Why major restaurant chains are filing for bankruptcy: Jon Taffer

How do you think of someof this stuff?

When I was in college, I took political science and cultural anthropology. I look at people's primal instinct and I look at the process in their mind that led them to that place. That's why I scream and yell at them so much. I literally want them to start.Doubting themselves so that they can be open to new ideas, open to the things that I'm trying to teach them. Some of them, candidly, they're so stubborn, they're so stuck in their ways, they're so ego-driven that their mind isn't open to anything else, and that's why they're failing.

All right. Welcome to a new episode of Power Players, and I am super excited to welcome in my next guest because I've been watching his show, I believe, close to 15 years, really around the clock in some cases, that is John Taffer, bar rescue host, uh, hospitality legend. John, please don't yell at me.

Oh, I'm,I'm here with a smile.If we're

in the same

room, you might have to worry about getting hit with some flying food, but that'sOK.

It's good to see you. Uh, really it's an honor to have you on this program. Before I, I just, we're gonna talk about restaurants, bars, but we were talking a little bit before we came in on here. I just paid 27 bucks for a 1 ounce pour of aI'm not gonna call out the name Gold label whiskey. I mean, this is out of control and the prices for these drinks.

It's, it is outrageous. And you know, we're talking about after the pandemic, the industry had an excuse to raise prices. And then, you know, the inflation period, we had an excuse to raise prices. Some of us went too far.And it, it, it attacks the very value proposition of why you're going to a particular venue or a particular business. $27 for a one ounce pour of a spirit is outrageous, unless you're pouring a super premium spirit.That, that has, you know, a cost of uh well over $100 to $200 a bottle. So, we have to reassess this as an industry, and a lot of us are working hard on value propositions today. But you know what else is interesting? If you look at GLP-1 medications, people are drinking less and they're eating less. So to give you a massive plate of food.When you're only going to eat a third of it doesn't make a lot of sense either. So there's a way that we can adjust portion sizes so that you're satisfied, have a great value proposition, don't overserve you, and then I can get my prices more into an envelope that you're comfortable with. I think these are the kind of trends that we're going to see. I think.Days of massive portions are sort of over. You know,

what bothers me, it almost kind of terrifies me if I'm thinking about my wallet and, you know, uh, saving some money over the long term. I can't see that $27.01 ounce pour coming down in price, because the alternative is, they're just gonna give me a glass with nothing in it. Like they can't go any lower than 1 ounces.

Yeah, you know, it's interesting, uh, when we deal with all the politicians and Democrat, Republican, they're saying the inflation is gonna go down. I've never seen anybody lower the price of their product. Once you get to that threshold, you don't back up. So, so I agree with you. But, but, you know, I think we need to re-engineer menus, re-engineer cocktails, and really as an industry, take a look at the value proposition. And AI, by the way, is a part

of

that.

Let's start with likethe, the, the pure food aspect of it.Why does everything on the menu now cost so much more? Even I look at beef, $185 for a porterhouse for two. Almost $200 for a slab of steak.

But here's a fact, meat prices are ridiculously high right now, but a restaurant operates on about a 28 to 30% food cost. So that means for every $1 my cost goes up, I have to raise my price by $3.So if meat goes up $5 I have to raise my price by $15 for that item. So a lot of this is cost-driven, and $185 if you had a really super prime porterhouse for two like a Luger, I mean

itwas OK, you know, it was all right. It was OK.

If, if the steak was fantastic, it's worth it. If it wasn't fantastic, shame on them, because at that price they could give you a heck of a piece of meat.But we all have to remember for a restaurateur, for every $1 their cost goes up, they have to raise it $3. So that's why these costs jump, uh, as much as they have.

Uh, even understanding the fact they're dealing with high costs, you screw over the consumer, they can go over somewhere else.

Absolutely. There's, you drive by a lot of restaurants last night on the way to the one you went to, didn't you? You could have pulled in an awful lot of parking lots if you wanted to. So the fact of the matter is, did they get?You back for that steak for $185. No. Will you go back? No. So they blew it. They blew it. What was it? Was it the cocktail or the steak that took you over the edge? Uh, it was the cocktail that took me over the edge. Well, the fact of the matter is there's a lot of people that are sitting in your seat that feel the same way. The industry is tough. Labor is gonna cost me 35% with benefits today.My food cost is 30%. That's 65% of my operating costs right there. I haven't paid my rent, I haven't paid my electric, I haven't paid my my my uniform costs, my all my other occupancy related costs, etc. So, if I do really well, I'm maybe earning about 10 to 12%.In an EBITA, if I'm doing really well. So when that stake goes up $5 to me, I cannot absorb that. I don't have the room. I must raise the price by $15. And unfortunately, you get nailed. But these are the economics that we deal with in theindustry today.

