy is an example of one such operator being opportunistic, and positioning themselves well for the recovery.
“Hospitality Squares” has been a great way to reconnect with friends and colleagues in the industry, and facilitating new connections and collaborations. We will continue to report on what we hear, the challenges that the hospitality industry is facing, and the ways in which operators are responding. Feel free to reach out if you have thoughts or questions, or know anyone who would enjoy joining a future episode.
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