Today I’m thrilled to have my friend Hanson Li on the show. Hanson is an old Stanford classmate of mine and he runs the Salt Partners Group, a development and investment company focused on the food and beverage industry.
Hanson owns a bunch of restaurants and as you know, the entire restaurant industry has been hurting big time due to the shelter in place rules.
But Hanson has managed to make the best of the situation and in this episode, we discuss the pivots he’s made to make up for the lost revenue.
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What You’ll Learn
- How the restaurant business works
- How Hanson got into the food industry
- Different ways restaurants can survive by moving online
- Creative ways to make money during a pandemic
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Intro: Welcome to the My Wife Quit Her Job Podcast. We will teach you how to create a business that suits your lifestyle so can spend more time with your family focus on doing the things that you love. Here’s your host Steve Chou.
Steve: Welcome to the my wife quit her job podcast today. I’m thrilled to have my friend Hanson Li on the show. Now Hanson is an old Stanford classmate of mine and he runs the salt Partners group, which is a development and Investment Company focused on the food and beverage industry. That’s right Hanson owns a bunch of restaurants. I think over 40, across the world including a bunch of michelin-rated restaurants such as Atelier crenn, and he also makes ice cream over at humphry slocombe. Now as you know, All of us on lockdown the entire restaurant industry is hurting big time.
So I want to have Hanson on today to talk about some of the online and offline initiatives that he’s been making to make up for the Lost revenue and I’ve actually always been interested in the restaurant industry. So I’m also going to have Hansen explain how the restaurant business Works including the margins, costs you name it. And with that welcome to show Hanson. How you doing today?
Hanson: Pretty good. Hi, Steve. How are you?
Steve: Good. Good good glad to have you on. so just quick funny story for the listeners, even though Hanson I overlapped at Stanford and we got a lot of mutual friends. We actually didn’t meet until I was invited to one of his restaurant test openings. And when I was introduced to him, I actually wasn’t sure who he was so I kind of quickly shook his hand and then proceeded to stuff my face and the food was incredible. So Hansen give us your background story and how you got into the food business?
Hanson: Sure, having I was born in Hong Kong and food has always been an important part of you know family and just life in general. Actually in Stanford I actually credit Stanford with my love of eating and cooking. So all four years of Stanford. I was lucky that I had access to your kitchen where I would make midnight nachos for the dorm. So that got my love of feeding people a lot of good food and just seeing the joy that freaking brain now I didn’t get started in the food industry.
Steve: What was your major by the way Hanson?
Hanson: Oh I was I was a biology major in sociology. So all important classes for business.
Steve: You were pre-med weren’t you?
Hanson: I wasn’t Pe-med. I was pre-law is going to go to law school and practice genetics law and I find myself falling asleep and I’m in my first biochemistry class. So that was that it
Steve: Oh man. I wish I had lived in the dorms and you were cooking for everyone and that’s awesome.
Hanson: It was it was always a lot of fun right to bring food to a lot of people and I think that that love really started At Stanford and I opened my first restaurant when I was 28 in 2002 in Austin, Texas
Steve: Interesting are not in the area.
Hanson: NO, I know this is a quick story on that. I was living in DC route to college. I was moving back to the Bay Area for business school and I had a year off basically. Well, it was after September 11, so I had year off with no work. I visited some friends in, Texas. and on that trip three of us decided to buy this little coffee house in downtown Austin, Texas and took it over and happy to report that 18 years is still there.
Steve: Awesome. Awesome. Okay, so that’s how you got started. And then when did this whole salt Investment Group start happening?
Hanson: it started in 2014 after spending 10 years doing Investment Banking and private equity in mostly in China after business school I, you know in 2013 I was looking at about to turn 40 and decided that I didn’t really want to stay in the finance industry for the long run. So I looked around and decided to pursue my passion in food and the hospitality business.
Steve: That’s that’s awesome. We’re your parents on board with this? I’m not sure if my parents would have been on board with this.
Hanson: I was too old by that time. I was turning 40.
Steve: That’s true. That’s true.
Hanson: No, they were you know, I mean everyone including my wife having full support and this Pursuit it’s hard and running restaurants are hard. And so my initial idea for Salt Partners was to really understand the risks right in the business and try to take as much risk off the table as possible.
Steve: Yeah, and and you have an investment banking background. So I would imagine that at least all the financials be in place and you would know what a good business is and how it should be run
Hanson: Yes and part of that is understanding what It is and also then how to change it right is I think a lot of small businesses run into the problem of even though you might understand how the different components of expenses work. You don’t have the time to get to it all
Steve: yeah and most people who are running small businesses. Don’t even think about a lot of the financial aspects like the costs in the in a structure and that sort of thing also. So before we talk about the effects of Corona on the food industry, what I was hoping to do is and I’m pretty sure a lot of Listeners don’t really even know how restaurants work. I mean at a base level you serve food and people pay for it. Right? But I mean, it sounds simple but I’m pretty sure it’s a lot more complicated than that. So I’m actually personally curious like what are the margins like and what is the breakdown look like in terms of expenses and that sort of thing?
