Paramount Network’s ‘Bar Rescue’ Star and Taffer’s Tavern Founder Jon Taffer joins Yahoo Finance Live to discuss how the covid-19 pandemic is impacting the restaurant industry.
AKIKO FUJITA: John, it's great to have you on today. Let's start by those restrictions, because there's no question, a lot of those businesses that you've been speaking to are looking at those announcements saying, are we going to have a repeat of what we saw in March and April. How demoralizing do you think that would be for these businesses, who are just now getting up and running after the reopening?
JOHN TAFFER: It's unbelievably demoralizing. The process has taken away morale every step of the way. But this second hit really hurts for three big reasons. One, there's no PPP plan in place now. There's no payroll provision. So this shutdown means we're probably losing our employees, because we can't afford to sustain our team. There's no added unemployment benefits for the employees when we do lose them now.
And then when you hear de Blasio saying, we'll probably close in two weeks, and you're not making money over these two weeks anyway, when you think about that, where is your motivation to open tomorrow? You might as well close right now and cut your losses and hold your cash as much as you can. This is a tough, tough hit for the industry.
ZACK GUZMAN: Yeah, and John, I mean, it's not just restaurants trying to figure out what they're going to do in the short term, but also what's going to happen, perhaps some permanently closing down as well. We've seen estimates out there that as many as a third, perhaps 40% of restaurants across the country will permanently close due to all this. What's your estimate as you see these restaurants struggling as they deal with stop, start, stop again? What's your estimate?
JOHN TAFFER: I think there will be a direct correlation with closures, length of closures, and statistics of restaurants and bars that are permanently closed. There has to be. Because unrestricted areas have figured out ways to at least sustain themselves. Even with 50% capacity and outdoor eating and delivery and curbside pickup, we, found certain ways to sustain ourselves. We've adapted as an industry. We're barely surviving, but the second hit is extremely powerful. We're out of money.
And when I interviewed President Trump three weeks ago or so, right before the election, we talked about the fact that a round of PPP had to cover debt going back six months, and that that was critical. There are three things we need to do to keep this business stable. One, we have to provide some type of debt relief, because many of us are behind six, seven, eight months in rent. So there has to be some chunk of dollars to relieve a past debt.
The next issue is payroll for a period of time. We don't want all of these employees to lose their jobs. And then there needs to be an ongoing provision to jumpstart us in the spring post vaccine, which I, by the way, think this summer will be boomtown for the restaurant industry. But we have to survive to be able to participate in that.
AKIKO FUJITA: Yeah, I mean, to your point, there's no question there's going to be some pent up demand waiting on the other end. The question is, just how much more runway do some of these restaurants and small businesses have to get to the other side? What about your business? How are you adjusting right now? And what are some changes that you have had to make over the last several months in order to adjust to the demands in the market and the restrictions?
JOHN TAFFER: Well, we, believe it or not, just opened Taffer's Tavern three weeks ago in Alpharetta, Georgia, which was a major suburb of Atlanta. And people say, how could you do that in the middle of the pandemic? But we got to this place in a fascinating way. Think about this. Two years ago, the restaurant industry was greatly challenged because we couldn't find employees. Unemployment was so low, the biggest problem in the restaurant industry two years ago was finding employees, particularly back of the house employees.
So two years ago, we said, let's design the kitchen of the future using computers, robotics. Because if we can't find a labor pool, let's replace it through automation. So we did. And we worked in test Kitchens for two years and have technology partners and transactional technology partners and bar equipment partners and kitchen equipment partners. And for two years, we worked on creating this, a model with less human participation due to the lack of labor pool.
Well, we did it. And the food is great and the systems are great and the computer system run wonderful. As we're doing it, we realize, son of a gun, this is the safest kitchen in America. So when COVID hit, coincidentally, with less human contact, less counter space, less raw product and cooked product, all of these physical changes, and human contact reductions, son of a gun, we wound up with the Taffer Safe Dining System.
So our processes are extremely unique in the restaurant industry in the way our food is handled, a lack of human contact in preparation, the consistency, the quality. It's fascinating where we landed being so COVID safe, because our beginnings were reacting to the economics of the marketplace two years ago.
