The New Jersey Performing Arts Center in Newark hosted a networking breakfast and business partner roundtable entitled “The Backbone of New Jersey’s Economy: Restaurants and Hospitality” on Thursday to highlight various legislative and consumer-driven issues in the food and beverage industries.
NJPAC, with assistance and sponsorship from PNC Bank North America, WeiserMazars and the New Jersey Restaurant and Hospitality Association, compiled a panel of industry experts including Edward W. Doherty, chairman and CEO of Doherty Enterprises in Allendale; Cheryl Grabowski, proprietor of Harvest Restaurant Group in Morris Plains; and Anthony Scotto, CEO of Villa Enterprise Management in Morristown.
Moderated by Dale Florio, founder, strategic adviser and lobbyist for Princeton Public Affairs Group in Trenton, the panel was designed to address an audience of more than 120 across various businesses.
Here are some highlights from their conversation.
On the current state of business and a reflection of their past year
Edward Doherty: Doherty Enterprises owns and operates 163 restaurants in four states and seven different brands — five of which are franchised and two that we founded ourselves. Sales this year will be $500 million and we have 10,000 employees. Within New Jersey, we have 49 restaurants; sales are about $175 million; we have 3,500 employees; and we contribute between $18 and $19 million in taxes to the state. We operate Applebee’s Neighborhood Grill & Bar, Quaker Steak and Lube and Chevys Fresh Mex (locations in New Jersey), and we started The Shannon Rose and Spuntino Wine Bar & Italian Tapas concepts here as well. Over the last 23 years, our company has invested over $125 million into building equipment and remodeling our restaurants in the state of New Jersey. The restaurant industry as a whole has had a flat, challenging year in most segments. Certain brands have shined — but, overall, casual dining has been flat. Fast casual concepts such as Panera Bread have been getting better and better, as well as certain fast food brands.
Cheryl Grabowski: I started Harvest Restaurant Groups (in 1996) with my husband (Chip Grabowski). We currently have 11 restaurants and four different concepts, ranging from steakhouses to fast casual. We are a $50 million business with about 850 employees. I think we actually had a pretty good year this year — my son and daughter are now also in business with us, so it’s become a family business, too.
Anthony Scotto: Villa Restaurant Group is an organization that has about 360 restaurants in more than 30 states and four international markets. We have both corporate-owned and franchise operations throughout the 14 brands that we operate. Systemwide sales are about $250 million and we employ over 5,000 people. In New Jersey, which is a great place in which to do business, we have over 800 employees and 27 restaurants. Business this year has been a challenge. Traffic has been down. However, we have seen consumers spend a little more on the check average because we have gotten a little bit more creative on how we sell to them. We have been very sensitive about price because we believe consumers have been fragile, but depending on the venue in which we are operating, such as airports, we may be a little bit more aggressive knowing we are marketing to business travelers versus retail.
On New Jersey’s overall business climate
ED: Three and a half years ago, I made the decision that New Jersey and New York were too difficult to operate in — so I spent $63 million buying and renovating 44 restaurants (elsewhere) in states such as Florida and Georgia that are much more business friendly.
AS: New York and New Jersey are great markets when you get it right, but there are other markets beyond that are very fair. Florida, Texas, the West Coast — they have been great areas for us. Independents here, especially one-off operators, are really going to struggle because, often times, they are not even sure if they are making money here or not. Many times, we have tried to buy someone out, but the numbers don’t quite match what the fundamentals of the business are.
On the fastest-growing segments of the restaurant industry
ED: The segment that is growing the fastest is fast casual, which (are brands) such as Panera Bread, Chipotle Mexican Grill, Blaze Pizza, The Habit Burger Grill — you name it. The quality of food is comparable to that of casual dining, but in today’s society, people are looking for speed. The art of sitting down and relaxing over a meal, whether it’s at a casual or fine dining establishment, is to a certain extent losing steam. I think a lot of that has to do with the number of challenges within our industry, with one being the internet. A couple of days ago, we had a record Cyber Monday. If you are staying home and ordering online, do you really want to get dressed to go out to eat? Not when you call GrubHub or cook Blue Apron.
AS: There are two types of experiences that a consumer has in mind: one is convenience. Can I get it now, or in five minutes? The other is, where can one go to have an experience? When I walk through that door, am I transported? That is full service. When you walk into a Roots Steakhouse, you feel like you are walking into a New York-style steakhouse because of the service, the uniforms and all of the different touch points that transport you there.
ED: We are absolutely in the experience business and we do it by delivering food and service. Think about theme parks: think about Six Flags Great Adventure and think about Walt Disney World. Six Flags is a theme park; Disney is an experience.
On potentially increasing the minimum wage to $15 in 2017
CG: Minimum wage will absolutely have an impact on our business in terms of workers’ compensation, health insurance, payroll tax — when at least a third of our employees are already making more than minimum wage.
ED: A $15 minimum wage for back of the house (employees), in my mind, is not unreasonable because many of our employees already make more than that. Where I begin to question certain things is when it is the starting wage for someone who is 16 to 22 years old. If I have the choice of hiring a 16-year-old versus a 35-year-old for $15 an hour, I will hire the 35-year-old who I can assume will stay longer, because retaining good quality people is another challenge within this industry. Should there be a starting minimum wage, or a minimum wage for someone with no experience for the first six months?
