Restaurant operations | KRG Hospitality

April 20, 2022by David Klemt David Klemt No Comments

Chain Restaurants: Present & Future

Chain Restaurants: Present & Future

Technomic presented the state of chain restaurants, now and next, during Restaurant Leadership Conference 2022 in Scottsdale, Arizona.

Obviously, the entire hospitality industry is facing significant struggles. Rising costs, supply chain chaos, labor shortages and challenges, inflation… The past two-years-plus haven’t been easy.

However, there’s reason for operators and their leadership teams and staff to be optimistic. Additionally, independent and small-chain operators can learn from Technomic’s findings.

Challenges & Threats

Well, let’s take our medicine first, starting with the supply chain. In short, it’s bedlam.

Joe Pawlak (standing in for David Henkes) and Richard Shank of Technomic said as much during RLC 2022. Per their data, 35 percent of operators dropped at least one manufacturer between 2020 and 2021.

Whether because of rising costs, an inability to consistently deliver product, or other factors, operators had to adapt. Clearly, there’s a nasty trickle-down effect when an operator drops a supplier.

And then there’s inflation. Interestingly, Shank calls what we’re seeing currently as “existential inflation.” Relating to consumers, this means their confidence is shaken in terms of spending.

Of course, this type of consumer perception manifests in several ways. For example, some guests cut down on visits. Others will cut down on ordering, skipping appetizers and desserts. Perhaps they have one less beer, glass of wine, or cocktail.

Also, some guests “trade down.” Meaning, there are consumers who opt for casual restaurants rather than fine dining. Or, they’ll move from fast-casual to QSR.

Looking at the numbers, however, nearly 40 percent respondents to a Technomic survey say they’re visiting restaurants less. This makes sense, as 81 percent are concerned about how inflation will impact them personally.

On the operator side of inflation comes pricing. During Pawlak and Shank’s presentation, they used QSR dinner pricing as a real-world example.

According to Technomic, the tipping point for guest perception of good value is just $7. At only $10, consumers feel things are getting expensive.

As Pawlak and Shank pointed out, this is a problem. After all, the average price for dinner at a QSR is $10.08. That number may already be higher today.

Opportunities

Medicine taken, we can move to the good news.

First, Technomic predicts a strong Q3 this year. Additionally, they don’t expect double-digit year-over-year inflation.

In terms of labor, Technomic doesn’t expect costs to go down. However, they do anticipate that they’ll level off rather than rise.

Then there are the numbers. For the top 500 chains in the US in particular, 2021 was a “banner year,” according to Pawlak. On an aggregate basis, sales for the top 500 (McDonald’s is number one, for those wondering) are up 17.9 percent.

Also, every category of restaurant is performing better. The top 500 chains, for instance, are up 18 percent year-over-year. Midscale restaurants are up 38.5 percent. Casual is up 30.2 percent while fast is up 22.2 percent, QSRs are up 13.2 percent. As far as the biggest bump, fine dining is up 56.9 percent.

Looking at 2019 for obvious reasons, the industry was down 49.1 percent in sales in April 2020. However, the industry was down just about a single percentage point in February of this year compared to the same time in 2019.

So, how do we keep sales trending upward when facing inflation and other threats? Pawlak, Shank, and Technomic have some advice.

Operators, for instance, can implement the “balanced barbell” pricing strategy. In this model, high-value items drive business alongside premium offerings. In other words, don’t discount the entire menu just to entice guests to keep visiting.

Once guests get a taste for falling prices, they’ll consider the lower prices the standard. After that, any increase can be perceived as “too expensive.” Of course, discounting the whole menu also impacts guest perception of the brand negatively.

In addition, Technomic suggests offering higher net profit discount bundles, and implementing off-premise, large-party strategies.

Should Technomic’s predictions prove true, the industry may see an even stronger Q4 and start to 2023.

Image: Alex Haney on Unsplash

April 19, 2022by David Klemt David Klemt No Comments

Dining Room Tech on the Rise

Dining Room Tech on the Rise

by David Klemt

After years of restaurant technology adoption moving at a glacial pace, the industry now appears to be embracing innovations at light speed.

In fact, in just two short years some in the industry think it may be time to slow down. New tech can be exciting but jumping on every “innovation” is expensive, time consuming, and inefficient.

However, slowing down doesn’t equate to hitting the pause button.

Dining room tech was a topic of discussion at the 2022 Restaurant Leadership Conference in Scottsdale, Arizona. The two speakers agree that our industry needs to ease off the tech throttle a bit.

However, they also feel that tech innovations in the restaurant space will continue at a faster rate than they did pre-pandemic.

Session host Raymond Howard, a co-founder of Ziosk, interviewed Chris DeFrain and Hernan Mujica about dining room tech. DeFrain is a CPA at Lehigh Valley Restaurant Group, which operators 21 Red Robin franchises throughout Pennsylvania. Mujica is CIO for Texas Roadhouse.

Red Robin

Industry professionals and consumers alike should be familiar with Ziosk. After all, Red Robin has been a client with tech company since August, 2012.

Anyone who has visited a Red Robin has certainly interacted with a Ziosk terminal.

According to DeFrain, there are some interesting consumer behaviors taking place in Red Robin dining rooms. When it comes to tech, guests appear satisfied to place orders for appetizers and desserts via Ziosk terminals.

