Article by Mike Strawhecker
As a Partner and President of TSG, I have seen the impacts of COVID-19 on a “B2B” business firsthand. In addition, I am fortunate to have perspectives into other merchant verticals dealing with the pandemic as well. Two weeks ago, I wrote about my wife’s optometry practice and the impact of COVID on her business.
This week, I spoke with my brother Nick Strawhecker, Chef and Owner of two restaurants in Omaha, in which I am lucky to be a Partner. As the ‘eating and drinking’ vertical accounts for nearly 20% of small and medium business (SMB) credit/debit card volume in the U.S., their performance greatly influences the payments industry. It is in this light that we continue the Confessions of a SMB series.
Nick’s restaurants include the award winning Dante, which recently turned 10 years old and is located in west Omaha. Its sister restaurant Forno is just under a year old, has been very positively received, and sits 15 miles away from Dante in the Blackstone District, a stone’s throw from downtown Omaha on the east side of the city.
Mike’s Question: Six weeks ago, the State of Nebraska shut down in-restaurant dining. How has this impacted your two restaurants?
Nick’s Answer: It has truly been a tale of two restaurants. On one hand, we have Dante, where we have been able to generally maintain our sales. At Forno, we had to close down a week post shutdown because the sales were not there. With the closing of Forno, unfortunately we had to let 20 people go, which lowered our headcount from 45 to 25 people.
Q: Why were you able to maintain your sales at Dante but not at Forno, especially given the similarities of the two restaurants in that they ‘share the same DNA’ with similar menus and experiences?
A: This is a complex answer with many layers. First, the consumer make-up for each restaurant is different. Dante happens to sit in the zip code with the highest income in Omaha, so it is surrounded by consumers that are more likely to have disposable income. Forno is in the “hot new area” of Omaha, which is more urban and draws a younger crowd. This could speak to the ability to spend during the pandemic. In addition, I believe that other demographics of my target markets came into play as well, like political persuasion.
Q: What other factors have played a part in the difference of performance of the two restaurants?
A: Dante has been around for more than 10 years. This means that we have an established brand with a loyal following, including a list of 10,000 customer email addresses that I can I can communicate with, not to mention our reach with social media. When it was time to pivot to carry-out only due to COVID-19, my customers knew when it happened and it happened fast; within 24 hours of the governor’s announcement we were up and running. We changed the business model and were able to communicate this immediately to our core constituency. For comparison, with Forno being open less than a year, we made the same pivot to carry-out only, but we had less than 1,000 email addresses. In addition, there are 25 restaurants within a six block radius of Forno, so we were all trying to pivot and communicate to the same people at the same time. The competition around Dante is less dense.
Q: How has product mix impacted your performance during COVID-19?
A: People seem to want carbs right now, which is good for us. They have not been ordering proteins. As part of the COVID pivot, we shrunk the menu to cut down on costs, so this aligned with the lack of people wanting fish or beef. Being an Italian restaurant, we are happy to sell pizzas and pasta all day long. Also, at Dante, we already had an established retail wine program and are actually the top Italian wine seller in the state. As such, we could immediately move cases of wine into curbside pickup, which has proven to be quite popular.
Q: What have you heard from other restaurateurs as it relates to challenges they are facing?
A: As I mentioned earlier, people want carbs and you don’t often hear about people getting steaks or fish for takeout. As such, restaurants like steakhouses may be having some difficulties. In addition, looking at Dante with its suburban location, we have a parking lot out front. This allowed us to easily set up a pick-up area. Forno is in an urban setting on a busy street, so pick-up only was more difficult to execute than at Dante. Further, from my experience working at restaurants from Italy to Chicago to Philadelphia, it would have been challenging in all of those locations logistically to adjust to pick-up. I also think that mid-size chain restaurants have perhaps experienced other headwinds that I have not. For example, if we had 20 locations, executing a pivot to take-out/pick-up only would not have happened as quickly. There is no handbook for this that you could send to all of your managers. Like many others have had to do, we had to improvise. For this reason, I think a lot of mid-sized restaurant chains simply closed the doors for a period of time to get organized and cut payroll, while they waited it out to see what would happen with the SBA’s PPP.
Q: How many vendors do you have and have any reached out to support you during COVID?
A: Overall, we have 75 recurring vendors and I interact with around 25 weekly. Not many have reached out but I reached out to them to cut costs immediately. Our payments provider waived fees, which was helpful although they have been difficult to contact more recently. We were not a user of GrubHub prior to the pandemic but we are now as they offered to provide the service for free, which was great. I have been in constant contact with my locally based bank, Dundee Bank, and they have been phenomenal helping me navigate the PPP process and have been working on my behalf around the clock. OpenTable also provided us a discount, which was appreciated.
Q: Given the generally thin margins of the restaurant business, were you able to be prepared for any business interruption, let alone six plus weeks?
A: No. Closing for one day that you planned on being open is never good. There is never pent-up demand in the restaurant business. Once a day passes, that business is gone forever. I will say that I was more prepared now compared to five years ago, because of my experience running the business. People were very scared those first few days and they were looking to me for answers. They were mostly scared about losing their job, and as I mentioned earlier, we unfortunately had to let some people go. My point is that if I had a lack of confidence in our plan, our staff would have smelled it, and it would have trickled down to cause major problems. This is where culture comes in. If we had not established the culture that we have, this would be a different story. We have servers washing dishes now, which believe me, is not the norm, and no one is blinking an eye. Everyone is on board and rowing the same direction for each other.
Q: How has this experience changed your perspective as a restaurateur?
A: Now I understand why our grandmother, who grew up during the Great Depression, saved everything and wasted nothing. This is a mindset I am going to take away from this. Going forward, I plan to manage and spend as if everything is at risk. This is why we made the difficult decision to not re-open Forno in two weeks and close it permanently; it is just too risky given all of the things that are out of our control. We are cutting off the arm to save the body. To the point of spending on labor specifically pre-COVID, unemployment was so low in Omaha, we had to hire headhunters to find dishwashers and we had to pay them above market with benefits to keep them. Obviously, COVID will change the hiring dynamic for us and other restaurants going forward.
Q: Where do you go from here?
A: Late last week, the governor released plans for a slow reopening of in-restaurant dining in Nebraska. There are a plethora of rules and restrictions but we will follow them and act in the best interest of our people and our customers. We will continue to use this experience to reinforce our culture so we can pivot again, and again… hopefully not too many times.