A New Era for Restaurants: Creative Ways to Re-utilize Space and Enhance Profits
Photo by: Riley Snelling©
As a previous NYC resident, I feel especially empathetic towards its residents and all the businesses that struggled and closed as a result of this pandemic. It was on one of my first dates in the city that I was able to experience the real NYC restaurant vibe. As I walked into the West Village red brick building, the lights were dimly-lit, candles flickering on the tables, a live jazz band played in the corner, and there were people absolutely everywhere. Each table was about three inches apart and I recall the waiter having to pull the little table out so I could get to the bench on the other side. I remember thinking how unique and amazing the experience was. Over-time, it simply became a novelty and an experience I was bound to have at least once a week. I think now about how that restaurant, and many others if they’ve survived these times, will make it work given that 3 inches of separation is far from what will be required of them.
I’ve worked with restaurants and other food and beverage businesses in sourcing their physical spaces, and it’s a far from easy process. Yet food is what we as humans will always need, and the experience of a restaurant is something we as humans will always desire. But, in light of recent events, the operations and utilization of restaurant spaces will need to change.
A restaurant in Amsterdam announced the use of “quarantine greenhouses” to ensure safe social distancing. Although unique, it’s evident that by executing this kind of layout, the overall restaurant capacity will decrease and therefore decrease revenue. Given that these businesses already operate on such low margins, having a lower capacity will make it even more difficult to make ends meet. Danny Meyer, a NYC restaurant mogul, appeared on The Daily Show with Trevor Noah during the height of the pandemic and mentioned that he has never been able to run a profitable restaurant at less than 80% capacity. The reality is that restaurants will need to find another way to bring in additional revenue or decrease costs to make up for the loss of enforcing social distancing measures. There are several ways in which the use of the physical space can be altered to make that happen:
1. Ghost-kitchens / sublease kitchen space during off-hours.
One potential new revenue stream via a restaurant’s real estate, and one that has actually been in practice for sometime now but not widely known, is that of ghost kitchens. Companies such as C3, an SBE subsidiary, and Kitchen United are examples of mobile kitchen companies that rent out their kitchen space to a virtual restaurant brand that exists for take-out and delivery only. There has been increased demand for this kind of service during the pandemic, as more and more consumers are shifting to takeout and delivery options. Existing restaurants can potentially get involved in this market by renting out kitchen space during off-hours.
2. Alter operations for more take-out and delivery.
It’s also possible that given the demand for take-out and delivery, a restaurant will need to create another business line or change their menus to cater to that service. It may seem intuitive that many of these restaurants should simply be doing more take-out and delivery, but it’s not that simple. Some menus don’t appeal to that customer and if there aren’t enough orders, it just won’t cover the cost of having staff in the kitchen. These restaurants therefore need to think critically about how operations and the brand may need to be altered for such a service. It will also involve finding the right partners and technology to make the takeout and delivery more seamless for both restaurants and their customers.
3. Sublease front-of-house space.
Alternatively, or even in-addition-to, there will be a need to figure out how to reduce costs, one of the largest of which is the occupancy cost. As real estate experts, we believe the key is to offset that cost by passing it onto another party. A big opportunity, as mentioned before, is potentially subleasing kitchen space to ghost-kitchen companies during off-hours. However, there’s also a huge opportunity to sublease the front-of-house space during off-hours.
As every business around the world is pushed into social-distancing, there will be more and more people looking for places to work; offices will have to kick some people out, co-working spaces will have to re-evaluate their memberships, and people likely won’t always want to work from home. Therefore, there may be an influx in restaurants offering their front-of-house space for on-demand working. In fact this is a concept that did exist prior to the pandemic; Spacious (owned by WeWork) was a NYC based company that addressed this need, but they closed their doors in late 2019. This was mostly due to WeWork’s shift to focus on its core business, but it's likely the demand wasn’t quite there yet. However, that may have changed given the pandemic’s affect on consumer behaviour.
The need for lower capacity in restaurants due to social distancing will ignite restaurants to re-evaluate the use of their real estate space, both to reduce costs and generate new revenue. A popular avenue will be in the subleasing of kitchen space to act as a ghost-kitchen for delivery and take-out brands and more restaurants are likely to alter their operations and menus to cater to that customer. In addition, the front-of-house space may be utilized during off-hours for another revenue stream, such as co-working.