As DeFrain sees it, the guest would rather not wait for a server for ordering those types of food items. However, guests do seem to prefer ordering entrees from a server.

That’s a positive in DeFrain’s opinion, as he believes that ordering must remain the domain of servers. While he contends that the tech-based ordering process needs streamlining, DeFrain doesn’t appear interested in taking it out of servers’ hands completely.

This makes sense; the server as an integral element of the guest experience. How can a casual dining restaurant build guest loyalty and deliver a memorable guest experience without an engaging front-of-house team?

Of course, dining room tech should do more than accept orders, summon a server, and offer tableside payments. Today, data is king. Powerful platforms collect as much useful data as possible.

To that end, DeFrain appreciates that Ziosk provides data Red Robin leadership teams can share with staff. For example, a server can be shown how much they’re making in tips during their shift.

Finally, DeFrain says that guest usage of Ziosk terminals is improving feedback and comments.

Texas Roadhouse

In comparison to Red Robin, Texas Roadhouse took longer to sign on with Ziosk. In part, interestingly, this was due to the redesign of the terminal itself.

Turns out, Texas Roadhouse waited for a Ziosk terminal that took up less space and looked better on the chain’s tables.

Per Mujica (and any Texas Roadhouse guest), the in-person experience is core to the brand. Therefore, dining room tech must be an enhancement, not a detriment.

Like Red Robin, the chain has no interest in adopting tech that replaces FoH staff.

Another consideration regarding dining room tech should be important to all operators: The tech must be user friendly. According to Mujica, restaurant guests are happy to embrace tech innovations—if it’s easy to use.

So, operators must be careful and deliberate when choosing their tech stack. Generally speaking, native tech users (Gen Z) will likely be much quicker to learn how to use a particular technology than a Baby Boomer or even Gen X counterpart.

As such, operators must know their guests in order to adopt tech that enhances rather than alienates.

Another reason Texas Roadhouse chose Ziosk, per Mujica, comes down to mobile pay. In short, the chain didn’t like the mobile pay guest experience.

In terms of the future, Mujica predicts that handheld, tableside ordering is the future of dining room tech.

Takeaway

Like Mujica says, operators have now seen what tech innovations can do for them. In short, there’s no turning back.

And I agree with Mujica and DeFrain: it’s likely (and necessary) that tech development will slow a bit moving forward. Honestly, we all need room to breathe, consider the innovations available currently, and decide what works best for a particular business.

Likewise, I agree that tech can’t be allowed to alter the service model. Technology shouldn’t be seen as a replacement for staff.

Interestingly, restaurateur David Chang addressed this very subject during a 2022 RLC conversation. In his opinion, tech won’t replace restaurant roles, it will streamline them. At most, said Chang, tech will replace small, repetitive tasks, such as the physical flipping of a burger.

In closing, when deciding on the tech stack, operators should consider the following: ease of use for guests, ease of use for staff, streamlining of operations, and cost.

In this space, tech should never be embraced simply because it’s shiny and new. Not only is that costly in terms of investment, it can cost guest loyalty and visit frequency.

Image: Vishnu Mohanan on Unsplash

April 13, 2022by David Klemt David Klemt No Comments

Leadership Facepalm, Part Two

Leadership Facepalm, Part Two

by David Klemt

In a stunning example of tone-deafness and callousness, a franchisee executive sent an email that led to severe consequences.

And no, I’m not talking about the termination of the offending exec. That, in my opinion, was well deserved.

In this instance, the email has led to mass resignations and damage to a global restaurant chain’s reputation. What’s more, the negative impact to the brand’s reputation comes from consumers and employees.

Of course, I’m talking about the now-infamous Applebee’s “gas prices” email.

The Email: Labor

Let’s just jump right into the email, because…wow.

“Most of our employee base and potential employee base lives paycheck to paycheck,” writes the executive. “Any increase gas prices cuts into their disposable income.”

This could have been an excellent example of awareness and perhaps even empathy. In the context of this email, it’s appalling.

Why? Mainly because this executive appears to be celebrating the fact that Applebee’s employees, at least those who work for this franchisee, are barely earning a living wage.

“As inflation continues to climb and gas prices continue to go up, that means more hours employees will need to work to maintain their current level of living,” continues the author.

In this exec’s view, this franchisee is “no longer competing with the government when it comes to hiring.” He cites stimulus payments and boosted unemployment support have run out. Therefore, he reasons that people will be forced to return to the workforce.

The author further points to competitors increasing wages to recruit and retain employees. This, he figures, is untenable and some will have to close their doors. So, the labor pool will fill up and this franchisee will benefit.

The Email: Wages

Some of what I’ve laid out above is accurate. According to some estimates, about two-thirds of Americans live paycheck to paycheck.

Additionally, it’s accurate to state that some employees will seek more hours to combat the effects of rising costs. Further, yes, the labor market is turbulent and challenging.

And, unfortunately, some independent operators are facing incredibly difficult decisions. To recruit and retain, they’ll need to be competitive and raise their wages. To pay for that, they’ll need to raise prices, passing on rising costs to customers. In some instances, for some operators, that will prove unsustainable.

However, an executive in this industry shouldn’t be delighted about any of this. And they certainly shouldn’t see it as an opportunity to potentially pay employees even less.