I figured you would appreciate my passion for this. So I'm gonna say, I'm gonna stay on the alcohol thing because the other component of this particular visit, and again, it happens now everywhere I go, I sit at the bar, and now there's just row after.Row of whiskey, gin, especially tequila, and not the bartenders aren't saying, hey, you need to try this, you need to try that, but I'm gonna charge you a high price for it. Like, there's like a bit of flavor explosion in alcohol, and I don't know why I should have any ofit.

I, I don't blame you. Most people tend to stay within a couple of brands their entire lifetime, right? People don't move a lot and, and people don't kick the tires of whiskeys and spirits, uh, uh, generally speaking.I think that sea of products, if you will, all of them become lost. Nothing has identity at that point. So, you know, when I created Taffer's Brown butter bourbon, we took a different type bottles, and we put them on the back bar, and we put them on shelves and liquor stores, and then we stepped back 20 ft. And if the bottle wasn't seen, we redesigned it so it would be seen behind the bar.It puzzles me, shocks me how many companies don't do that. So simple, but they put their product on the shelf, and it it falls into that sea of bottles, if you will. So identity is very, very important these days.

How do you think of some of this stuff, like standing 20 ft away? I, I mean, I watched the show, and I'm thinking, like, where is he getting thesethings from? You know,

I am, uh, when I was in college, I took political science and cultural anthropology.And I fell in love with cultural anthropology, the study of primates and societies, and how we're first primal. I mean, if I made a comment to you that was insulting, you're either gonna take one or two postures. You're either gonna step back and be a little passive about it, or you're gonna step in and be a little aggressive about it. That's a primal instinct. That's who you are. Now, you might step back and say, well, you know, I'm really angry at you, but, well, the truth comes in after the but.So, the fact of the matter is that I look at people's primal instinct, and I look at the process in their mind that led them to that place.And I focus on trying to change the process in their mind. That's why I scream and yell at them so much. I literally want them to start doubting themselves, so that they can be open.To new ideas, open to the things that I'm trying to teach them. Some of them candidly, they're so stubborn, they're so stuck in their ways, they're so ego-driven, that their mind isn't open to anything else, and that's why they're failing. So, that's my biggest challenge is opening that brain.

On your brown barber, brown, I can't tongue twister that for a second, brown butter bourbon. Uh, how did you think of that name, and how did you think up the bottle?

It's actually a process again. I'm walking through my Taffer's Tavern restaurant in Alpharetta, Georgia.And my cook is on the stove. He's making brown butter. At this point, I've done about 270 episodes of Bar Rescue. I gotta have 5 new cocktails every week. Sure, I got great people around me. I'm always looking for something, so I said, give me that. I took the brown butter, I poured it in a sous vide cooking bag, filled it with whiskey, sealed it, boiled it for 4 hours.Took it out, put it in a walk-in. The butter coagulated to the top, scooped it off the top, poured it through a coffee filter, believe it or not, and brown butter bourbon was born. I put it in a cocktail called the Campfire cocktail. Three months later, we're selling over 1000 campfire cocktails a month. People are going crazy over this product. So I decided I'm gonna bottle it.So, I sent a little test bottle to a friend of mine who works at Diageo. Diageo helped me develop the product, which is fantastic. And then it came time for the bottle, and I wanted it to look like a whiskey bottle. I wanted you to see the shape of that bottle and know what it was. I'm back to my 20 ft from 20 ft away. Now I gotta have a label that you're gonna see. So my label is white. It has flecks of gold in it that reflects back at you.And the lettering, of course, is large on a white background, so the shape of the bottle identifies to you that it's a whiskey. The label tells you what it is, and I believe I'm one of the first spirits products ever to create it after it was successful in my own business. So, I never wanted to go into the whiskey business. This was not a plan of mine.I reacted to my customers.

I thought it would be a plan of yours. I mean, you're just, you're involved with like liquor. I thought you would have had onealready.

