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The Next Normal: Conversations About The New Reality Of The Restaurant Industry featuring Castellucci Hospitality Group

Ariel Upton
April 17, 2020

The colossal effect that COVID-19 has had on independent restaurant operators is clear: the world we once knew was transformed overnight. 

While many high-profile restaurant groups closed their doors in the days immediately following the outbreak of this pandemic in their home cities, the groups who have stayed in the game give us hope about what lies ahead for our industry -- and for us as individuals. 

The Next Normal: Conversations About The New Reality of The Restaurant Industry is focused on learning from the best in our industry on the ways we’ll move forward as a result of COVID-19.

In this first installment of The Next Normal, we sat down with Fred Castellucci, President and CEO of Castellucci Hospitality Group, to discuss their pivot strategy, how they’ve defined success in the early stages of the global pandemic, and where they go from here.

The Next Normal p Castellucci Hospitality Group

There are people who inspire, and then there are people who inspire. Ever since we met Fred and his team, we’ve felt the latter. Watching the CHG team pivot at breakneck speed over the past five weeks has been nothing short of amazing. 

Who successfully launches a steakhouse in the midst of a pandemic? Fred does.

Here is a list of all the remarkable things they accomplished in the days and weeks since COVID-19:

  • Redesigned their corporate and individual restaurant websites
  • Implemented contactless carryout methods
  • Launched online alcohol ordering 
  • Developed family meal offerings
  • Launched delivery, first with a third party and then on their own
  • Redesigned email and text marketing campaigns
  • Established Feed the Frontlines to support healthcare workers
  • Launched a new restaurant concept - Castellucci & Sons Steakhouse

Implementing these changes in normal times would be considered huge pivots; doing them in our current climate is damn impressive. While most of their full-service restaurant peers made the decision to close temporarily, Castellucci Hospitality Group accomplished all of the above without cutting salaries or laying off hourly employees.

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Daniel at 86 Repairs: When did you initially sense the potential impacts of COVID-19 on the restaurant industry? Can you walk me through your initial reaction to the pandemic?

Fred Castellucci: It became clear to me at the end of February that this (COVID-19) was going to have an impact on the United States, and the impact would likely extend to restaurants. I kept a close eye on it, and was fortunate enough to have conversations with people that were closer to the issue than what you were hearing on the news. What was happening in China was an unmitigated disaster and I had a hunch that the issue was worse than what was being reported. Once I started reading about what was happening in Seattle, with restaurants reporting being down 70% to 90%, I knew it was coming to Atlanta. 

We made early changes to our dine-in experience, before it was mandated by law to do so. We decreased table spacing before it was required in NYC, we were some of the first to implement robust health and cleanliness procedures, and we eliminated cash payments very early on. Ultimately, these changes weren’t effective (as all dine-in restaurant functions were closed), but the mindset shift helped prime us for what was to come.

As a team we shifted to looking ahead - tomorrow, a week from now, a month from now. This aggressive forward-thinking mentality and focus on speed helped lay the groundwork for how we’d change our operations.

Prior to coronavirus, we didn’t offer takeout. Most of our concepts are upscale, fine dining establishments, and our offerings didn’t lend well to takeout or delivery. Six of our seven brands didn’t do delivery, and we had just launched delivery at Recess in December.

I knew UberEats was the leader in the delivery game, so I signed all our businesses up at the end of February as a contingency plan. I honestly hoped we’d never have to launch with them. When I told my wife, Lauren, who runs marketing at all our restaurants that I wanted to do this, she said, “You’re kidding, right? We’re not doing that.” We definitely did that.

That conversation feels like ancient history. We launched with UberEats on March 16th, and thankfully we were in before the mass opt-in from others in the industry scrambled to get on the platform.

Q: Can you walk me through how you made your decision to stay open instead of temporarily closing locations like so many others?

A: By the time the world changed (March 16th, 2020), dine-in business had all but disappeared. This week was the hardest week by far. Multi-concept operators running upscale or fine dining restaurants were forced into making a decision: stay open or close and lay-off or furlough their entire team.

When I think back to 2007/2008, this is when we were really building our business. Our concepts hadn’t taken off, we were in a challenging financial situation and struggling to pay bills. 

What was true then is true now: You always have a choice. There is always a way out. 