You see, the author of this email suggests that the franchisee can bring in new workers “at a lower wage to decrease our labor (when able).”

He then recommends monitoring employee morale to ensure that the Applebee’s operated by this franchisee is their “employer of choice.”

For me, however, the most eyeroll-inducing line is this: “Most importantly, have the culture and environment that will attract people.”

Images of printouts of the email reveal that at least a handful of recipients agreed. “Great message Sir! [sic]” reads one response. Another paints the email as “Words of wisdom.”

Clearly, the culture and environment are unhealthy.

The Consequences

Before I proceed, know this: I’m not going to name the author. It’s not remotely difficult to find the author’s name if you feel the need.

However, I will name the franchisee that finally fired him. American Franchise Capital reportedly owns more than 120 Applebee’s and Taco Bell locations in nine states.

So, to be clear, this executive didn’t work for Applebee’s directly. In fact, Applebee’s has disavowed the former executive and the email.

In the interest of clarity, it’s possible the author worked for Apple Central LLC, owned by American Franchise Capital.

As far as fallout, it was swift. According to reports, consequences were realized immediately. A Kansas franchise manager was shown the emails, printed them out for staff to discover, and comped the meals of everyone at the location. Then, he quit and the staff walked out.

Per reporting, four other Applebee’s managers quit, as did several employees. The location remained closed for at least the following day.

If reports are accurate, Applebee’s lost five managers, nearly a dozen employees, and sales from a location for at least two days. That’s just the localized fallout.

Applebee’s, of course, is distancing the company from the former executive. However, that’s not going to stanch the reputational bleeding and turnover.

As we know, a significant percentage of consumers want to know their dollars and support are going to companies that align with their values. The same is true of employees; they want to work for companies with values they can get behind.

A Final Thought

This now-infamous email was sent March 9. Just two weeks later, it was circulated and went viral. The author, gleeful about being able to hire employees “at a lower wage,” was fired before the end of March.

I’ve seen several takes on this situation, and I’ve read some accompanying leadership advice. One in particular caught my attention.

Unfortunately, it’s not because I thought it was great advice: Be cautious about what you send via blast emails.

I’m not saying one shouldn’t be careful about what they send out in emails—that’s good advice. However, that’s not the lesson I’ve learned from this situation.

Personally, I see this as a lesson in emotional intelligence, relationship intelligence, brand culture, and work environment.

At least two companies, one with annual sales in the billions of dollars, another in the hundreds of millions, have had their reputations tarnished. The fault may not lie with Applebee’s but they’ll be dealing with the consequences regardless.

If an operator is going to learn anything about being cautious, it’s this: Be cautious when hiring those in leadership positions. Be cautious about those with whom you enter into partnerships. And be careful about how you view those who work for you.

If you aren’t seeing those who choose to work for you as people worthy of your respect, as human beings, your brand’s culture is poisoned.

Image: Daria Nepriakhina on Unsplash

Close-up shot of person texting on phone in a restaurant

April 12, 2022by David Klemt David Klemt No Comments

Leadership Facepalm: Don’t Do This

Leadership Facepalm: Don’t Do This

by David Klemt

Here’s a hot take on the employer-employee dynamic: Don’t text staff at 3:00 in the morning demanding they come in on their day off.

In fact, let’s compress this piece of advice. Don’t text staff at 3:00 in the morning.

Really, I shouldn’t have to explain the myriad reasons that doing so isn’t acceptable. However, a post on Reddit shows that this topic needs addressing.

Are You Serious?

Yes, I’m using a Reddit post as an example of what not to do. And yes, I’m going to assume the post is legitimate for the purposes of education.

Owners, operators, and members of leadership teams need to lead. Micromanaging, assuming staff is at their beck and call, and domineering behavior only lead to high turnover.

A high staff churn rate is costly, and not just financially. Yes, it costs thousands of dollars to replace a single member of staff. However, immediate financial costs shouldn’t be the only concern.

Churning through staff also damages a restaurant, bar, hotel, or owner’s reputation. Should they become known as a bad employer—word gets around quickly in this industry—and eventually an operator won’t be able to hire rock star talent.

Over time, they’ll only draw in workers that chase away their guests. After that, the operator will be closing the doors.

“You Need to Be a Team Player”

Interestingly, the Reddit post that’s inspiring this article isn’t brand new. The post in question is about six months old.

But these days, with the shift in the employee-employer dynamic that’s taking place, stories of “epic” or “savage” quitting garner attention.

Again, there are myriad reasons people are drawn to these stories. Rather than read through those, let’s take a look at this quitting story.

A bartender took to Reddit (again, I’m assuming this is a fact) to share texts from his (former) manager. The timestamp on the first text? 2:59 in the morning.

“I need you to come in from 11a-10p today,” starts the text. The reason? Only one bartender is on the schedule for an event that day.

In response, the bartender says, “No thank you,” stating it’s their day off. And then the manager makes a demand using a term that gets thrown around far too much when some people in a position of authority don’t get the response they want (in my opinion).

The bartender is told they need to be a “team player,” and that “it isn’t all about you.” On a positive note, the manager does then say “please” and asks the bartender to come in.