ZACK GUZMAN: And John, I mean, you talked about your interview with President Trump, how surprised you were at his grasping of the issues that these restaurants we're going to fail if they didn't get additional PPP support here. Obviously, it hasn't happened post-election. You guys spoke before the election. Now that we moved past it, there was hopes that it would come through here. I guess, are you surprised that someone could have an understanding that these restaurants aren't going to survive and then we sit here after the election and it still hasn't come through if it is going to wipe out a third of America's restaurants permanently?
JOHN TAFFER: Well, that starts to become a political answer, and I try to avoid going there. I would only say that the amount of proposals sent from the White House to Congress to facilitate that stimulus package was a very large amount of proposals. And I would say if you look at, and I'm not picking either side, but I would say if you look at Democratic internal discussions, which have been published, there are many Democrats who are a little angry at their Speaker for holding back those bills. Because their constituents have been hurt as a result by it.
So it's all where you choose to place the blame. But I would say, I'm a numbers guy, when you look at the amount of proposals that came out of the White House to Congress versus Congress to the White House, it's like 11-zip. So I'm not sure placing their blame on the White House is a reasonable assertion, candidly. And I'm being nonpolitical in that statement.
AKIKO FUJITA: And John, I want to get back to what you said about your tavern, your restaurant that you just opened, about this focus on automation really. How that has somehow worked out in terms of timing. Is that where the restaurants are headed? This is something that we've heard increasingly from some owners who say, we're trying to make things less, with less contact. We're trying to make sure things, they're able to address the concerns about the virus spreading. Does that ultimately lead to more automation and less jobs in the sector?
JOHN TAFFER: Well, you know, it's interesting. In medical sciences, almost every checkpoint where we protect ourselves has some type of a scientific basis to it. So in our restaurant, we have things like, after you wash your hands, you put your hands under a scanner. If there's any viral or bacterial content on your hands whatsoever, you get a red light, you go back to the sink. If your hands are actually sanitary and clean, you get a green light, you get to go to work. So little, hand washing alone doesn't do it without that scientific check.
So I think we're going to see a lot more scientific check points within restaurants. For example, in food manufacturers they take temperature along the assembly line, and there's all these devices and computer systems and paper tapes that track the temperature in the treatment of every product. When it gets to a restaurant, those things really don't exist. I think we're going to see much more science involved in kitchens.
But there's another side to this, and it's driven by the economics. The restaurant industry typically can afford to spend 30% of its revenue on labor. So $0.30 of every dollar goes to labor. They can't afford to pay 35% labor, because there's only 10% to 12% margins. So the only way they can spend more percent, more dollars in labor, is to raise revenue, because you can't let the percentage go up, you won't make money.
So if a restaurant has to achieve a 30% labor cost, and certain states or federal government move payroll to $15 an hour, and in some states with tip credits, that's almost a 600% raise, and at the same time, they try to unionize, and at the same time other costs go up, then restaurants can't survive. So their only option is to automate everything. Because the human cost becomes too great. Because again, we can only spend 30% So if I can spend 30%, then I have 10 people working and you raise payroll by 50%, well, I now have seven people working. So I still have to hit that 30%.
So there has to be a way to step up payroll increases, to do it over a period of time and a plan, because I'll all for it. I want people to make as much money as they can. We all do. But how do we get there in an intelligent way? So when you look at automation, it's driven by the finances of the industry, as well as COVID. And there are many burger chains now and many companies now that have installed automated equipment that takes that raw product, puts it on the grill, flips it, drops it on the bun and there's no human involved. So it all comes down to business economics and safety, and they're both calculated in the mix.
AKIKO FUJITA: Yeah, I mean, it speaks to the challenges a lot of these restaurants are having to weigh right now looking at the human cost, but also looking at their finances saying, how am I going to move forward in order to survive. John, it's good to talk to you today. I really appreciate your insight. John Tanner, the founder of Taffer's Tavern, of course, star of Paramount Network's "Bar Rescue."
JOHN TAFFER: Thank you.