AS: A lot of people in this room had their first job in our industry. I’m not sure that is going to be the case with a $15 minimum wage, and that is a shame. You learn how to be to work on time, how to work a certain way, how to respect the customer and how to follow certain processes and rules.
ED: The second aspect is tip credit. Now, the national tip credit — what servers make an hour — is $2.13. That is the same in New Jersey. In New York, the tip credit is $5. This year, they raised it to $7.50. I have 22 Applebee’s in New York — that increase, from $5 to $7.50, cost my bottom line $2.5 million. I could not raise prices, so, to offset that, we eliminated 22 management positions, which paid an average salary of $75,000 to $100,000.
AS: Our industry was built on the practices that we currently have. If I came to you and said, ‘Your payroll is $10 million today, but now it is going to be $15 million,’ how would that disrupt your business? … We had two quick service restaurants, one in San Francisco and one in Seattle, in which we lived through the minimum wage hike to $15. It took those restaurants, that were once store-level profitable, to break-even status — unfortunately, we have had to exit those markets.
On the possible cost reduction and increased accessibility of liquor licenses
CG: We are in communities where, for example, one of our liquor licenses is worth $1 million. Even with the tax credit, we are not sure how they are going to be able to value these new liquor licenses that are rolling out.
ED: We own 50 liquor licenses in the state of New Jersey. I bought them to build restaurants over the last 23 years. I paid $12 million in cash to buy them when they were as low as $50,000 to $500,000. Those same licenses today are worth somewhere between $30 to $40 million. How will I be reimbursed for that value? I believe this (liquor license reform) is being driven by real estate developers who want chain restaurants to come into New Jersey and pay high rents at shopping centers. That’s fine. What is unique in New Jersey, though, are BYOB establishments where you can bring a fine bottle of wine that you purchased at a liquor store to a restaurant in which you can also buy a reasonable meal without having to pay the markup of two and a half to three times that a restaurant charges for it. … From a distributor’s viewpoint, if every little mom-and-pop restaurant gets a license, they will then have to deliver a bottle of bourbon here one week, a bottle of scotch there another week, which can be inefficient and will affect the cost of their business. It is a much greater and more complex situation that I’m not sure politicians fully understand. For example, if New Jersey allows unlimited licenses, New Jersey will eventually become much more like North Carolina or Iowa — try to find a restaurant other than a chain in those states. Also, the state grated Xanadu 28 liquor licenses — I have four restaurants in the Clifton (area) that are very successful. I’m concerned once that establishment opens, if it opens, that I will lose business because there are 28 liquor licensed restaurants there. Now, if there is an area in need of such liquor licenses, such as Teterboro — Teterboro has a brand new shopping center and less than 3,000 people living there, so the state gave the town special zoning so it could have two liquor licensed restaurants there.
On automation in the industry and its effect on the workforce
ED: There are 2,000 Panera Breads across the United States. Half are company-operated and half are franchised. The company has rolled out (automated) kiosks in 600 of their 1,000 locations. Franchisees have rolled out 200 in their 1,000 locations. We have (kiosks) in 10 of our 43 Panera Bread (locations) and it has been a three-year process to get it right. … What they have done is allow Panera Bread to process food quicker in the kitchen, because we have taken those cashiers and have moved them into production. Over the course of 18 months, we will then be able to start eliminating positions as we have also started implementing technology in the kitchen. The ultimate goal over time was to become more technology-friendly, which is what the kind of service that the young people of today want, and yes, the long term impact will be loss of jobs. … Also, Panera Bread, in certain test markets, is creating home delivery for any order. In full test markets such as Louisville, Kentucky, and Charlotte, North Carolina, weekly sales have increased 12 percent.
On the impact of predictive scheduling
ED: Certain states have deemed it unfair for (retail) workers to have to be available all of the time. We typically put out a schedule a week ahead of time, but the government wants us to put one out two weeks in advance. If it changes, they want us to pay a person if they do not need to come in — for example, if there is a snowstorm and we can run on a skeletal staff — and they also want us to pay those that do get called at the last minute a bonus for working when they were not scheduled. In a restaurant, if someone gets sick, we have to replace that person, because we cannot run with less people. But even now there are always people that want to come in. Government regulation of all of that will have a terrible impact on all restaurants.
On hiring and retaining talent
CG: We really struggle with hiring, especially for low-level positions such as dishwashers or in the prep kitchen, and even with high-end culinary positions. I think that is a lost art, and this is a different generation. Millennials tend to have different ideas of how they want to work and are not always interested in working the long hours that restaurants require. It is challenging.
AS: I can’t remember a time when it wasn’t challenging, though. You have to retool, refocus and look at how you can attract a new workforce. We have to train better and we have to use our scale in order to move and champion people through the system. Yes, you may start as a cashier at a quick service or a bus person at a full service establishment, but we need to tell people, here is the career ladder, here is your next potential step, and this is what you could earn. We have to get better about telling that story internally. Years ago you had to interview ten people to hire one; now you have to see 30. You have to work harder at it. As a firm, especially in operations, we are hiring full time today. We are not hiring when we need somebody, we are hiring all the time – and there is always room for good talent. It’s just part of what you have to do today.