Putting their cards on the table, the bartender says they’ve had a few drinks and don’t want to work an eleven-hour shift with a hangover. Personally, I don’t think the manager was due that explanation but okay.

This doesn’t sit well with the manager, who now attempts to police the bartender’s personal time. According to the texts, the bartender needs “to stay ready for work.” This is apparently because “getting too drunk is not a good look if you can’t stay prepared.”

“Fed Up with You”

After a few more texts back and forth, the manager fast-tracks this situation’s escalation. The bartender is told that they’re going to talk about the bartender’s “attitude” when they “come in Sunday.”

Well, it’s highly unlikely that conversation ever took place. According to screengrabs of the texts, the bartender replies, “No we’re not.” They then proceed to remind the manager that “dozens” of places are hiring bartenders. They’re happy to go work for one of those businesses.

Unsurprisingly, the manager attempts to backpedal. They say that the bartender is making a rash decision “because you’re drunk” and will regret it the next day. That approach doesn’t work.

Now, there’s one sentence that suggests to me, if this situation is real, that the owner needs to address this manager. Or, if this manager is the owner of the business, that they need to work on developing leadership skills.

That line? “I’m fed up with you.”

Sure, they could mean they’re fed up with them in this instance. However, the line follows the bartender saying that their are several other places they can find work instead.

My interpretation is that at a minimum, these two have a problem with one another. Worst case, this manager isn’t doing the owner (or themselves) any favors with their “leadership” style.

Just…Don’t Do This

Please, please, please, don’t text or call staff at 3:00 in the morning. There are perhaps a tiny handful of reasons to ignore this advice. As I see it, those reasons all involve emergencies.

And no, being short-staffed for an event the following morning is not an emergency worthy of texting or calling an employee to cover a shift so late at night/early in the morning.

There are several leadership and scheduling solutions that can prevent this type of situation. In this particular instance, since the bartender was “fed up with” this manager, they were going to quit sooner or later.

Which brings me to my first point: Operators need to know what their leaders are doing. How are they treating staff? How does the staff perceive the leadership teams?

Secondly, how do the operator and other leaders perceive one another? Is everything running smoothly or is one “leader” not really leading?

And finally, scheduling technology. These days, there’s really no excuse for many kinds of scheduling problems. Several scheduling apps integrate well with popular restaurant, bar, and hotel POS systems.

For example, HotSchedules gives staff the ability to give away, swap, and pick up shifts. Another example is OpenSimSim, which provides an open shift invite feature. Staff can also set their profiles to auto-accept shifts as they become available.

7shifts and Schedulefly can also help fill shifts. And like HotSchedules and OpenSimSim, leaders can message groups and individuals, and vice versa.

Perhaps the biggest takeaway here is this: The maxim, “People don’t leave jobs, they leave managers,” is accurate. Leaders need to respect their team members and their personal time.

Image: Alex Ware on Unsplash

Stay Weird neon sign with purple background

April 1, 2022by David Klemt David Klemt No Comments

Stand Out with Weird Holidays: April 2022

Stand Out with Weird Holidays: April 2022

by David Klemt

Want to stand out from from other restaurants and bars in your area? Then commit to keeping it weird.

Several “holidays” are set against every date on the calendar, and April is no exception. These holidays range from mainstream to “weird.”

Pay attention to the latter to raise eyebrows, carve out a niche for your restaurant or bar, and attract more guests. Why do what everyone else is already doing?

Of course, you shouldn’t try to celebrate every holiday, weird or otherwise. And this month’s list in no way includes every odd holiday.

Focus on the days that are authentic to your brand; resonate with your guests; and help you grab attention on social media.

For last month’s list, click here.

April 1: National One Cent Day

Please, please, please tell me you’re not going to indulge in an April Fool’s Day “prank” today. Instead, consider—if your jurisdiction will allow it—getting rid of dead stock for a penny with a purchase of a food and/or beverage item. You won’t get rich doing it but you also won’t be sitting on stock that’s just taking up space.

April 2: National Handmade Day

An easy riff on “handmade” is “housemade.” So, on this crafty holiday you can easily promote the housemade items on your menu. Make your own bitters? Promote it. Craft your own sauces? Let the world know.

April 6: National Tartan Day

No, it’s not “weird” to wear tartan. And no, it isn’t weird to celebrate anything and everything Scottish. However, this isn’t exactly the best-known holiday, so we’re including it on this list.

This is an easy one: Encourage your guests to wear tartan, take photos, and post it on social media (tagging your business, of course). Create a promo highlighting a Scottish whisky and/or gin and you’ve got a winner.

April 13: National Make Lunch Count Day

It’s fairly easy to celebrate and program on this holiday. The entire point of this day is to make lunch the best meal. Operators, you should know exactly what to do to execute a promo for this holiday.

April 15: National Take A Wild Guess Day

Who among us hasn’t taken a wild guess for a prize? We all know how this works: A jar or a convertible (why not, right?) is filled with jelly beans, gumballs, etc. People guess how many of said item are in said container. The person who guesses the closest wins a prize.

April 19: National Hanging Out Day

Talk about the perfect day to encourage your guests to spend a morning, afternoon, evening or night at your business with their friends. This holiday can be as simple as coming up with a few F&B promotions that will keep butts in seats for a while.