Deciding to pull the plug is so final. Once you close that door, it’s really hard to go back through. In the restaurant industry, when you make the decision to close, you’re jeopardizing your ability to re-open. Re-opening a restaurant has its own cost. What does your company look like after 6, 8, 12 weeks of going dark? Can we reopen 7 concepts at once with people who haven’t worked for months? You have to consider your people, have they moved on and have we lost them? Are we comfortable taking the chance that some of our brands may never reopen?

The world is changing so fast right now. We decided we weren’t going to sit on the sidelines and wait for the industry to work itself out. What works is adapting quickly and doing everything you can to stay in business. 

Q: How has this differed from others in the industry and their decision to temporarily close?

A: Groups that have opted to close temporarily in the name of taking the moral high road for health and safety doesn’t make a lot of sense to me. Feeding people is an essential service and grocery stores can’t handle the demand of feeding people on their own. Restaurants are a critical business and piece of our infrastructure right now. 

Running a restaurant allows people to survive in this country. If you’re concerned about health and safety issues, you should be open for carryout and delivery in a really safe way.

Q: How has the culture of CHG impacted the way you responded? 

A: Prior to COVID-19, we had a really strong culture and our team knew who we were. In the past few weeks we’ve seen our culture get even stronger. It’s easy to talk about how great your culture is when things are going well, when money is flowing, the CEO is doing well, the employees are doing well. What’s your culture when things go poorly? This is when people get to see what your character really is.

We’re doing everything we can to make sure our staff has a paycheck next week. They understand our commitment to the company, the team, and our community. Adversity creates loyalty in a way you can’t get during the good times.

Q: What specific tactics did you take to survive? How did you calculate your break even?

A: The two main ways we approached establishing our break even involve cost control and top line revenue. 

In regards to cost control, we turned off every expense we possibly could. We put every credit card on hold, every account on ACH debit block, and only paid people with checks. In regards to who we paid, we prioritize our staff above everyone else. 

We cut every single expense that wasn’t absolutely necessary to operating our business, and pushed our payables with vendors from our traditional 7-day cycle to 3 weeks to stabilize the business. We openly communicated with our landlords that we’re committed to being a good tenant, but there was no way we could pay in April. 

Cutting cash out as quickly as we did was a tourniquet on the cost side, which allowed us to buy ourselves that first critical week to figure out our next move. 

For top line revenue, we looked at our relationship with UberEats and realized we couldn’t survive on the 30% of 30% cut they were taking. We needed to figure a way out of our relationship and go at delivery on our own. 

In three days, we built ecommerce sites for 6 of our concepts. We didn’t use traditional online ordering software, we went with Squarespace. Photos sell. We wanted our customers to have a high end experience through the ordering process. We re-engineered our menus for takeout and delivery.

I told my Chefs that the name on the restaurant door doesn’t matter. We need to make food that people want to eat that transports well.

Q: Tell us more about that.

A: We were forced to redraw the map of our businesses as a result of the pandemic. Our least successful businesses were now the most successful. Our restaurant that was #2 prior to the outbreak, Cooks & Soldiers, was now 6 out of 7. We needed to think of a new way to drive revenue at the location in order to support our staff. If we couldn’t, we’d be forced to lay people off. We used what we had - the talent, the infrastructure, the tenacity - and launched a pop-up steakhouse, Castellucci & Sons Steakhouse, from the kitchen of Cooks & Soldiers. 

Q: How did you land on that concept?

A: We did what we’ve done throughout the entire process - we looked at what everyone else was doing and what no one else was doing. No one in Atlanta was opening a new restaurant and very few steakhouses in Atlanta were still open. As a result of the pop-up, Cooks & Soldiers is back to being our second-best performing restaurant. 

Q: Tell us more about your delivery service. Are you using your existing staff? How is contactless carryout working?

A: Our delivery process is manual at the moment, and employees are managing it from their phones. When guests checkout on the website, they indicate how they want the order (delivery or contactless carryout). Using our staff for delivery allows us to bring back as many of our employees as possible. 

But we aren’t seeing huge numbers through delivery. If people want delivery, they’re trained to go to the apps. We’ve reduced our reliance on UberEats, and are seeing roughly 6% of sales through the platform. 

The reality is, people want to get out of the house right now. People prefer carryout. 

