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Restaurants are converting their spaces into retail stores to ride out the coronavirus pandemic

April 29, 2020, 4:00 PM UTC

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With takeout and delivery as the only means of business for most restaurants and bars still open across the United States, owners of these independent establishments have found themselves forced to get desperately creative to ride out the coronavirus pandemic.

From coast to coast, many restaurants have added grocery sections to their online menus, selling à la carte pantry items such as rice, beans, olive oil, salt, bread, dips, salad dressings, and even butcher cuts of meat and fish. Prices might be higher on average at these restaurants turned larder purveyors than those at your local grocery store or even the corner convenience shop. But many of these eateries are trading on the hopes that customers will respond to both the particular culinary expertise these locations offer as well as the loyalty of its customer base.

Chef Curtis Stone’s Gwen Butcher Shop & Restaurant in Hollywood, for example, shifted to a marketplace model with a focus on select meat cuts, and his 24-seat fine dining space, Maude, in Beverly Hills, has a brand-new menu catering to families, with rotating items including a fully brined and organic spatchcocked chicken with whole grain mustard spaetzle, a lasagna Bolognese, and a spring vegan platter. 

“It’s important to keep pushing ourselves just as we did under normal circumstances,” Stone tells Fortune. “We’ll keep going as long as we have the patronage of our guests. It’s been wonderful to be in a position to serve the community and see our loyal regulars from the dining room and new friends, who are stopping by and picking up items to show their support.”

In the past, selling off existing inventory as wholesale products was typically a way for restaurants to avoid food waste. Very few establishments have taken this a step further by continuing to retail these items in addition to providing takeout services, according to Rachel Hyland, a senior analyst at market research firm IBISWorld. But while only a minority of restaurants are going this route, the concept has increased in popularity throughout the pandemic.

“Most operators that were retailing their goods have already closed, shutting their door once their inventory was depleted,” says Hyland. “Operators that are sustaining this retail model are likely to continue so long as there is enough demand to warrant the costs of remaining open.”

However, most restaurant operators won’t be able to do enough volume in a small footprint to make food staples a sustainable business, warns David Portalatin, a food industry advisor at The NPD Group. “It’s the reason why convenience stores today are all emphasizing higher margin prepared foods,” he explains. “We are seeing blurring of channel lines in food service and retail as restaurants seek out retailers as outlets for prepared food as well as selling staples, like take-and-bake items or other components to help consumers prepare a meal. We may see more hybrid models emerge post-pandemic, but these are really stop-gap measures for restaurants now.”

All Time, a neighborhood restaurant in L.A., has become a full marketplace, in addition to serving hot food from its menu. Provisions for sale include eggs, milk, dry pasta, and wine from the small vendors it works with and continues to support.
Courtesy of All Time

All Time, a popular neighborhood restaurant in the Los Feliz district of Los Angeles, is selling “grocery survival kits,” curated by dietary preference, for vegetarians, pescatarians, and meat eaters. For $250, the vegetarian box includes eggs, dry pasta, dry rice, potatoes, kale, bread, olive oil, Parmesan cheese, coffee, hot sauce, a taco kit, the choice of dairy or oat milk, and two rolls of toilet paper.

“We have such immense access to the best stuff around, from meat to produce and everything in between, so we knew we had to make these items available directly to our community, and also continue to support our longtime vendors as much as possible,” says co-owner Ashley Wells.

She and her husband (and co-owner), Tyler, have completely reengineered the operation—both in what they offer and in the way they conduct business. Payment transactions are no longer conducted in person; everything is now exclusively ordered online. And no guests are allowed to come inside the restaurant; everyone—employees and patrons—must wear masks.

“The business model is almost unrecognizable now,” Tyler says. “Our biggest challenges were keeping up and maintaining our high standards of both service and product quality in the midst of being a very busy neighborhood restaurant. It’s funny, because we got plunged into the world of takeaway just as we were really diving into some R&D for this very model, and thinking about how we could best serve the neighborhood with takeaway offerings as All Time is really a dine-in restaurant.”

“The feedback is two-way and constant; we are continuously seeking to improve our offerings and stay current, flexible, and offer more than the minimum. This is always our North Star—that we overdeliver on both quality and experience, whether we are in our familiar dine-in hospitality mode or the strange new climate in which we now operate,” says Ashley Wells, co-owner of All Time in Los Angeles.
Courtesy of All Time

While many restaurateurs have been forced to sell off all existing inventory just to stay afloat, Christopher Bates— founder of five restaurants in New York’s Finger Lakes region within his F.L.X. Hospitality group—drummed up a new line of revenue during this uncertain period. With the recent change in New York State liquor laws allowing restaurants to sell wine out of their dining rooms, Bates converted one of his restaurants into a full retail shop (called the Super Secret Wine Shop) with a bottle list he hand selects (Bates is a master sommelier) for curbside pickup, local delivery, and shipping nationwide.