April 23: National German Beer

Hey, can you guess how you should celebrate this day? Hint: The clue is in the name.

April 24: National Pet Parents Day

If you allow dogs and other pets inside your venue or on the patio, this is the time to celebrate pet parents. Just remember when creating your promo that you need to include pet-safe F&B items.

April 27: National Tell a Story Day

As an operator, you know the importance of telling a story. Whether that story is that of your brand’s, a brand you feature, or a food or beverage item, it’s a powerful engagement technique. So, you can use this holiday to tell your brand’s story or encourage your guests to engage by telling their own stories. In fact, this is a great day to help facilitate connections between guests.

April 30: National Sense of Smell Day

Experts estimate that anywhere from 70 to 90 percent of taste is smell. Creating a promotion focusing on our sense of smell can be complicated but the payoff can be huge. So, activate your reps and see how they can help you show your guests the power of their sense of smell.

Image: Dan Parlante on Unsplash

People toasting with a variety of cocktails

March 30, 2022by David Klemt David Klemt No Comments

Prepare for the New Rules of Hospitality

Prepare for the New Rules of Hospitality

by David Klemt

Guests are returning to bars, restaurants, and hotels, so you need to prepare now for the new rules of hospitality.

If you’re wondering what those rules are, wonder no more. We have a number of articles addressing them, some of which are here, here, and here.

Phil Wills, owner and partner of the Spirits in Motion and Bar Rescue alum, also has some thoughts. In fact, Wills shared his approach to what he identifies as the new rules of hospitality last week.

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A post shared by Phil Wills (@phil_i_am11)

During Bar & Restaurant Expo 2022, Wills presented “The New Rules of Hospitality: What a Post-pandemic Consumer Wants.”

Below, you’ll find what Wills has to say about hospitality in 2022 and beyond in three categories.

Hospitality

Wills kicked off his session with a simple question: How do you define “hospitality”? And yes, he put attendees on the spot, asking them for their answers.

It’s always at least a bit amusing that even the most outgoing operator gets shy in a conference setting. I’ve never seen so many people suddenly need to check their phones, shoes, or the ceiling tiles as when they’re asked to participate in a class or education session.

For Wills, the definition is “making a guest feel welcome, as though they’re in your home.”

Obviously, the answer is different for everyone. As Wills says, the key is considering how you and your brand define hospitality. If that seems easier said than done, Wills has some tips, presented in the context of a guest visit.

First, guests take in the sights, sounds, and smells of your space. They also consume your menu items, and converse with your staff, their party, and other guests.

Look at your business through the eyes of your guests. Now, this can be a difficult exercise, particularly if you spend a lot of time in your restaurant, bar or hotel.

So, ask team members to do the same and provide feedback. We take for granted what our spaces, food, and drinks look like.

To improve the guest experience, pay attention to ticket times and F&B consistency. This will reduce recovery incidents and phrases.

Finally, Wills recommends engaging with guests (if that’s what they want). However, he also suggests facilitating connections between guests.

Interestingly, Wills also says, “Regulars are old money. You want to get that new money.” Then, you want to convert that new money into old money. Rinse, repeat.

Training

As relates to training, Wills categorizes new hires in two ways: toll takers and moneymakers.

Toll takers take a toll on your business. They cost you money, and if they don’t receive the proper training they can chase guests away.

So, you’ll need to spend time and money to convert toll takers into moneymakers.

Speaking strictly in a technical sense, training needs to provide team members with the knowledge and tools to become moneymakers. To accomplish this, Wills has three keys to making training stick:

Don’t make training too easy. If training is easy, team members won’t retain what they’re taught. Challenge your staff.
Vary your training. There are a number of training methods at your disposal. Use multiple methods to engage your staff. Wills suggests combining shift work, book work, and tests, at a minimum.
Turn training into a competition. At this point, we’re gamifying just about anything. So, Wills recommends the platform 1Huddle to gamify your training.

Labor

Simply put, Wills says we need to find new ways to make this industry exciting to new hires.

According to the National Restaurant Association, we’re still seeing significant job losses in hospitality, foodservice, and lodging and accommodation.

In fact, we’re down 14 percent when it comes to full-service restaurant jobs. For bars and taverns, the number is 25 percent.

For Wills, offering incentives, mental health breaks, and even cash bonuses for staying in role for a number of months can draw the attention of new workers.

However, he also has another interesting idea: making people smile. On average, according to Will’s research, people smile 20 times each day. He wants to find ways to make people smile 20 times during a single visit to a restaurant or bar.

Now, Wills admits he’s still working on how to accomplish this lofty goal. I believe a key component is creating a working environment that inspires team members to smile 20 times per shift.

Image: Kelly Sikkema on Unsplash

March 29, 2022by David Klemt David Klemt No Comments

The Leasing Game: Terms & Conditions

The Leasing Game: Terms & Conditions

by David Klemt

Understanding the ins and outs of the leasing game means knowing the meaning of several legal and industry terms.

Winning at this game also requires a deep understanding of everything that’s in your lease agreement.

I addressed the importance of negotiating your lease (and more) yesterday. Today, let’s go over the terms you need to know.

A Warning

Before I run down a list of terms (as in phrases), let’s go over other terms you need to understand.

Namely, the terms for which you negotiated before you signed your lease. Let me reiterate: You know all of this before you sign your lease.