Hanson: sure and a typical restaurant. I’ll use the Bay Area San Francisco Bay Area. This is where most of my restaurants are. If you start with sales as a hundred percent then you know you’re expecting to spend between 27 to 30 percent of that on the cost of goods. So this is what you know the produce to meet the proteins the wine that you buy in San Francisco, you know, you will be spending between 35 to 40% on cost related to your team. So this includes a salary, benefits and the taxes that we pay. So between those two the cost of food. And the cost of our team members that would add up to 70% and in the Industry we call that the Prime cost.
After that, The big bucket is occupancy of just being physically in a space. So that’s rent, utilities that’s insurance and that could range from 10 to 12% So on all those three big buckets, we already at 80 to 83 percent in terms of expense ratio to our sales. Then add on Raw GNA cost and so if you’re running a restaurant with an operating margin in to 10 to 12 percent, that’s pretty good within the industry and that should carry you forward and that should generate a pretty good return on what you invested originally.
Steve: that’s crazy. And you know, 10 to 12 just doesn’t sound like a whole lot to me and I’m just kind of speaking from e-commerce land. I don’t know you gotta you gotta run things really tight then right? In order to to make any money.
Hanson: We do and answers I think part of my in going hypothesis. Right when I saw Partners is that you know as a small business owner running a restaurant and the restaurant is a physical business, right and physically tiring you’re at the restaurant as a smaller 7 days a week working, you know morning to night and a lot of expenses may go by the wayside in terms of just being understanding what they should be. So my favorite example is merchant processing cost like what the fee that you pay for credit cards?
A lot of time. What I’ve seen is you go to the bank open a bank account to start a business and a sign you up for a merchant processing account. And that merchant processing rate is negotiable. Many people don’t know that because it’s fee issued by the bank, but it turns out you can shop around you can change merchant processor. And so that’s one of you know one one area that we are back and look at In terms of optimizing for our merchant processing rates
Steve: you know, what’s funny is that since your margins are so low. I bet the merchant processing rate actually connect you make a pretty big difference. Then I know for restaurants in person the rate is lower than e-commerce, right? So typically e-commerce. I think the lowest you can get is something like one point eight ish. I would say in volume. Just kind of curious what the in person rate looks like?
Hanson: well that’s similar in terms of what we can get in person and you know as you know, much of Processing fee can rate, can have you know straight percentage rate or it could be per transaction plus a percentage
Hanson: So again depends on the size of your transaction, right? If you’re a coffee shop paying 15 cents per transaction plus percentage is probably worse off than just being a straight percentage and that changes over time right? So that’s that we look at you know, the thing that we like to look at is just you know on a typical day if you’re busy restaurant, you might get 20 vendors coming in everyday dropping stuff off. A case of wine, you know, here’s some gloves and let us comes in and it’s hard to keep track of the actual expenses that you’re paying.
So what did you pay for eggs last week? You actually have to you know, a lot of time you have access to Rifle through your physical invoices and figure out the price of eggs. So we try to Institute across our restaurant right means to capture all of the information in the electronically so we can actually look and ask the question. What do we pay for eggs last week? Often times you realize that you’re paying for stuff that they are that gone up in price that you might not realize and we don’t even realize and we have the you like, you know, we have good electronic data for a lot of our expenses.
Steve: So one thing I’m actually surprised that when you’re breaking down the margin is your actual food cost being 30 to 40 percent. I always thought that just the margins for food in itself were really large. So for example, like when I go to a Chinese restaurant and I ordered a bowl of rice, they charged me a buck 50 for that bowl of rice, right? But that rice is probably like pennies
Hanson: it is and then if you balance it out right with you know the beef right that you order right? And so so the gross margin right? I mean flip it around, right? So the cost is 30 percent of sales, right? So gross margin is 70% just on the cost of food. So it’s not the best right now. Okay, it’s hard to compare to the software margin, but in terms of selling physical Goods to get seventy percent gross margin
Hanson: now that’s, It’s not terrible.
Steve: Yeah. Yeah. No, it’s better. An e-commerce in general unless your private labeling your own products. I’m just kind of curious. What are you guys purchase your food from is it completely separate? Is it a completely separate Channel than like a grocery store?
Hanson: it is so we purchase from Wholesale Distributors and the main difference is really that the packages are vastly different which is one of the struggles as we seen out during covid of repurposing the food supply chain to restaurants into retail market. Bow because you know at our restaurant we buy eggs, we buy a hundred eighty at a time. That’s the standard pack size So it’s 15 dozens that comes in and in flat or it is, you know, 10-pound bag or Twenty five-pound bag of flour that comes in because of the volume that a restaurant you imagine a restaurant will go through and so the flour that’s probably doesn’t work too well within the home. So it is a simply separate different is a separate supply chain.