“I figured, even if it doesn’t work, we might as well be ready for when we are allowed to reopen, Bates says. Since then, the wine shop has grown with new offerings (like Blind Tasting Boxes), which have proved popular with customers, enabling Bates to bring back more employees. Sales have been so high that Bates needed to purchase new inventory and expand his selection to meet demand.

“Honestly, at first, my reaction [to the shutdown] was rooted in anger and frustration, and then survival mode kicked in. And that helped,” Bates says. “It’s what we restaurateurs are good at: survival, adaptation, innovation. And as we went through those states, excitement began to build.”

Prior to the coronavirus shutdowns, there were approximately a million restaurants open nationwide—an estimated half of which are independently owned—with roughly 15.6 million employees, according to the National Restaurant Association. And nine in 10 restaurants had fewer than 50 employees. Overall, restaurants generate $880 billion per year in revenue and account for 4% of the nation’s GDP, according to the Independent Restaurant Coalition (IRC), a grass-roots movement among chefs and restaurant managers that formed in March.

But after shelter-in-place mandates were implemented along with the closure of nonessential businesses across the country, starting in California the week of March 9, the restaurant industry has been nothing short of decimated. The food service industry is expected to lose more than $50 billion in sales in April alone, and more than 8 million restaurant employees have been laid off or furloughed during the pandemic as of April 16. The IRC estimates that figure will grow to 11 million as the current economic crisis drags on.

The Super Secret Wine Shop, which had been set to open as F.L.X. Provisions.
Courtesy of FLX Hospitality

Robyn Matarazzo, co-owner of Villaggio Italiano in Westchester County, N.Y., also implemented a variety of initiatives to adapt to these changes. The 42-year-old, family-run eatery is now offering DIY pizza kits, so families can make their own pizzas at home, as well as meal packages complete with all the ingredients for a restaurant-style experience. 

Matarazzo explains the restaurant came up with the DIY pizza kits in response to parents being home with their kids and needing something more to occupy their time. “We saw so many posts on social media about parents pulling their hair out, and we wanted to help contribute to keeping their kids busy,” she says. Villaggio Italiano sells approximately 10 to 15 kits per day for $10 each. Each kit comes with enough dough for a small pie along with mozzarella cheese and tomato sauce.

“It was so cute when customers started tagging us in their photos of the completed pies,” Matarazzo adds.

Matarazzo accepted the shutdown on in-restaurant dining because she says she knew that the measures were to stop the spread of COVID-19. At the same time, she knew it was going to substantially hurt the business financially as well as the pizzeria’s employees, but she stresses health comes before everything.

“The first few days of this new normal were very upsetting,” Matarazzo recalls. “To furlough staff, to see the drop in business, to know that employees that have worked with us for 15 to 30 years may not have a job was heartbreaking, but these were things that were out of our control, and we had to figure out how to operate under the new laws quickly.”

Sales dropped the first few days over 80%, Matarazzo notes, and the pizzeria had to let go 80% of its staff as well. The business halted all advertising, and the restaurant has been ordering less from vendors. But as time went on, the bottom line improved.

Right now, Villaggio Italiano still has two chefs, two additional pizza cooks, one person answering phones, and three delivery drivers. Delivery has picked up so much that Villaggio Italiano added two more drivers. “The phone rings off the hook, which we are eternally grateful for, and a lot of our customers are coming to pick up food, saying hellos and well wishes from a distance,” Matarazzo says.

Matarazzo admits the restaurant never wanted to push gift cards—which emerged in the early days of the shutdown as a quick way for restaurants to generate cash—because she was cognizant of customers also losing their jobs. “We decided to just operate to the best of our ability and see what happens, because there was nothing that we could do to change the situation at the moment,” she explains.

“There are some heartbreaking stories of beloved businesses failing, but there will be some interesting stories of adaptation and survival,” says Seth Brewer, co-owner of Al’s Bar in Lexington, Ky. “I hope we can count ourselves among that latter set when all is said and done.”
Courtesy of Al’s Bar

Bars and restaurants in Kentucky were restricted to takeout, curbside pickup, and food deliveries the same week as New York State.

“Being a music venue and bar, we were dead in the water overnight,” says Seth Brewer, co-owner of Al’s Bar in Lexington, Ky.

Brewer says he and his business partner, Tim Small, took stock of how they could legally continue to operate and found that they could not: Kentucky State liquor laws had not yet been relaxed to allow restaurants and bars that serve food to sell alcohol to-go. There was a kitchen on-site, but it was in the final stages of a remodel, and Al’s wasn’t selling any food before the shutdown, so it could not pivot to food sales to make up for lost sales of alcohol. 