Do not sign anything unless you understand every word of every sentence in every paragraph on every page. If that seems overwhelming, pay a lease agreement attorney to analyze and advise you on a lease. It’s worth the spend, and please do this before you sign anything.

Why a lease agreement or real estate attorney? Because a lease agreement is a legal document. You don’t sign legal documents without knowing what’s in them.

Some Context

Based on the number of hospitality professionals that descended on Las Vegas last week, trade shows and conferences are back in full force.

KRG Hospitality attended the 2022 Bar & Restaurant Expo, formerly the Nightclub & Bar Show.

Friends of KRG, Invictus Hospitality (IH), presented a handful of sessions during the show. One of these was “Understanding the Leasing Game & How to Get Ahead.”

As I wrote yesterday, IH principal Homan Taghdiri hosted the informative session. He shared a wealth of knowledge every operator, new or veteran, should know.

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A post shared by Invictus Hospitality (@invictushospitality)

The first bit of information was this: Know that you have the right to negotiate your lease. If someone tells you otherwise, they’re lying or they don’t know what they’re talking about.

As for the second piece of advice, see the section above this one.

Know These Terms

In this context, “terms” means words and phrases. Below is a list of terms that Taghdiri addressed during his session.

Note that I’m not sharing definitions, I’m sharing recommendations from Taghdiri’s session.

Tenant. This is you—individually—if you don’t have a business or other properties for a landlord to go after (sue).
Guarantor. You can negotiate the removal of your personal guarantee. As an example, Taghdiri suggested a clause stipulating if you pay on time for ten years, your personal guarantee is removed. After all, you’ve proven yourself for a decade.
Security deposit. Again, you should be rewarded for proving yourself and your concept. Negotiate a security deposit burn-off, like a month of security deposit removed from every year of the agreement.
Use of space. You need to know the following: current and future use(s) of the space; exclusive and competitive uses; obtaining conditional use permits and licenses. Bake in the ability to pivot, adjust, or modify your agreement. The pandemic exposed how important it is to understand use of space in several markets.
Force majeure. Another element exposed by the pandemic. Including a pandemic specifically as a valid force majeure trigger is a smart move on the tenant’s part.

Moving into the Space

Are you building the space out or is the landlord? Is it a combination of both?

Who’s responsible for delays? Is the landlord responsible for upgrades or refreshes over time?

You need to negotiate for and understand the following:

Premises delivery. When do you get the space? What’s the scope of work that the landlord must complete for delivery of the space? Is there a tenant already in the space? If so, when are they leaving? What if they don’t leave on time?
Landlord’s obligations. Is the landlord responsible for the HVAC, mechanical, electrical, and/or plumbing systems? Are they responsible for the roof on the building, the windows, and maintaining ADA compliance? Who’s responsible for the common areas, such as the parking lot and the lot’s lighting? As an example, how often are they required to repair, refresh, or resurface the parking lot?
Insurance requirements. You need to know what coverage, deductibles, and exclusions you’re agreeing to before you sign your lease. Taghdiri recommends asking for the proposed insurance clause and sending it to your insurance provider. If you can’t afford their insurance requirements, you can’t afford the space and need to walk away.
Miscellaneous. What are the security requirements for the space you’re occupying? For example, if you’re a nightclub, the landlord may stipulate how many security personnel must be working on certain days during specific hours of operation. Speaking of which, what days are you required to be open? What’s the minimum number of hours you must operate each day of the week? Should you find yourself in a shopping center with anchors, what happens if an anchor leaves? Are you required to address sound abatement?

Avoid Pitfalls

Understand the following before you sign anything:

Nobody can force you to sign a lease. Since there’s no such thing as a standard lease, you don’t have to accept whatever the landlord offers. If you don’t like the terms, don’t sign the lease.
Remember, a lease agreement is a legal document. Fully review and understand the terms. Never sign anything blindly.
Brokers aren’t “bad” but they’re not necessarily putting your needs before their own interests. If you’re going to work with a broker, find the right one for you.
Just like you need to find the right broker if you go that route, you need the right legal representation. Legal fees are worth it to understand your lease agreement. Just make sure you’re going to the right person to review it and give you advice.*

Combined with a willingness to negotiate (and walk away if you can’t get the terms you want), an understanding of the terms on this page will put you ahead of the competition. Happy space hunting.

*The information contained in this article does not represent legal or financial advice from any representative of KRG Hospitality, Invictus Hospitality, Bar & Restaurant Expo, or Questex.

Image: BP Miller on Unsplash

March 28, 2022by David Klemt David Klemt No Comments

This is How You Win When Leasing

This is How You Win When Leasing

by David Klemt

At this year’s Bar & Restaurant Expo, the Invictus Hospitality team tackled a crucial step of any project: The lease.

Invictus (IH), friends of KRG Hospitality, know a thing or two when it comes to leasing a space. Principal Homan Taghdiri is a tenacious negotiator.

Case in point, an Invictus project in Orlando that opened during the pandemic. The space was owned by the city, which can certainly complicate matters. Taghdiri sunk his teeth in and refused to let go—for seven months. That’s crocodile or Komodo dragon patience.

The result? Favorable terms and massive cost savings.