Steve: So I would imagine is the food substantially cheaper when you buy in those volumes like it’s probably Costco on steroids right?
Hanson: on some items. Yes, and on some items. No, right because there are only so many places you can buy certain items right there. You are variety of suppliers is not as many us as consumers. We can buy a dozen eggs from If it plays a number places In San Francisco, but there are only a small number of Distributors that would deliver eggs to your restaurant. So the Distributors have a little bit of pricing power.
Steve: I see okay, and and I know starting a restaurant is requires a lot of upfront capital and I was just wondering if you can give me an idea in SF is really the only place I kind of know but like how much would it cost to start like a low mid and high-end restaurant in SF and I know this is there’s so many variables in play. But if we assume like I don’t know like in a thousand square foot restaurant or 500 square foot. I don’t know whatever your restaurants based on experience.
Hanson: So for a 2000 square-foot restaurant in the Bay Area a budget could come half a million to two million dollars and that level, yes. It’s not for the faint of heart.
Steve: That’s for like a lower. Like I know it depends on like the decor and there’s a whole bunch of different factors. But our is that the quote for like a low-end or
Hanson: no. I’m And so, you know 2 million dollars on a 2000 square-foot space would be would be you know higher end and you know, 2,000 square foot for half a million dollar would be you know will be simpler. Right? and the things that complicated was in a restaurant and expenses is how complicated your kitchen setup is. Because there’s a lot of stuff behind the walls. They actually get really expensive the finishes certainly just like, you know if you’re in your home. Your finish this could be it could be a 10x difference right between cheap materials and expensive materials.
But you know, some of the most expensive stuff is stuff that you don’t see so, you know, you have a lot of plumbing needs for example, and you need to reroute a lot of Plumbing that that cost is could go up astronomical in terms of how complicated things in and how expensive things could be.
Steve: And then typically when you open a restaurant, do you try to take over an existing space where everything is more or less set up? Or do you like to start with a clean slate?
Hanson: I’ve done both, you know with an existing space. If you are if you go in with eyes wide open and understand that yes, we’re not going to move a lot of stuff. Then it could be cheaper. But just like a lot of things right when you start, you know, when there’s something a wall there and you want to move it. It’s actually cheaper to just build a new wall right than moving a wall.
Steve: So this is so when you started that coffee shop when you took over that coffee shop. I was just kind of curious what the comparison is for that like how much did you invest in that business when you first started?
Hanson: Oh not nearly as much. Yeah taxes being a easiest rate, right that’s going to open the business. You know, that was only a couple hundred thousand dollars and we actually bought an. We bought an existing coffee shop decorated it and rebranded it. But yeah, that was a quick turnaround regions of that build.
Steve: Ooh Okay. Yes. So this is like a lot of upfront Capital. It’s almost like you have to get investors then to start a business unless you front all the cost yourself, I guess.
Hanson: Yeah, and and also there’s not a lot of channels in terms of raising institutional Equity or debt. Right? Most banks would not lend to you opening a new restaurant unless you have real estate attached to it, but generally yes is friends and family is people, you know in your circle and investing in you and your concept.
Steve: All right, so you have did you say Over 40 Restaurants as part of your network?
Hanson: No, no 14
Hanson: 14 Restaurants not 40
Steve: 14. Okay. So how are you dealing with the employment situation? I mean the coronavirus is obviously shut everyone down. So how have you dealt with this crisis?
Hanson: for so all the 14 restaurants I have it ranges from as you mentioned option ice cream shop and I humphry slocombe all the way to Atelier crenn a Michelin three-star restaurant. So the different restaurants in the portfolio really, you know the first week when the Also in place happen in the Bay Area. There’s a lot of soul-searching in terms of who we are in the interim while we are technically closed for in restaurant dining, some of the restaurants. We just closed.
Like so we have a couple of bars for example bars on you know, when the shelter in place was mandated There’s No Business Like You have to close. There’s no takeout and delivery of alcohol. Now right ABC change the rules a week later, so So you can now deliver alcohol, but that that time on you know on March 16th, there’s no business. So we had to let everyone go and just pause the business completely
Steve: when you say Let everyone go do you mean like furlough or I actually don’t even know what the difference is. Is it lay off versus furlough?
Hanson: Yes. Unfortunately, it was layoffs. And so yeah, I mean it’s even been with the restaurants that we still have that are not currently Doing takeout and delivery business. We still have had to let go of seventy eighty percent of Staff.
Steve: Oh my goodness.
Hanson : And that’s because you know as it is now the case, you know, we’re doing Revenue through delivery and take out but it is at a small fraction of what we were doing before
Steve: actually. Can we talk about that real quick? How what percentage is to take out? I mean, I imagine the takeout business has increased and I’m just kind of curious how much it it offsets like the regular restaurant Revenue.