What was worse, because of local governmental safety measures, Brewer says, they couldn’t get the kitchen inspected by the health department to roll out the backup plan, which was bringing in some restaurant colleagues who had lost their jobs to start selling food. “[It] would have given our friends some sort of an income, and would have given us a vehicle by which to comply with the executive order that permitted establishments selling food to sell drinks along with the food,” Brewer says.

Thus, sales flatlined—initially. But when Brewer and Small took another look at the tools at their disposal, they realized they had an asset: a beer package license, which had previously seemed like a nuisance to implement. Al’s Bar became Al’s Beer Store overnight.

“We realized we could become a beer store, so that’s what we did,” Brewer explains. “One of us has retail experience with a boutique bottle shop here in town, and with that knowledge of retail margins, and with the familiarity of the different beer distributors and their brands, we were able to turn our bar into a retail space.”

On a day-to day basis, the beer store has limited hours, from 4 p.m. to 8 p.m. (pre-pandemic, the bar was open from 5 p.m. through 2:30 a.m.), and the main bar has been converted into a display area for the beer being sold.

Initially, sales seemed to involve locals and regulars alone—those who wanted to do what they could to support the bar and its employees, according to Brewer. But as the weeks have worn on, those “sympathy tips” have diminished, and beer sales have been steady and increasing. 

“We are satisfying a demand here in our neighborhood, selling mostly craft beer to a community that previously had to drive to get good beer or had to settle for whatever was available at the nearby gas stations,” Brewer says. “Customers have been asking us to keep doing this on the other end of COVID.”

Because of increased demand, many grocery stores may be unable to accommodate same-day grocery pickup or delivery orders, making it difficult for shoppers to restock on one or two key items without entering the store.
Courtesy of Panera Bread

It’s not just mom-and-pop stops making dramatic changes. Panera Bread has redirected hundreds of its locations nationwide from catering to the lunchtime rush to selling kitchen staples. Beyond bread and bagels, Panera Grocery is selling produce and dairy items (from gallons of milk to Greek yogurt) for pickup and contactless delivery.

This is fully national, and participation includes franchisees and owned stores. Panera has approximately 2,200 locations nationwide, 15% of which have temporarily closed. Nearly every open café is participating. Of the remaining locations—just under 1,900—95% of them are fulfilling Panera Grocery orders.

“As the virus hit, we knew we needed to do more for our customers and their shifting needs,” says Panera CEO Niren Chaudhary. “Today, people everywhere are struggling to find essential items, secure timely grocery delivery options due to high demand and are looking to limit the amount of stops they make when doing essential errands.”

As time goes on, Chaudhary says Panera Grocery hopes to expand the program further and make even more grocery staples available to customers. As for whether Panera Grocery is kept around for the long-term, beyond the pandemic, nothing has been ruled out yet. “We will as always follow the consumer—it all depends on if our consumers continue to see value in having these grocery essentials available as we get to the other side of this crisis.”

There’s no secret sauce to survival

But these aren’t overnight success stories. Silicon Valley unicorns might make business model “pivots” seem natural, but successful ones are few and far between.

As the slower winter season was coming to a close, F.L.X. Hospitality had been in the midst of finishing construction and opening two new locations, with four more expected in May. Bates had just opened a new location for his F.L.X. Fry Bird restaurant in February, and business had been going well.

“Honestly, it was such a landslide, so it wasn’t until they began closing states that the situation was solid enough to digest. Even then it didn’t really settle in until they closed our [state],” Bates says. “No matter how on top of it we tried to be, we couldn’t make plans fast enough.” 

When Gov. Andrew Cuomo announced on March 15 that New York State restaurants would be able to offer only takeout or delivery, Bates says he began to cry. After texting with his managers to prepare shutting down for an unknown period, he drove from restaurant to restaurant, to speak with the managers personally and then address the team. “I had to tell my entire team in a five-hour span that I no longer had work for them,” Bates says. “It was the hardest day of my life.” 

“On shutdown day, I was terrified of what would happen to [the team] and offered them anything I had: food, shelter, clothes, anything they needed during this time,” Bates says. “If I had it, I offered to give it to them. Knowing that they are safe and stable has been a huge help.”
Courtesy of F.L.X. Fry Bird

Following the shutdown in mid-March, the team decided to try to keep Fry Bird open for takeout, and added delivery. Bates asked a few of his most reliable team members to stay on, and promised to give it a go for a week. Every day grew busier. Every day, they brought another team member back. The hospitality group had just finished the final touches on the newly expanded F.L.X. Provisions space, including a tasting room and a gourmet goods pantry, on the day of the shutdown on March 15. The establishment had been scheduled to open two days later—and it did. But not as originally planned. The team scrambled, and the Super Secret Wine Shop opened instead.