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Taghdiri presented “Understanding the Leasing Game & How to Get Ahead” at Bar & Restaurant Expo 2022. You know this show by its former name, Nightclub & Bar.

Knowing that when Taghdiri smells blood in the leasing water he’ll clamp down and death roll until he gets his way, I attended his session.

Before we dive in, know this: If we disagreed with the IH approach to leases, we wouldn’t share their tips. The information below would cost, as Taghdiri points out, about $2,000 coming from an attorney.

Of course, neither KRG Hospitality nor Invictus Hospitality is providing legal or financial advice in this article. I’m just passing along information, as IH was doing during their session.

Leasing Dos and Don’ts

If you take nothing else from this article and Taghdiri’s session, make it this tip: Do negotiate your lease.

“You have to negotiate your lease,” says Taghdiri. “It is a must.”

Not you should. Not you can. You must negotiate your lease. Neither of us can emphasize this enough.

In fact, it’s your right to do so. Which brings us to our first leasing don’t. Do not believe anyone who says you can’t negotiate a lease.

“Anyone who tells you that you can’t negotiate your lease is lying to you,” says Taghdiri.

And if they’re not lying, they just don’t know what they’re talking about. Either way, don’t listen to them. Walk or run away.

Also, do your due diligence. Knowing what you’re getting into before signing is on you. Taghdiri recommends you ask the following before signing anything:

What generation is the space? Is it brand-new? It’s first generation. Did the first tenant leave? It’s second-generation, and so on.
Is the space totally empty?
Does it have space allocated for gas, electric, etc.?

Ideally, you’ll find a second-, third- of fourth-generation bar or restaurant space. Why? They can provide massive cost savings to you.

Do fight for the terms that are important to you. These include amount of the lease, the length of the lease, and any incentives.

However, don’t over-negotiate your lease. Do put yourself in the landlord’s position. They’ve invested significant capital developing the space and they need an ROI. Pick your most important terms and negotiate them. You risk a landlord walking away from a deal if you negotiate every single item and make things difficult.

Lease Types

So, you’ve found your perfect space. Do you know which type of lease you want? Not certain which is right for you?

No problem, because Taghdiri broke them down during his session.

Standard. This is the easiest to explain because it doesn’t exist. A particular landlord may have “standard” lease, but their isn’t one that spans the industry.
Full service gross is the easiest of the actual leases. Everything is negotiated and clear in the lease, and you simply pay the agreed-upon amount.
Triple net is the opposite of the FSG lease. You pay your base rent. Then, your landlord passes on operational costs to you, which you also pay.
Percentage Rent. Basically, this is a hybrid lease. You pay base rent plus a percentage of sales. For example, you may pay natural breakpoint on top of base rent. This type of lease can be beneficial to newer businesses. However, some landlords do not like percentage rent leases.
Modified gross is, basically, any lease that isn’t an FSG. This is the most common lease, and it’s most easily explained as a modified FSG.

First-time operators or owners entering an unproven market will likely want to first focus on modified gross or percentage rent leases. However, FSGs are certainly attractive.

Length of Lease

Landing on a lease amount that you can live with is only part of the battle. Far too many people overlook the length of their lease, focusing too hard on the amount.

So, let’s take a look at some crucial factors you need to consider before signing anything.

Base Term. Let’s say you’ve invested several million dollars into your project. It’s sort of hard to imagine paying that investment off in two years, isn’t it? So, a two-year lease probably isn’t ideal. Give yourself the time you most reasonably need to open your doors and make money. Again, don’t focus solely on the amount of the lease.
Option Periods. Taghdiri explains term options thusly: “Jump into the pool safely before knowing what’s in it.” The real-world example is easy enough to understand. Agree to a three-year lease but bake one or two (or more, if you want or can) five-year renewal options into the agreement. Doing so means that you can trigger the renewal prior to the term’s conclusion. In other words, the landlord won’t be able to (easily) kick you out if you want to keep leasing the space. Just be aware that your landlord will likely also want to bake new terms into the agreement along with the renewal options.
Early Termination Rights. When it comes to this element, Taghdiri explains that this may be limited to longer-term (ten years or more) leases. Essentially, it’s what it sounds like. You should be confident in your concept before you even get to the lease stage. However, it’s not a bad idea to have an early exit plan in mind. So, you may be able to sign up for a long-term lease but bake in an 18- or a 24-month termination clause. Just remember that if you don’t exercise this agreed-upon right within the timeframe, you’ll be responsible for the original term of the agreement.

The Million-Dollar Question

You likely have a burning question searing itself into your brain right now. It’s a common question: “How much rent should I pay?”

There are a few ways to approach a satisfactory answer. The bullshit answer is, “Whatever you can afford for the space you really want.”

That’s the first step toward blowing a budget, blowing out already razor-thin margins, and skyrocketing costs.

One way to approach the how-much question is due diligence and comparables. What are the comps in your selected area? What are people paying in the neighborhood? What’s best for your business, and is that identified in your pro forma?

That said, Taghdiri did present a general lease amount rule. Try to keep your rent at 11 percent of gross sales, or less. Ten percent is even better, obviously. Anything less than that and you’re a master negotiator.