Hanson: Oh right. Now the takeout business. This price is 10 to 30% of what we’re doing before.
Steve: Oh man Okay
Hanson: The different restaurants. Yeah build their the spend is, the spend has decreased right? Here’s what people spend on outside food. Yes take out has increased by a lot. Even if for someone who loves to cook like me, like, you know, I’m getting to take out tonight. It’s just there only I eat half
Steve: all right
Hanson: in a given week. So even if you spend the same amount on food, right? You’re probably not, the wine. You just drinking the wine that you have at home. So right off the bat, you know a restaurant even a full-service dying fine dining dinner restaurant, you know, probably thirty percent of sales is alcohol and beverage related and right out of the top right that that doesn’t take place anymore right in the takeout and delivery.
Steve: I’m kind of curious. So alcohol. I imagine the margins on alcohol are super high right? I’m just how does this work? I know you have to get like a liquor license. How much does that cost and whether the larger than alcohol
Hanson: sure so in San Francisco, so let’s start with the state. Okay State of California has couple dozen different type of alcohol licenses. It ranges from you need a license to make beer. You need a license to be a corner liquor store as a different license. If you I brew pub that’s a different license. You are a full-service restaurant. In San Francisco, There are certain type of alcohol licenses that are capped. So there are only so many of them. So just like taxi medallions. Is that right? It has the same effect
Hanson: So a full liquor license in San Francisco before covid was not a quarter million dollars.
Steve: Oof Okay
Hanson: It has dropped since then, nice. I just checked the price last week and it’s down to like a $160,000 and I imagine it will probably go down even more as the crisis do more shake out of the businesses, gross margin on alcohol, you know is 80 to 90%
Steve: right. Okay, but you have to make up 250,000 for the license. Okay.
Steve: and people aren’t taking out. I don’t know. Are you selling bottles of wine through the takeout business at all or no?
Hanson: Some of my businesses are yes, we are so Or at the Atelier crenn, for example
Steve: that’s your three-star Michelin?
Hanson: Yeah. So a Telly is our Michelin three-star restaurant there to Sister restaurants bark Ren and petite crenn. So the team combined forces after that first week of shelter in place and pivoted into a takeout business. So if we now have a Michelin three star restaurant selling $38 three course meals to go and within that we are also selling wine, so one angle that Molly has found that was says been fun for a customer is a three bottle blind tasting kit.
So we actually tinfoil the the bottle so you take bottles home is blind. We give a little print out guide for you to taste the wine and that has been very popular. It’s a little more fun, right? We are all stuck in the house right now. We’re all looking for a little bit of entertainment.
Steve: I’m just kind of curious for take out for like a high-end. You mentioned like Atelier crenn is a three-star Michelin and then the next one down. Is a one-star Michelin and then you have petite cress. I know that when I dine at a Michelin star restaurant, it’s the experience more than just a food right? So I just want to know like what was your decision to keep that restaurant open versus some of your lower-end ones?
Steve: and was that one affected more than your lower end ones?
Hanson: So for the crenn restaurants, I think there was a strong desire by the by the core team to keep feeding people. I think ultimately. Whether you’re at a cheaper restaurant or the fine dining restaurant, the people behind it right has a passion, to deliver hospitality and food to people and feed people and bring joy to people and the team thought that there’s a way for us to keep doing that and is still important to do that especially during this difficult time. And so one of the things that I think that I found, you know, that that is going to be amazing. You’re looking ahead is you have all these fine dining restaurants including ours like thinking and rethinking about the takeout and delivery experience.
And you know, we are we were very peculiar about kind of the packaging that we use and the team is continuing to evolve right now in terms of how do we deliver that crenn Hospitality in the back to you? And I think that’s to your Point Reyes. You come to the restaurant for the food but also For the experience for Hospitality for the environment. And yeah, we’re also trying to figure out right now. How do we capture that in a box right on in the bag for you.
Steve: So you mentioned earlier you have this wine testing kit? That sounds brilliant actually. What are what are some other things and actually how is this the response been for that actually?
Hanson: it’s been very popular. We’re selling out and it’s been great and it’s also been first satisfying for both you know, us, our team, owner and also for the team to see how well received it as by folks bringing cren back to their house. We also getting a lot of shout outs in terms of people who are experienced cren for the first time because of a high price point. It hasn’t been for everyone. It’s a special-occasion place and now, you know, you can get a you know, a three michilan meal cooked by three Michelin star team for $38. pick up from our restaurant in San Francisco, so it’s been very well received.
Steve: I see so you drastically drop the price too?
Hanson: oh, yes. Yes, you know a meal in you know a regular meal at a atelier crenn starts at 345 per person.
Steve: Okay, and now it’s 35 or 40 dollars
Steve: Wow. Okay, that is an incredible deal then
Hanson: we hope so and I think people have been eating it up and to your question earlier in terms of other fun things that we’re doing and we’re trying to do. So we’re probably planning a virtual dinner party right now. We’re you know guests will get the crenn the crenn kits can log onto a virtual dinner party with our team members and enjoy the same food at different places. And so that’s another way that we’re
Steve: how does that work? I like the idea, but how does it work?