Yep. So, so it really, it, it evolved that way. I'm really proud of it. It's doing great too. Taffer's

Tavern. I imagine I have not been in one, but if I were to walk into one, this has to be the most perfectly run restaurant in

America. I'd like to think so. You know, layout is very important. You know, uh, uh, I'll tell you a couple of bar science things that you might think is fun. You know, bar is always at zero elevation.And the elevations around it are typically 2 ft 18 inches taller. When you have seating at the low zero level, it's always high. When you have seating at the elevated level, it's always low. And here's the science when you're sitting at zero level on a bar stool and I walk by, our eyes are within 10 inches of each other in height. It stimulates eye contact. If I look to my right to the elevated seating.They're sitting on a platform, but low sitting, their eyes are the same height as mine too. Everybody in the room has the same eye height, walking, sitting. So, now I'm creating interaction. I'm creating a social environment.Then I do things, you'll like this one, an elevated area. Let's say there's a beautiful girl up there. You want to walk by and meet this girl. You walk up the elevation, you walk to the end, there's a dead end. You feel like a freaking idiot. You got to turn around and walk back the other way. She knows exactly what you did. I put in another staircase so you can flow through. So the flow patterns create interaction. The seating and eye heights create interaction. The lower I turn the lights, the closer you get to each other.The higher I turn to music, the closer you get to each other. I'm playing with these sciences because I understand it's not that $27 cocktail that's gonna bring you back. It's the environmental experience and interaction, because when you walk out of that place and say, you know what, I met some great people. That was a great place. You're not gonna complain about that $27 cocktail anymore. You're right,

but it almost takes me back to, uh, what did you create, the butt funnel.

Yes, a butt funnel, a 30-inch opening to a dance floor to create a little physical contact when people go back and forth. Many a breakfast with a couple has been created due to the butt funnel. No,

I remember, but you know, I had me thinking that had me thinking back to the earlier episodes. You would go, I believe you went to like some, uh, like dance clubs, but the show has evolved as the country has evolved, like, or is that.Club experience still being built, or is it more like what you're doing with Taffer's Tavern?

I thinkthat the, the, the mega clubs taking Las Vegas out of the equation and one or two places in New York, the nightclub is, is pretty much over, and there's a number of reasons for that. First of all, it's not easy to fill a place that holds 3000 people. That's a pretty big order. The matter of the, the acquisition costs for customers when you need 3000 of them.And you're right. Smaller venues like Taffer's Tavern, intimate venues, interactive venues, uh, uh, uh, easier to fill, easier to run, and easier for a customer to get their arms around, honestly.

What role does technology play in Taffer's Tavern?

Oh, massive, but you don't see it. I am old fashioned in that I believe human connectivity is incredibly important in a tavern concept like mine. I want my staff and my customers to know each other. I want them to have a relationship with each other. I want connectivity.Now, I believe that I'm not in the restaurant business. I believe I'm in the reaction business. And I believe that my plates of food are not products, they're vehicles. The product is the reaction. When that plate hits the table, one of two things happens. Either you sit up and react to it, or you don't.So I'll design that plate 100 times until I get the reaction that I want. Other restaurateurs foolishly think that the plate of food is their product. It's not. The reaction is the product. Same with music. I don't play music, I play reactions. I achieve it through music.I don't serve people, we create reactions, we achieve it through service. That's what makes us so successful. You feel good when you're there.AI can't give you that. AI can help me with my labor forecasting, with my modeling, with my ordering, with my receiving, managing my kitchen orders, managing my labor costs, managing my food costs. It can even look forward and give me food trends, and things that I can focus my.Menu I'm looking forward, but I will not put it between me and the customer. And here's what's interesting. According to the National Restaurant Association, 82% of Gen Z's in a limited service restaurant are absolutely fine ordering off their smartphone.Once you get past Gen Z's and move into an older demographic, that becomes less and less comfortable almost with everyyear.

I hate those damn QR codes, uh, especially in the airports. They're awful. Oh my God, me

too. So, so, so, so you're angry before you even start. There's no connectivity. Then a sterile looking plate arrives, and there's no reactions. There's no connectivity anywhere. I think that this isn't about humans versus AI.This is about humans using AI to create better experiences. I think it's an amazing partner, but don't put it before you and the customer.