Image: Randy Laybourne on Unsplash

Apple iPad and Apple Pencil with calendar on screen

March 14, 2022by David Klemt David Klemt No Comments

5 Reasons Why You Need a Calendar Audit

5 Reasons You Need to Conduct a Calendar Audit

by Jennifer Radkey

Keeping a hospitality business running smoothly takes an immense amount of organization, and at times you may feel pulled in a million directions at once.

As an operator of a restaurant or bar, your daily calendar may seem like an endless stream of tasks.

You are most likely already using some sort of organizational tool: an agenda, calendar, your phone, or Post-Its all over your office walls. But when was the last time you actually analyzed your calendar?

I’m going to challenge you to sit with your calendar and take a deep-dive audit of just how you are spending your time.

Here are the five reasons you need to do a calendar audit today.

You Aren’t Making Money or Reaching Goals

As the operator of your hospitality establishment, you are responsible for your business’ success. So, dissect your calendar.

What actions are you taking on a daily or weekly basis that directly lead to making money? What percentage of your time is spent on growing your business, rather than running your business? There is a difference.

You are Burnt Out

When you are not at your best, your business will not be at its best. It’s as simple as that.

How many daily operational tasks are you taking on that could be delegated to someone else? You don’t need to be involved in every aspect of the daily operations of your business.

Take a look at your calendar and highlight any tasks you have been doing that could easily be done by someone else on your team. Then, give those tasks away.

Team Morale is Low

Go back and audit your calendar.

When was the last time you scheduled a team meeting? How about individual meetings with employees to go over their successes, growth opportunities, etc.? Is there regular time delegated to improving your workplace culture?

Carve some time out for the people who choose to spend their days working for you, and watch team morale improve.

You Feel Stuck in a Rut

Maybe your business is doing well but has plateaued. Maybe you aren’t excited to go to work anymore. Take a close look at your calendar.

What have you done in the past week or month to create excitement? For example, did you attend any industry related shows or events?

As operators, it is easy to get stuck in a daily routine that doesn’t allow time for creativity. However, it is imperative to schedule time to be inspired.

Your Work/Life Balance is Off

The hours can be long, and with so much to do, you can often feel as if your entire life is your work. Take a close look at your calendar.

Are you scheduling in family time? Time for friends? Time for physical health? Hobbies? Fun?

This can be as simple as scheduling time for something you enjoy that changes up your week:

A 15-minute call with your mom every Monday morning.
Walking/biking to work twice a week.
Meeting up with a friend once a week for a coffee.

We often say that we will do these things. However, unless they are prioritized and written down they aren’t going to happen as much as we need them to.

Performing a calendar audit can be eye-opening and give us an entirely new perspective on how we are using our time. Doing so can help us improve time management, productivity, happiness, and goal achievement.

So, go ahead and mark some time for a calendar audit into your calendar. You will thank yourself later that you did.

Cheers to professional and personal well-being!

Image: Omar Al-Ghosson on Unsplash

"What Now?" graffiti in black spray paint on wall

March 7, 2022by David Klemt David Klemt No Comments

What Current CDC Guidelines Mean

What Current CDC Guidelines Mean for Restaurants and Bars

Less than two weeks ago, the U.S. Centers for Disease Control and Prevention once again updated the agency’s Covid-19 guidance.

For many in America the updates simply led to more confusion. Others see the changes to CDC guidance as another blow to the agency’s credibility.

The reality of the situation appears to be rather easy to understand. Business owners are most likely ignoring the CDC and just following state and local requirements.

And who can blame operators and their teams for doing so? After all, the guests they serve are likely more concerned about local guidelines than CDC guidance.

States Make First Moves

At this point, it appears the CDC is following rather than leading the way. Several states moved to rescind Covid-19 mandates around two weeks before the CDC changed its guidance.

For example, Nevada Governor Steve Sisolak lifted the state’s mask mandate on Thursday, February 10. Unlike in other states, the mandate was rescinded regardless of vaccination status.

Five days later, California lifted its indoor mask mandate for the vaccinated. The unvaccinated, as of February 16, are still required to mask indoors.

However, the requirement for businesses to check for proof of vaccination was also rescinded. Of course, businesses can still require masks and proof of vaccination if they so choose.

So, Now What?

The CDC and many state health officials are encouraging caution. Another surge in infections is expected.

In fact, the CDC points out that Covid-19 has not yet reached its endemic stage. Some predict the pandemic won’t become endemic until some time in 2023.

For now, the CDC is using three designations to identify different areas throughout the country: low risk, medium alert, and high alert.

Per the agency’s website, 90 percent of the US population is in a low-risk or medium-alert area. People can check their community’s current CDC designation via their new map here.

Low, Medium, High

The three CDC designations each carry specific guidance:

Low Risk: People should stay current with their vaccinations. If someone has symptoms, they should get tested.
Medium Alert: In addition to Low Risk guidance, people who at high risk of serious illness if infected should ask their healthcare providers if they should wear masks indoors and/or take other Covid-19 precautions.
High Alert: Wear a mask indoors, stay current with vaccinations, and get tested if symptoms are felt.

Endless CDC guidance revisions have mainly resulted in confusion and an unfortunate lack of faith in the agency. So, these recommendations really don’t mean much for operators.

Rather, business owners should make they’re in compliance with state and local requirements while taking steps to ensure workers, guests, and their community are safe.

Image: Tim Mossholder on Unsplash