Hanson: Well, this is also in the plans Steve, right now. So I in my mind’s eye right is you know, let’s say you buy, you know, Crenn kits for you and You know and we host a Friday night dinner party from six to seven. So you would log on we will log on as well. So maybe maybe me Chef Dominique and myself or could be with our sommelier to find director Courtney will get on as well and maybe 20 people that gets on the dinner party and we sit around for an hour enjoying ourselves.
And then the model we thought about is maybe is a one-to-many right where we put you know corny in front and she can go through the wine with you for half an hour right at the beginning of dinner or could be one of our chefs, you know showing you how to like a live stream of showing how to prep the dinner.
Steve: I love this.
Hanson: how to reheat it how to Plate it.
Hanson: So again, it’s true, you know again, how do you know now that you know, we can get you to our restaurant. It’s how we get our restaurant to your home.
Steve: Have you started this initiative yet? Or is it still in the planning?
Hanson: Oh, yeah. Okay. No. Yeah. We’re in the planning phase right now.
Steve: How are you dealing with each one of your restaurants? I mean so you have the you have a bunch of restaurants and then you have the ice cream business. How are they? How are you treating those differently?
Hanson: Well, I think for you know, when this storm started hitting in the beginning of March, we already started planning on what happens if we have to close what happens if we have to decrease our capacity or occupancy within the restaurant by you know by 50% we saw the I will restrictions. So for our fine dining restaurants, we have a lot of international guests who flies in for dinner. So we already know that that was going to decrease so I think you know, each of the restaurants really had to find itself in the beginning in terms of who we want to be in this weird one to two month period when we’re in lockdown.
For ice cream for humphry slocombe and you know, actually we’ve kept our stores open. We haven’t closed our stores.
Steve: really, okay.
Hanson: And that’s because you know for ice cream for Humphrey slocombe. We’ve always had a pretty robust delivery business in terms of guests or during the three Postmates, ubereats, doordash, caviar you name it and having ice cream deliver to their home not surprisingly a hub that has skyrocketed over the last month as everyone is stuck at home. So for Humphrey slocombe, you know, even though our business has been hurt substantially by not having customers at our retail shops. Our retail shops still have been no we’ve been able to manage to keep them open with just a takeout and delivery business.
Steve: So people just see you no longer serving into cones and stuff. It’s just like pints at this point.
Hanson: Yes. Yes, and then and then we are really using our different retail stores as pick up points for the delivery providers.
Steve: And then for yourself for your three star Michelin restaurant you’re trying To create these experiences and then you have the wine tasting kit. I know you have like a comfort food restaurant, right? I can remember what it’s called.
Hanson: Sure. So is Brown Sugar Kitchen over an open is Southern food, it’s soul food. And for that restaurant, our partner Chef Tanya Holland. She’s run Brown Sugar Kitchen for over 10 years in Oakland. So she was well-known and well-loved within the community and so for that restaurant one of the things that you know, we were lucky to do is we’re partnering with a local tech company called Marketa and they are sponsoring meals. So they are paying us to make meals for nonprofits in the Oakland area.
Steve: That’s smart Okay, so so they’re raising money. So it’s sponsored by Marketo.
Hanson: Yes, Marketa McAdams payment. It’s a payment company there. Their headquarter is a couple blocks away from our restaurant and their CEO reached out to our restaurant at the beginning of the pandemic and offered this to us, which is really thoughtful for them right to think of money from them filter to local restaurants. So therefore we get some income and keep some jobs and we make the food and right now we’re making food three days a week a couple hundred thirty hundred 50 meals a day to three different nonprofits in the Oakland area.
Steve: I know a couple of restaurants in this area what they’ve done is they’re taking donations for food then they’re serving that food to doctors on the front lines treating the virus and that’s worked out really well also
Hanson: So yes, we have that initiative within the clan group as well. So we are sending 200 meals every Friday to UCSF and we have a again we have a corporate commitment. So Lexus stepped out and they donated money to us and we’re able to we will be serving three. Thousand meals to UCSF over the next 14 weeks
Steve: nice and you mentioned earlier that you turn some of these restaurants also into a grocery. How does that work?
Hanson: Sure. It’s a one of with one of my restaurants were testing out the idea of that. We talked about earlier about the supply chain right to if we’re to restaurants and how it is different to grocery stores. Well, we’re getting some of those produce in bulk and then we packing them into Boxes, produce boxes essential good boxes, and we’re selling them, you know, 30 bucks a box you get eggs bacon in the beginning we were including, you know, a box of disposable gloves.
