Arizona’s Restaurants Survived the Pandemic. Now They’re Ready to Thrive Again
Governor Doug Ducey announced last Friday the next phase of COVID-19 mitigation in Arizona that included occupancy limitations to expire. Good news for local businesses, certainly restaurants. The announcement follows 7 weeks of declining cases in Arizona and the distribution of more than 2 million vaccines.
Specifically, in a new Executive Order from Governor Ducey:
- For businesses, physical distancing and mask protocols will remain in place, however specific occupancy percentage limitations will expire. This applies to restaurants, gyms, theaters, water parks, bowling alleys, and bars providing dine-in services.
- Spring Training and Major League Sports will have the ability to operate upon submission and approval of a plan to the Arizona Department of Health Services that demonstrates implementation of safety precautions and physical distancing.
- Mayors and local entities will still be precluded from implementing extreme measures that shut down businesses.
“We’ve learned a lot over the past year,” said Governor Ducey. “Our businesses have done an excellent job at responding to this pandemic in a safe and responsible way. We will always admire the sacrifice they and their employees have made and their vigilance to protect against the virus.
“Unlike other states, we never did a shutdown here in Arizona. We withstood the calls from the extremes on both sides, and we will continue to ignore them. We always knew that fighting this virus would be dependent on the personal responsibility of everyday Arizonans.
“Today’s announcement is a measured approach; we are not in the clear yet. We need to continue practicing personal responsibility. Wear a mask. Social distance. Stay home when you’re sick and wash your hands frequently. With the vaccine rollout advancing rapidly, we continue to have hope for the future.”
Q&A with a Leader in the Restaurant Industry
A native Arizonan, Steve Chucri comes from Lebanese lineage on both sides. His maternal grandfather, Tony M. Coury, Sr., was a true entrepreneur in becoming the first licensed automobile dealer in Arizona. Chucri draws inspiration from his grandfather who couldn’t read or write, but whose hard work and success afforded Chucri first-hand insight into the complexities of running a business.
Father of two boys and husband to Christine, his wife of 22 years, Chucri for the past 19 years has served as the President and CEO of the Arizona Restaurant Association (ARA). Leading an organization that promotes dining out is a perfect fit for Chucri, who had scorched so many dinners he had begun to wonder if “burnt” was a food group.
Wanting an up-close understanding of what took place in Arizona’s restaurant industry during the pandemic, I reached out to Chucri for a clear view. The numbers alone make one shudder.
- During the shutdown, Arizona restaurants laid-off or furloughed 151,000 employees or 66%.
- During the shutdown, Arizona restaurants lost $27.16 million per day in revenue, a 74% decline.
- During the shutdown, daily payroll went from a projected $14.5 million to $4.9 million per day, a $9.5 million loss.
- In 2020, the ARA estimates that the industry lost $2.7 billion in revenue, a 20% decline from projections.
- In 2020, the ARA estimates that 12%, or more than 1,200 locations, were forced to permanently close.
We know industries across the board suffered during the pandemic. We certainly know what we experienced in agriculture. Our peers in foodservice certainly felt the pain too. This conversation with Chucri helps bridge our understanding of how important every link in the food chain is to the future strength of a well-functioning food system in America.
How One of Arizona's Independent Restaurants Survived the Pandemic of 2020: Interview with owner/operator Margaret Okula, along with Waldemar Okula, of A Touch of European Cafe in Glendale.
Arizona Agriculture: After the pandemic of 2020, what does the Arizona restaurant landscape look like?
Chucri: Well, we are healing. I've been part of this industry for nearly 20 years, 19 years running the Arizona Restaurant Association, yet I've never seen anything quite like what happened last March. You must remember our restaurant owners are resourceful people, very entrepreneurial very innovative. I was talking to some of my colleagues in other states like Louisiana and New York and they said take Hurricane Katrina and 911 altogether and it was not nearly as bad as what this pandemic has been for the restaurant industry. It put the restaurant industry on its tails.
The losses are significant and they’re very real and we feel them. But it doesn't stop the innovative nature of this industry; they keep pushing forward. That’s what we continue to do and all we can do, quite frankly. So, it's been a challenge, to say the least.
The hardest part has been the loss of our family, our employees, who were laid off. At the crux of this, more than 60% of our industry employees were laid off. You take that times over 300,000 people and look at the big number in our daily payroll rent that went from $14 million per day to $4 million per day. If you look at it as a stock chart you know it has a huge dip and then we slowly start to come up as we progress through the year.
Our banquet capacity is not back yet. People still are not booking banquet rooms because large groups cannot gather, whether it’s a pharmaceutical company coming to your presentation or just someone trying to celebrate a large family gathering or a Christmas party. Catering is suffering too because it’s just not there. These two categories have been the slowest to return and a frustration for some of our people. It’s also understandable, however, when you look at the ongoing situation with the pandemic.
Arizona Agriculture: Despite all these challenges, many in the “foodie” community talk about the innovations that emerged during the pandemic.