The biggest threat to our business right now is the virus itself. If one of our employees gets sick, we have to quarantine an entire store which could necessitate layoffs. We’re doing, and have done, everything to preserve the safety of our team. Guests aren’t allowed in the restaurant. The best hospitality we can offer right now is to keep everyone healthy and safe. The best hospitality is to not engage. People don’t need to sign their credit card receipts and they don’t even need to crack a window. Our team does a verbal confirmation on the order and secures the food in their trunk. 

Q: What have you seen in consumer behavior or attitudes? What trends are you seeing?

A: The first week of the outbreak was absolutely brutal for the industry and it’s why so many people closed. When the government mandated that restaurants close, they botched the communication. People didn’t realize they were still open for carryout and delivery. Early on, people were panic buying, and stocking up at the grocery store. That first week, we were down 70-80% company wide. This is when many restaurant operators pulled the plug.

But the next week was awesome. We saw improvement and growth in takeout sales. We exceeded our break even point. Takeout for Easter Sunday was our best week yet post-Corona. The bottom line, we’re trying to stay in the game as much as we can, and adapting to grow the top line revenue. 

Q: What have you seen in terms of the attitude of your team? How has the pandemic affected them psychologically?

A: This is a challenging time. It’s a series of highs and lows, and we’re asking a lot of our employees. We didn’t cut salaries, but we’re expecting more. A lot of our team is working 6-7 days a week. This is the price of survival. Now that we’re stabilizing, we’re looking at how we can change this moving forward. People can do anything for a short period of time, but we’re thinking about the long game now.

Q: What has surprised you the most over the past 4-5 weeks? Any big AHA moments?

A: I’m surprised by the resiliency of our team and our guests. When we launched Feed the Frontline, we saw an outstanding internal and external response. We added the option for guests to buy meals for frontline hospital workers. It’s a virtuous cycle - our customers are happy to buy the meals for the healthcare workers, our team is happy to create the meals, and the frontline staff is hppy to receive unique and delicious food. It’s been a way for our guests to support something good, and feel like they’re contributing.

Q: It’s the billion dollar question, but what do you envision for the future of our industry?

The future of our industry is dictated by the virus and our ability to fight it. If we have quality treatment options and a vaccine, we could see life return to normal pretty quickly.

But if there are surge cases after we go back to congregating, or there’s a cyclical nature to the virus, we need to plan for the worst case scenario. 

I’m naturally an optimistic person, and I’m excited about the growth coming out of this and how to manage it, but we need to be prepared for a Q4 without holiday parties or gatherings of any kind. Q4 is our busiest most profitable quarter of the year. If we’re sheltering in place at that time, the restaurant and retail industries will need stimulus on a scale that isn’t even fathomable. 

My hope is that there are a lot of smart people around the world working on this problem, and smart operators are working on ways to survive. The old way of playing the game is out the window and we can’t get stuck in previous thought processes. We’re figuring out how to build a restaurant operation that can adapt and withstand shock.

Q: How do you do that? How do you build a restaurant that withstands shock? For so long, the industry has operated on such tight margins with such great variability. 

A: We are radically rethinking cost structure, and thinking creatively about how to feed our guests and our community in ways they want. Grocery stores won’t be up 70% forever, and restaurants won’t be down 70% forever. People are realizing that grocery shopping is dangerous right now, and grocery stores might not be the safest place to get a meal. We’re adapting and ensuring that our restaurants are some of the safest places you can get fed. 

Q: Where do you see hope and opportunity? What are things you thought were important before that aren’t important now? Where will you invest in the future?

Over the course of the last decade in full service restaurants there has been a huge focus on design. In an instance, this entire competing force disappeared. Fancy dining rooms, opulent places to hang out, and interior design matters 0$. Where everyone has spent their time and money has completely disappeared.

Restaurant operators compete in three major ways: food, hospitality, design. We’ve been overspending on design for the last decade because people want to be in cool places.

The competitive landscape was redrawn in the past six weeks. Now we see a fourth angle for competition: health and safety. The emphasis on design has largely been replaced by concerns about health and safety.

Over the past few years within the industry I think that hospitality has been the least important factor of the three (food, hospitality, design). To us, this has always been the most important. Hospitality is the relationship you build with customers and employees, it’s trust. It’s what will help you survive the pandemic. 

Eventually, when dining rooms reopen, and life is back to normal, people will remember how people acted during this crisis. They’ll remember where they were served hospitality.

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