Steve: Ha ha ha
Hanson: In the Box as well. Yeah, and I know there are no we’re doing that on the first small scale. I know some other restaurants in the Bay area that are doing it really as their main source of business now, there’s this great restaurant in near where I live in the mission district, you know the chef there turn his restaurant into a general store. So the selection is applied from you know, canned goods to you know, I bought you know, 5 pounds of fish from him last week and you know, he’s you know, he’s really looking at this as something that he probably have to do for for a bit longer
Steve: and the attraction of buying from a restaurant is because the nature of the food is different presumably higher quality
Hanson: We get access to Seafood probably better than you want you to get from your local grocery stores right now is also, you know, it’s less of a problem now, but you know over the last month there was some supply chain issues right to the grocery stores. Eggs incredibly expensive because everyone had bought out the eggs, you’ve all heard about the toilet paper situation. Right now, there’s a shortage of flour and East in the grocery stores because Is everyone is baking at home now?
And so they are so there’s access right from the restaurant perspective that can access a different supply chain and then repurpose it to the customer. I mean another great thing about the restaurants are doing the grocery is that you know, there’s probably one or two big grocery stores near where you live, but there are a hundred different restaurants, right? So, you know, they become they could become you know, a neighborhood pick up place right for for some essential groceries and without you having Everyone having to go to a Safeway or Whole Foods
Steve: right?. So out of all the initiatives that you’ve made to kind of pivot your business during this coronavirus situation, which ones have been working the best?
Hanson: Oh, I think you know the cren kits from the cren group has been working really well. I’ve also been very gratified to see the motto of corporate sponsorships in terms of putting money into the local ecosystem, right and Then that being turned into physical mules to be donated added to the medical front line or two nonprofits and I hope that continues right because before this pandemic, I don’t know that that’s happened really right in terms of corporates. You’re putting their, you know, their social impact budget right into the food system in that way.
Steve: How does one get these battleships is that all relationships or?
Hanson: is it is relationship, but honestly, you know for both Marketa and Lexus, they asked a question to us. How can they be helpful? So it was really from them and from the corporation side in terms of you know, we have some budget and how can we put it to work in a meaningful way and this one is a double bang for the buck right? Because it’s money going to the restaurant right? They need it right now and in the food going to you know, the front line whose speeding more than ever now because it working so often and for nonprofits.
Serving at-risk clients, you know the food bank is having a lot of problems right now because a lot of them rely on volunteers and it’s hard to get volunteers to work right now so we know they’re the restaurants have really stepped in into providing food for the needy.
Steve: Did you have prior relationships with Lexus Marketa or did they just randomly approached you?
Hanson: Lexus. We have a serious relationship already. Okay, Chef Dominique. Crenn is a brand ambassador for them and in Marketa is three blocks away from us. Hosted their holiday party at our restaurant back in December so their neighbors of ours.
Steve: Okay Okay, right. Yeah. No, it’s I was just wondering because I would imagine that a lot of the restaurants out there are not getting corporate sponsors and you know over the years you’ve kind of developed relationships with companies or maybe they’ve hosted their parties at your restaurants, which is kind of indication of the quality of the food that you serve
Hanson: and and quality of our neighbors really lives up in our partner. So we’re lucky to have them with us.
Steve: so you mentioned earlier that you’re doing all these initiatives and when I asked you earlier like in regards to decision whether to close or not, I mean it all comes down to economics in a way right? I guess you’re different in that you have this collection of properties where for example, the ice cream business is way up and maybe that can offset some of the cost for some of your other restaurants, which restaurants have been hurt the most?
Hanson: so my structure is actually all separate. So all the different companies are separate so they are We know there are not related from a cap table perspective. Except for our common ownership. The bar business is hurt the most right because simply we can even be open right and you no longer term, right? If I don’t get the next 12 months. Now, there’s a big question right in terms of how cuz customer demand will come back or not. Right?
Are we ready to go out yet and bars are places where people people go out to and so that’s a big question right now in terms of how we pivot our bars into places where you know, I think gone on a days were we pack it in on a Friday and Saturday night right at least for the foreseeable future.
Hanson: So knowing that it’s not going to happen. So how do we change the bar model to deal with the current reality?
Steve: Are you ready to share some of your ideas or?
Hanson: oh no ideas we were working on is we probably have Make some of our bars all reservation only. So the idea that you know Steve you and I want to grab a drink we’ll probably make a reservation at a bar show up at eight o’clock have a drink or two and then head out, you know, there’s not going to be a big happy hour crowd anymore right in terms of you’re going out after work. And get grab a drink. So that’s one small idea. We thought about in terms of what alcohol delivery means in terms of craft cocktails or other. Other type of alcohol. I know some bars in the San Francisco area have done okay with that, but we don’t know yet. Like we’re still we’re still thinking and learning and see what others are doing.
Steve: Do you plan on so you have the cren box. And then you are thinking about doing this I guess a live stream from the restaurant. Do you plan on making some of these changes permanently with your restaurants moving forward after this virus passes because it will eventually pass.