Could it be helpful in the sense of my first job was one of my first jobs, I cleaned dishes at a country club. I mean, the hours were insane. I mean, you know how that goes, but I viewed it as a stepping stone or a starting point for my career, cause I wasn't getting a lot of shots from anywhere else. I don't know if that necessarily exists.Today with this generation. So that's in part why I think the restaurant industry is seeing labor shortages. You know, you have folks that do not want to be a server, do not want to clean dishes. At what point does AI or robots, they're the ones that are our servers, they're the ones cleaning our dishes.

You know, I was staying at a Westin hotel in San Francisco a few weeks ago, and my room service was delivered by a robot, and he was a cool guy. He opened up his hat and your food was in there, and he had a little bow tie on and stuff. He's a pretty cool looking dude actually. So he, he asked me if I liked my stay, and he interacted with me a little bit, and I took myFood out and then I stuck my head out the door to watch him, and he's going down the hall and he gets on the elevator with other guests. And, you know, that's a great function for robotics and AI rather than having somebody running up and down the building wall, but I would still have a human on that phone when you gave your order. That's the difference.You know, when you go to a great place, you feel it in your gut, don't you? Yep. That's the, that's what I want to achieve every time every person walks into my taverns. That's the future. That's why I'm concerned that when AI gets between us and a guest, and affects that connectivity, that's when I think the industry is challenged. We're all gonna look for interaction.Uh, and, and I think that that that's not gonna change. I can add one interesting point. Gen Z is not drinking as much as we've all read that, right? Gen Z alcohol is down, all of that. Here's why, in my opinion, they didn't have a chance at the minor leagues. You see, when you're in college, you go to Starbucks, you sit at a little round table, you drink beverages, and you hang out with everybody. You go to the student union, you sit at a little round table, you drink beverages, not alcohol, but you hang out with people. You're socially. I call it the minor leagues of bars.They were locked up in a pandemic. They didn't have that.So now they're out in a pandemic. These environments are not that comfortable to them yet.They're evolving, and I think by next summer, I think they're gonna come back out, and I think it's gonna happen. I think the evolutionary process is a little slower with them again, cause they didn't get to be in the minor leagues. What do you think ofthat

thought? I think you make a hell of a point. And then, but then to that end, how do you, if I'm a, if I'm aAspiring restaurateur. I see what you have done with Taffer's Tavern. I've seen, I've studied your career. How do I create the restaurant of the future? Do I design one into these trends, or do I create something that may have worked 10 years ago, traditional bar, traditional food, and say if these trends, I'm going all into what has worked the past decade.

I always, I always say this, every trend ends. The oldest restaurant in any city is always the steakhouse.Yes, it's the longest lasting restaurants in any city are always the least trendy ones. They're predictable, they're classic, you know, I don't want goat cheese on my veal parmesan. I want Parmesan on my veal. So there's something to be said for that, but in every case, think about this, the longest lasting restaurants are the ones that that are not trendy.They're predictable. They have no end in sight. When I put together Taffer's Tavern, I didn't want to be trendy. I purposely avoided trends. It's a very classic, warm, cozy environment. It's just what you would expect it to be.

What makes a good restaurant leader in this day and age? You know,

good restaurant leaders is, uh, uh, uh, obviously motivation is important, but, you know, the number one function of a restaurant leader is standards.I must maintain standards, product standards, environmental standards, service standards, cleanliness standards, etc. I must maintain standards. And what are standards? Standards are something that are qualifiable. This is when you do it, quantifiable, this is how often you do it, and verifiable. I'm gonna make sure you do. That's where managers fall down on a verification of standards. A great manager stays with you until your predictability to achieve standards is absolute.So, what happens in today's environment is managers spend too much time in the office. The office in Taffer's Tavern has no chair. They do not go sit in their office. They're out in a restaurant every minute of every day. The only time they go in their office is when the shift ends or if they have to run in and get something out of a safe or something like that. Leadership in the restaurant industry is truly leading by example.It really is. And you walk by a table, you have a coffee pot in your hand, you fill that coffee pot. When you're doing that and your staff sees it, before you know it, every cup of coffee is full in that dining room all the time. Leadership is two things. Leadership is a true commitment to make your people successful, not to beat on them, to elevate them, to grow them, to enjoy their success. My greatest story of all time, if I can tell it quickly, I'm opening a restaurant in Wichita, Kansas, and it was Alamo Grill. I owned a steakhouse chain back then.And I'm opening my second restaurant, and I had a dishwasher in my first restaurant in the Mall of America. His name was Theo, and he was a dishwasher, and the prep cook quit, he became a prep cook. Now, 3 months later, I'm opening a restaurant in Wichita, and I'm bringing Theo with a whole bunch of people to train my kitchen staff. So Theo's gonna be the the trainer on prep in the kitchen.And we're in a Holiday Inn meeting room with about 90 employees that are just starting, and Theo walks up to the podium to introduce himself, and he's wearing a shark skin suit, and this is the most proud man I have ever seen in my life. And he looks at the audience and he says, 6 months ago I was a dishwasher. Look at me today.And I cried, and I realized that is the greatest accomplishment any manager can ever have. You see, their success is what makes me successful.

