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Bullish on Full Service

You've built an $85-million multi-concept restaurant group that has grown to 15 successful units in Florida, Maryland, and Texas since opening the first in 2012. You have firm plans to open five more locations in the next year, boosting projected earnings to $100 million.

And then a pandemic topples nearly the entire business.

This is what happened to Atlas Restaurant Group. And if you own and operate a full-service independent restaurant concept, you most likely can empathize with this turn of events.

Atlas closed all but one of its restaurants as required by government shut-down orders in all its markets -- Florida, Maryland, and Texas. As of this writing, the only Atlas concept to remain open was its fast-casual Harbor East Delicatessen & Pizzeria in Baltimore.

"We went from 15 restaurants down to one restaurant pretty much overnight, just like everybody else," says Atlas founder and CEO Alexander Smith. "It's very sad and very scary."

Like most full-service independents, the 15-unit Atlas Restaurant Group, has been battered in the COVID-19 storm. CEO Alexander Smith is using the downtime for retrenching and preparing for a strong comeback in a restaurant market in which he believes hospitality will still win the day.

But if you think this is just one more restaurant tragedy circulating in the media, you might be pleasantly surprised. Smith talked to Restaurant Startup & Growth, not as another victim; but as an operator who is retrenching and repositioning for a rebound.

Smith isn't clinging to standard industry COVID-19 tropes. And at a time when some industry doyens are predicting the demise of the full-service concept, Smith believes the future isn't as gloomy as some want to believe.

It isn't pretty, but it can be survived if you understand the challenges and how they will present themselves. The concepts owned and operated by Atlas are upscale and full-service, says Smith, and for most of them "the carry out model doesn't work." Moreover, the company does not participate in third-party delivery for any of its concepts other than Harbor East Delicatessen & Pizzeria in Baltimore, which he describes as currently "sustainable but not profitable."

Atlas Restaurant Group CEO Alexander Smith isn't clinging to standard industry COVID-19 tropes. And at a time when some industry doyens are predicting the demise of the full-service concept, Smith believes the future isn't as gloomy as some want to believe.

Smith sees two "waves" slamming independent restaurants during the COVID-19 storm. They will separate the winners from losers.

"Wave one is going to affect units that weren't profitable prior to the pandemic," he says. "They have bills due. They don't have the money to start back up." In short, government-backed loans are not likely to save a business that has barely been hanging on before the pandemic. That business is likely to shutter.

The second wave will hit operations that survive the first wave and are now faced with a future with a 50% dip in revenues, says Smith. That will require adaptation and cash.

For that reason, "the Payroll Protection Program will be helpful for us," says Smith, who acknowledged his company missed the first round but is confident Atlas will be funded in the second round by mid-May.

"It will be a huge lifeline," he continues, explaining Atlas plans to bring its full staff back after the funds become available and will meet the requirement at least 75% of the money be used for payrolls to qualify for forgiveness.

Smith is not cavalier about the pandemic and understands when the government relaxes restrictions on dine-in service, his company will still have to maintain precautions, either to comply with new orders or quell the concerns of guests who have been sequestered in place for weeks.

The new normal in his full-service upscale restaurants will include "servers with gloves and masks, disposable menus, and rigorous sanitation measures," says Smith. "Every employee will be subject to a temperature check and it will be recorded in a log." Logging the information will provide evidence, kept in the course of business, of the precautions the company has taken to protect guests and workers.

That said, the social distancing requirements are less of a concern for Smith than perhaps for other operators. Outdoor dining is a big component of his concepts, he says, explaining, during peak months "we can drop occupancy inside and increase it outside."

An axiom of running a successful operation is the restaurant business is a people business. And that's why one of the risks of terminating good staff during a crisis is not being able to get them back when the coast is clear. Your existing employees know your culture and systems. It is expensive to recruit, hire, onboard, and train new employees.

Smith gets that and has taken extreme measures to keep his crew engaged. While many concepts have engaged their furloughed staff with Facebook Groups and emails, Smith has gone above and beyond to foster loyalty among the 80% of Atlas's 1,000 employees he had to furlough. "I want to know, are [they] in or are [they] out," says Smith.

The company has been donating 100% of its gift card sales to hourly staff with corporate matching funds. Additionally, Atlas has provided its employees a weekly back of groceries, to provide three to five meals. The company is paying for the groceries with the help of its purveyors. Smith anticipates 80% of his workforce returning to work when his units reopen for service. He will fill the positions of those who do not return with new hires.

Vigilant operators are asking if vendors are able to meet the company's inventory requirements when its units are open for business. Smith also has his eye on the supply chain and has talked to the company's purveyors. "Everyone seems committed," he says. Atlas intends to scale back the menu, although not much unless necessary.

As noted, Atlas eschews third-party delivery for all concepts other than the deli. "We want our guests to experience the entire experience," says Smith. "The entertainment and the ambiance. [We want guests] to enjoy the real experience. Before this crisis, we looked at ourselves as an entertainment company with a full wine and cocktail program. For us, every cocktail is a show. We spend two million dollars on entertainment. We did a great job with hospitality, and that's where our restaurants are going, and we believe people are going to want to come back to it."

Food alone is not going to sustain most restaurants, says Smith, believing in the wake of the pandemic, "people are going to cook at home and sit in their backyard with family and friends." And even if they order take-out or delivery, operators have to ask why they might be loyal to their restaurants. "How are you going to differentiate your business with just food?" he asks.

Smith also believes independent operators have an advantage over the chains for this reason and not only sophisticated multi-unit companies like Atlas. The so-called "mom-and-pops", unlike chain competitors, often don't have crushing lease obligations and capital expenditures. "If the family owns the real estate, and family members are working the restaurant, they can get through these crises."

Smith is bullish on the future of full service, as long as operators are able to find the cash to stay in business for the short term. As he sees it, the trick will be surviving the next six months, he says.

What is the upside? "The light at the end of the tunnel will be a ton of business and a significant reduction of competition.

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