Hanson: So one of the Silver Lining so I think everything in the world balance out right is I still have a lot of anxiety about reopening the restaurant as they were because I know I know it’s California isn’t to put a capacity restriction on our restaurants and make the tables to be 6 feet apart. So, you know, we’re doing the analysis right now to see how we can run these restaurants at a fifty percent capacity. You know, if you recall, you know, you know earlier in our conversation about the gross the gross margin and the expense ratios, right?
Well if them starting at 50 percent as opposed to a hundred percent, yes, my variable costs will go down. But you know, there’s still a lot of fixed cost in the in our model, whether 50% of sales would we go or not? So there’s a huge uncertainty and anxiety I think for all restaurants in the next 12 months, even if we are allowed to reopen.
Steve: But presumably headcount is going to go down. I guess your fixed costs of the location stay the same but headcount will go down and obviously cost of food will go down too right because you’re serving less people.
Hanson: Yes. So the variable costs will go down and labor costs, you know the salary in the like it’s not completely variable on linear, right? You have to have some Base number of Staff even if you’re serving, you know only half the So so that’s part of the analysis right now is to really understand when a one is what how can we what the operating model needs to be to in a world where we only at best right be able to get 50% of our Revenue. So that’s the in restaurant dining site, right but some of the new stuff that we tried out.
Yes, certainly. We’re going to keep doing it. So the cren kits is here to stay and And we are now thinking about how to you know further that business or the idea right of bringing cren to your home is that these meals that were three course meals that were selling at 38, 38 dollars. Is it other brand of products that we can deliver to you? Or you can pick up, down the road when you know social distancing is not as strict as it is now. Is there a model where we actually Two of our team members to cook a dinner party for you at your house, for example, so those are all under consideration right now.
Steve: you know handsome one thing. I like about you with our conversations is that you’re always thinking about creative ideas and one thing since this is an e-commerce podcast. I was wanted to get your opinion on whether you actually see e-commerce in the food industry growing and are you planning on investing more in the This e-commerce aspect of your business even after this social distancing becomes a little bit more relaxed.
Hanson: Absolutely and I think we will all see a vast increase on the number of yummy stuff. You can buy online. One of the hurdles right that basically this pandemic broke through was you have a lot of great chefs in everywhere in this country. Who for one reason or another have been resistant on both either third-party delivery. I having their food delivered to your home or having food the packaged and be sold online now part of it is that we’ve been in this, you know, huge Bull Run in the economy. So if you’re successful restaurateur, despite the math that I share with you a restaurant can still be very lucrative right and and you know, the a lot of Restaurant tours chefs, Somalis now part of why they do what they do is the in-person hospitality right is delivering that joy in a restaurant.
Hanson: I think this banana hammock right has forced everyone to three think about how do I capture that Joy and hospitality and put it in a box or a bag and have you enjoy it somewhere else and you see it across the country now all these great restaurants that are doing these takeout meals And repackaging their food for online sales. I think over the next couple years. You’re going to see a you know, a Renaissance of great food being sold by, you know, delivery trento be it, you know immediate delivery to your home for tonight or through e-commerce and through a shipment platform.
Steve: How does a how do platforms like doordash and ubereats fall into this. So when you’re doing takeout and delivery, are you relying on these third-party services or do you have some other infrastructure in place to deliver the food?
Hanson: We’re taking small steps. So for cren Kits is actually all pick up. Okay, so you have to come to our restaurant to pick up for some of our other restaurants. We are doing our own delivery. So we’ve repurposed and as some of our staff members to become delivery drivers and to send food out ourselves. Some we are you know, hopefully silicon for example uses and works with all the third party delivery platform.
Steve: Just curious. What is the incentive for you to do your own delivery versus user Network like doordash and UberEats. It’s is it substantially more expensive to use the third party
Hanson: service the third party service takes between 15 to 30% of the top.
Steve: Wow. Okay
Hanson: obviously, they deal with the logistics. So, you know you’re paying for or is like paying for FedEx next-day delivery, right? some of the reasons why we’ve decided to do our delivery on our own one is well, if I’m paying 30% to through a third-party delivery company, I can purchase these that money and pay my own staff to do to the delivery. We also living in a weird world right now where you know, you’re mostly home so is easy for a amateur a delivery person. Or restaurant to deliver food to you, right because you’re generally home.
So it’s the delivery we’re doing is not nearly as complicated or complex right in terms of what doordash and ubereats managed, but you know, this was a way to keep some hours for staff to use that use that money that we were going to spend anyway, and you know supposed to paying doordash we’re paying our own staff to do it. I do see though kind of going forward in terms of as of a lot of restaurants right re asking right whether it makes more sense for us to have our own delivery operations, then paying the 20-30 percent to a third party.
Steve: Right. I guess my last question for you. Hanson is what are some of your predictions on the future? And when do you see things going back to normal again in the restaurant industry?