Chucri: The innovative nature has helped especially in shifting to “to go” or take out. Prior to COVID-19, take out amounted to about 5% to 6% of your sales or your P&L, now it is 20%. So, you can see where “to go” has been a saving grace to us. I give credit to our patrons who have said we are going to come and support you. We are going to buy gift cards, we’ll do take out; we don't feel comfortable going into your restaurant, but we are still going to patronized you through take out and bring it into our own kitchen. That support kept the industry afloat.
In Arizona, we lost more than 1,000 restaurants in 2020, roughly $2 billion in sales. Nationally, our estimated sales for 2020 going into the year were $900 billion in restaurant sales across the United States. That basically makes us a trillion-dollar industry give or take a few $100,000. But because of the pandemic, the restaurant industry lost an estimated $275 billion nationally.
This tells you two things: One, we are a major economy and, two, a dramatic crisis like a pandemic can dramatically hurt a major economy in one fell swoop.
I continue to say that COVID-19 treats its friends and enemies the same, it eviscerates both. It does not play favorites; it is an equalizer. We will do the best we can to survive but it has been incredibly difficult.
Arizona Agriculture: What would you classify as the most rewarding issue of our resilient food service businesses in this crisis environment.
Chucri: I think resiliency is part of the fabric, our DNA, of the restaurant industry. It must be because it’s one of the hardest businesses to operate. Regarding resiliency, restaurants’ ability to modify menus to accommodate more take out, develop packaging, conduct research to make a meal that someone wants to have in their dining room and at the same time make sure it tastes the same as that traditional “restaurant dining” experience once it reaches customer doorsteps is not an easy thing to do. These elements are good demonstrators of where the industry’s resilience, coupled with delivery options, food to go, take-home alcohol that was granted through Governor Ducey's Executive Order represent good reasons for our success amid a pandemic.
Arizona Agriculture: The restaurant business was one of the hardest hits in this pandemic. Do we come back as strong as before? How?
Chucri: I believe we will come back just as strong. I’m not one advocating that we will have to get to the new normal; to me that doesn't strike the right balance. The right balance or the right image that I see for this industry means we come back stronger including a better understanding of what something like this can do to a business, especially to a restaurant business.
The restaurant industry is here to stay. I think that we will continue to see this “take out” capacity and we will see an expansion of how we operate outside of the main restaurant to include more patio seating that’s comfortable even at the height of an Arizona summer. Technology played its role as well. For example, texting platforms instead of coming in and checking our reservation, you get a text. Then, QR codes on the tables to review the menu and probably more advances.
I think a lot of these features will continue. The natural evolution of technology improvements especially if they reduce costs, protect the customer, offer convenience, and more means a restaurant will continue to incorporate such features even when we start to see some normalcy to our dining room's capacity. And we can’t forget that Maricopa County is one of the fastest-growing counties in the country. When you have these back-to-back considerations, the more people that are here means more people that need to be fed well and conveniently. I think the area’s growth factor in our recovery as we go forward is a big consideration to a strong comeback.
Arizona Agriculture: For the past 18 to 20 years, you’ve served as the President and CEO of the Arizona Restaurant Association (ARA). Leading an organization that promotes dining out. Have some of the organization’s marketing strategies shifted and how?
Chucri: Oh, absolutely. I'll start with our Restaurant Weeks. Most people didn’t know what they were when we first started them back in 2008 and 2009. Now, it’s an expectation that happens every year. So now how we use Facebook ads, how we communicate to our patrons, that we call affectionately foodies, has driven us to shift how we connect with consumers. Our marketing has changed quite a bit and in the direction of the industry when it comes to the culinary diversity of our menus. Growing up here as a native Arizonan, we used to say we had two kinds of food, Mexican food and then a different kind of Mexican food. The culinary diversity of today’s Arizona restaurant scene is broad and deep. For example, Chinese chef-proven restaurants that come up with so many amazing menu options that people just absolutely love compared to 20 years ago as an industry, plus the growth, especially of James Beard nominees, is something to celebrate.
Arizona Agriculture: Prop 208 passed. How hard will this hit small businesses?
Chucri: It will be interesting to see what goes forward with Prop 208, as it’s in the courts right now. It is not good for our economy that’s for certain. I think it will in fact bring about the difficulty for people who may change residency and split their time between Arizona and their new permanent residence. I think it is a concern and will have a ripple effect. Look, we at the end of the day are discretionary. We are not your mortgage payment, we’re a luxury as an industry – to go and dine out. We’re optional. So, when the economy or when someone's pocketbook tightens up, we feel it.
Gas prices go up. This is the same thing. We're a very fragile economy. We feel those types of economic impacts. We never take anything for granted. When you factor in the obvious fact that we are one of the most competitive industries known to man, all this makes that much more difficult. The restaurant opening across the street from me, or next door, means you have to fight for that dollar even more.
Arizona Agriculture: You’re an advocate for eliminating excess regulations and creating an environment that invites innovation and sustains entrepreneurial growth with a Best-in-Class mindset. What is front and center with your focus on this right now?