Sales at Fry Bird have continued to fluctuate, and Bates admits business is down, but he says it’s not as down as it could be: “We just try and stay tight on efficiencies and roll with the punches. Overall, we have been able to keep some of the team employed, be responsible to the business, and not jeopardize our ability to weather this crisis.” Business at the Super Secret Wine Shop, however, has skyrocketed. Between the new, larger space and expanded set of offerings the shop is allowed to sell because of SLA (service-level agreement) changes, Bates says there is far more opportunity as well as the flexibility to do things he and his team have never done before.

“We cut our entire team and shut down every expense the Monday of the shutdown announcement,” Bates says. “I think that was absolutely imperative for us in ensuring that we are able to survive this crisis. Depending on how long this lasts—there is a point at which we won’t be able to do so—but, thankfully, because of that reaction, we have a bit of time we can weather this. Those decisions ensured that, on the other side of this, we can rebuild those jobs, the tourism draw, and eventually, the economy around us.”

F.L.X. Hospitality has applied for assistance from the Paycheck Protection Program, but like many other applicants, the company is awaiting approval. “Even if the funding comes through in the coming weeks, the guidelines on forgiveness and repayment are still not clarified, making taking that money terrifying,” Bates says.

The way we were

Bates isn’t sure if restaurants will go back to the way things were, speculating it’s still too early to predict. “Personally, I believe we need contact as people. I hope the outcome is that we want to connect more—no more being on our phones during dinner, but actually engaging those around us, Bates says, underscoring the model for one of his restaurants, F.L.X. Table: a 14-person chef’s menu restaurant inspired by a dinner party. He hopes that’s what we all come out of this craving. 

“People are learning that social deficiency is no different than a nutrient deficiency: It’s something we crave and need,” Bates says. “That being said, our ‘normal’ changes every day right now. For now, next week’s news is unknown, so trying to predict next month is simply a game in wasting time for us.”

Restaurants in New York have been told dining rooms are shut down through at least May 15, and that may come to pass for restaurants in upstate counties, compared with New York City, which is expected to be on a much longer timeline to reentry. And while Bates admits that might be great given that it’s only a couple of weeks away, he says the worst thing would be to reopen before customer confidence is rebuilt. Instead, he doesn’t plan for a full reopening before June 15, at least. “I am well aware it can go longer than that, but it does no good to speculate when there are so many things that need attention and thought that affect us today,” Bates says.  

Still, Bates remains optimistic. “Once we got over the sadness and depression, and began doing what we do—creating—I wake up every morning excited,” he says. “I can’t wait to make this spreadsheet, or try this new idea, or reach out to these people about a collaboration.” 

The team at Villaggio Italiano have already started to think about how the business model needs to change upon reopening, starting with removing 30% of tables in the dining room to enable more physical distancing between patrons. There will also be hand sanitizer on each table available for people to use in addition to staff changing linens more frequently, using different cleaners, and making sure to minimize or do away with any plastic in the dining room.

“My personal opinion is that whenever something life-changing happens, people change temporarily and eventually go back to what they know,” Matarazzo says. “I think this has been so impactful that it will take time, maybe even several months, and you will see people go back to their normal routines again. Depending on medical and governmental updates will determine whether our staff will be in gloves and masks.” 

As far as the long term, Matarazzo expects to ramp up delivery and takeout, while understanding in-restaurant dining might be slow for quite some time after reopening. “We can only base this on the present circumstances and hope that things get better in time,” she says. “I know I speak for myself and my staff, we look forward to hugging everyone again.”

While he admits that the pivot to running a beer shop “started off as an act of desperation,” Brewer says that the solution—however temporary it might be—was the lifesaver. While the hope is to go back to service by the drink, Brewer is pleased with the success—albeit mild—so far, and will likely continue to provide and advertise to-go specials once back to regular service.

Nevertheless, Brewer thinks it’s going to take some time for people to get back to trusting a public, social environment, and it’s going to be tough for managers to navigate that. “The nature of going out and being around strangers in an enclosed space is an odd concept already,” he says. “Hell, with the isolation and social conditioning, even the act of shaking someone’s hand now seems bizarre and alien.” 

In the short term, Brewer says the bar has to keep pushing what the business is legally able to do: selling beers to-go. However, he argues, there simply isn’t a long-term view right now. “So many of us small-business owners don’t have the cash reserves or revenue options to keep fighting this, and even with deferment of payments and hoping for the best, debt down the road is still debt,” Brewer says. “If this goes on for another six months, we’re closed. It’s as simple as that.”

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