Hanson: Oh the billion-dollar question.
Steve: Or is it never gonna go back to normal? who knows
Hanson: I was talking to someone yesterday, you know, despite having this many restaurants like I know so little right now about what’s going to happen. There are going to be two phases is going to be this next 12 months where before there is a vaccine and how consumers are going to behave whether to go out or not. Then that’s going to be a world after the vaccine. In the meantime, though. I think all of us are getting a little more used to ordering takeout. Yeah, all of us are getting a little you small used to paying a little more for take out because now there are good restaurants that are actually delivering like really good food to you at a price point which probably was really high, you know before the coronavirus.
So I think the new well for Restaurants are gonna be different. Unfortunately, a lot of restaurants won’t open back up again after they’ve been forced to close, you know, we’re lucky that you know, all of our restaurants are generally doing pretty well. And but if you’re you know, if you’re a restaurant down looking at, you know one to five percent operating margin, you know over the next 12 months you can only see half the people it doesn’t make sense to open again.
So you see a lot of empty storefronts unfortunately. You also see, you know, I predict, you know, kind of how our test around cren kits about takeout and delivery food. I think that is going to continue to rise in terms of what we do as restaurants, but I think the new world is going to be very different from the old world.
Steve: even after the vaccines and and what now come out?
Hanson: I think so because I think by that time in 18 months, customer Behavior would have been really affected right as opposed to going out to you know, all of Garden in spending 60 bucks 80 bucks for a family of four you now realize that huh. There’s this really great Italian restaurant that delivers food now and it’s just as good. for a little cheaper maybe so I think that more I think after the vaccine right you see restaurants focusing even more in the in restaurant experience, good food has you know has been the main thing of why people go to restaurants.
I think good food becomes one of the reasons people go to restaurants in the future. It’s going to be about, you know, getting together with people the hospitality the experience. I think that’s going to be even more important in a world where you know, everyone is now used to getting takeout.
Steve: All right Hanson. Thanks a lot for sharing your insights. In the restaurant industry. I love your creativity and what you’re doing with keeping your restaurants afloat. And I mean it’s going to be guys like you who survive this you think of creative ways to stay in business and offer things that other restaurants aren’t doing and it’s going to be the people who are just kind of stagnant who are going to be the ones who won’t survive this that well so great job.
Hanson: No. Thank you Steve and I you know, where You know, I talked to a lot of other restaurant tours as well and no one of the things that we all need right now is to somehow convince. Everyone that going out is okay. It’s not just going to be on us right. So I think you know we need you know, that’s why we’re I’m in continuing conversation with all the restaurant tours and other operators because all of us need to pitch in and help each other and make everyone know that it’s safe. You know, these are the problem. We doing and here’s why it’s still fun to go out. I think you know, hopefully it won’t be too long before we bring fun back to everyone’s lives.
Steve: And you know Hanson I actually have a number of listeners here in the Bay Area. So if you wouldn’t mind just telling people what your restaurants are the ones that are doing take out, that’d be great.
Hanson: Oh, thank you Steve. So open in Oakland. We have Brown Sugar Kitchen. And then I we mentioned humphry slocombe ice cream. We have spots in Berkeley Oakland and San Francisco. Oh and also in San Mateo so you can order humphry slocombe to be delivered or picked up. In San Francisco, my cren restaurants are doing take out and they’ll be picked up from our restaurants in the Marina. And then finally my restaurant B-side in Hayes Valley. We’re doing meal delivery. So yummy stuff make from our scratch kitchen that can sit in your fridge for a few days and reheat it easily. So those are some of the restaurants that are still making a go at it.
Steve: Awesome and then the cren restaurants. What type of food is that?
Hanson: What’s the menu this week the menu this week the $38 cren kit It is a vegetable soup. Most of the veggies come from our farm up in Sonoma. Then there’s housemate brioche that we’re famous for I forgot what the entree is. There’s also a vegetarian previous entrees included a couscous salad, a veggie primeita, which is the most delicious baked potato gratin that you have with veggies inside is like a shepherd pie but vegetarian and then dessert, So Juan Contreras was are you know, James Beard nominated finalist chef from Atelia Crenn and he’s making all the different desserts with his team
Steve: Nice why that sounds delicious. Well, I’ll be sure to get the word out and way to go Hanson. I look forward to being able to go out once again and I’ll be sure to visit some of your restaurants when I actually haven’t had the opportunity to but yeah, I’ll make an effort to thanks a lot.
Hanson: Thank you save.
Steve: All right. Take care.
Hope you enjoyed that episode. Now running a restaurant during these times is tough. But if you sit down and get creative you will survive and prepare yourself for the new normal. For more information about this episode. Go to mywifequitherjob.com./episode302.
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Outro: Thanks for listening to the My Wife Quit Her Job Podcast where we are giving the courage people need to start their own online business. For more information visit Steve’s blog at www.mywifequitherjob.com