Chucri: Restaurants are the cornerstone of our community and they are going to continue to be part of the fabric of our neighborhoods and everything else consumers expect from us. Consumers demand that we are going to be entrepreneurial and innovative. The restaurant across the street is competing with your restaurant for the same consumer dollars. And even though we have large population growth in Arizona, we also have a lot of new restaurants opening. With all those realities if you aren’t growing by more than 3% each year, you're losing money because that’s inflation, and if you are not continuing to look and see how you can be more competitive or to increase your market share, you're not going to survive and succeed in this industry.
Let me give you an example. Door Dash and other third-party delivery services cut into restaurant margins resulting in restaurants not getting too excited about using them. However, in this competitive environment, if you don’t use them, it will also cost you money. So, even if you’re just breaking even, you're doing something you have to do. Continuing to think outside the box, if you have two brick-and-mortar buildings maybe it comes time to get smart and have a ghost kitchen located in an area that you can grow, especially if you don't have the capital or infrastructure to invest in a typical kitchen.
So those are the types of things that are going to be important to a restaurant going forward and what can they do to cut back on the labor cost especially if you've got President Biden now talking about raising the minimum wage to $15 during a pandemic when restaurants are already hurting. As a restaurant, you're going to turn to technology. More and more customers will order from a kiosk. That’s going to eventually be the way of the future
A mandated $15 minimum wage will hurt us. Again, we’re a demand-driven economy and certainly in the restaurant industry. So, when you start to artificially demand rates of pay for our employees in a setting where we operate with razor-thin profit margins it absolutely cuts at the profitability and survivability of a restaurant. Your biggest three costs are labor, real estate and food costs. The higher those things go the harder it is to be profitable.
We’ve got employees in some of our restaurants that have been there for decades. It’s the only place they really want to work, and they’ve worked their way up and sometimes those same people now own the restaurant. It’s never been about how cheap can we pay our employees; it's been about how successful can we run a restaurant and can we afford labor increases.
I think in the future, technology as I just stated, it helped bridge this gap of COVID-19 it's going to be a technology-based environment in a very big way. I can show you a hamburger that was made by a robot. I can show you a robotic arm that can make French fries out of the oil, dump them into a pan and salt them.
Arizona Agriculture: Your comments above sound a bit like how we speak in the agriculture industry. Costs driving innovation. Okay, a question I must ask: While you might not have tried as many international cuisines as Andrew Zimmern of Bizarre Foods, you have traveled extensively and tried numerous cuisines. In addition to some of our unique southwest cuisines, what do you believe Arizona should be known for in the “foodie” circles?
Chucri: Most people don’t know this, but for the last 20 years we’ve been sort of a taste-test market for foods like the wrap and a lot of different cuisines. The diversity of Arizona’s population functions as an ideal setting for market researchers trying to determine what new trend is around the corner. This melting pot here in Arizona that includes people from the Midwest, people from California, and people from all over the country gives food marketers a good cross-section of people to kind of test our pallets and see what we want. It has been a little-known fact but an important one. Look at the dine-in and the various shows that are out there, whether it’s Guy Ferry or whomever and they are coming to Arizona and they're checking out some of our places. Even these reality-type shows where they come and do these makeovers in part because the Arizona market is attractive to them. It will continue because it drives that fun, different and new mentality about food and experiences in Arizona. The question is how the consumers’ pallet will change over time and how effectively restaurants will keep up with it.
Arizona Agriculture: Being president of ARA, how often are you obligated to eat out?
Chucri: Oh, quite a bit. I don’t cook and there’s a reason for it. It’s funny, my little boy a couple of years ago asked my wife, “Where’s the iPad?” And my wife said, “It’s next to the cooktop.” And he said,” What’s a cooktop?” My son’s question was so apropos for our family. I’m eating at a lot of restaurants; I’m meeting with restaurateurs about going to new places they’re thinking about building. It’s a job and I want to make sure I’m advising my clients well including how we see trends emerging.
Arizona Agriculture: How can Arizona agriculture and restaurant owners build more of a relationship with one another?
Chucri: The partnership between restaurants and farmers is stronger than it has ever been before. You will recall the gate-to-plate phenomenon. You see eggs taking a whole new and central place in the past five to 10 years in the restaurant industry. Those two examples alone show an evolution in the relationship with the stakeholders in the restaurant and ag industries. Look, we need you and you need us so we’re not breaking up. It’s always going to be an important relationship and quite frankly I think the market is going to dictate how that works or doesn't work. It can't be contrived; it can't be forced. It’s going to be the consumer who decides how much we do or don't do together.
At the same time, it’s not going to be everything. We can’t do what you do [in agriculture]. We can do a fraction of it with a little garden out behind the restaurant, but we can't have that be something that's going to be our sustenance. Our partnership with agriculture will continue to evolve and grow just as we've seen the culinary diversity of Arizona grow.
Arizona Agriculture: Anything you want to add that I have not asked?
Chucri: This relationship between your industry and ours is always going to be so important and I think we have gotten along well when we've understood the difficulties that have impacted each one of our industries whether it is the weather, the cost to do business, or market volatility. The relationships you have with larger distributors, like Shamrock, keeping conversations and lines of communication open and more will mean we will continue to be successful over time.