You know, watching the show, I love that story, by the way, um, watching the show, one thing that stands out to me among many, is that the, the owners give their team so much rope, uh, this is OK, they have an excuse for this, this person is underperforming this and doing this, and that's OK. They give him so many chances, what I'm trying to say. Within your own business.How much rope do

people

get?

Well, there isn't any, cause everything is systemized and procedurized. There's manuals, there's systems. You have to be at the table within 2 minutes. You have to do this, you have to do that, you have to introduce yourself. I mean, everything is, is standardized. Now, I'm not gonna tell you what words to say. Hello, my name is John. I'm just, no, I want you to use your words cause I want your personality to shine. So, I will let you use your words and your mannerisms, but we teach three things in Tafforth Tavern. Interactive dynamics.Which is how you connect with people. You know, I could look at you, that's a very cool watch, man. Oh, thank you, thank you. So easy to look at somebody and say, wow, that's great, wow, that's cool. Oh, your daughter is beautiful. It's so easy to do those things. Next is mechanical dynamics, pace.In a high energy environment, you walk faster. In a slow energy environment, you walk slower. Pace is very important in the bar and restaurant environment. Look at a high-end steakhouse. Lights are low, server walks slow. If the lights were higher and the server walked faster, that steak wouldn't have been worth $185 anymore, would it have?

Actually, it's like you were there with me. It's because the lights were low and they did walk slow.Bingo.

So, so that's the mechanics of dynamics. And then there's the personal dynamics. I hired you because I like your personality. Let it shine, buddy. Don't hide it. Have fun out there. So, these are the ways we try to have our employees come out of their shells and let their personalities connect you. Years ago, I used to own a bunch of Hooters franchises. I since sold them years ago.And a Hooters girl would make about 22% tips on the tables. I had them all write their name down on a beverage napkin and put it in the middle of the table. So now she'd walk up, she'd say, Hi, my name is Cathy.I'm happy to say, and everybody would look and say, hi Kathy. Tips went up to 30% when they use that cocktail napkin. Connectivity.So I use instruments to create connectivity. Is there,

you know, I'm glad you mentioned Hooters. The Hooters, I'm thinking about Friday's, I'm thinking about Red Lobsters like still hanging by life support. Once these big chains fold or or really struggle, or in some cases like go through the bankruptcy process, can they ever be what they were?

I'm not certain. I'm not certain. They, they sort of need to reinvent themselves, you know, TGA Friday's in, in all disclosure was a client of mine for many, many years.So, I know all about their internal workings and such. I mean, they, they, they got out of the corporate restaurant business, sold all their corporate stores, became primarily a franchise company. In the franchise world, 1/3 of your franchisees are great, 1/3 of them are so so, and 1/3 of them stink.It's just the way it works, no matter what the franchise is. So, you're never gonna get the ones that stink to be better, but you can get the ones in the middle to be better. So you focus on that middle group and you try to build a franchise. The fact of the matter is the future of these companies is now based on the franchisees more than themselves. And then you look at companies like Red Lobster, and what they did was they sold all their real estate to another entity, and now they're leasing it back just like Vegas did. I mean, Caesars and MGM, I think they're paying what, 1 million for a day.And rent or something. They sold all their properties. Now they're leasing them back and they can't afford the rent. I mean, it's the most absurd thing. That's why there's resort fees and parking fees in Vegas because they're trying to pay the damnrent.

John, so good to see you. Uh, thanks for giving me all this time. You have a new season coming up.

I'm not allowed to say, but, OK,

OK. I didn't sayanything. I didn't

say anything,

did

I?

All right, we can cut that out. John, good to see you, John Taff. It's a real, uh, real honor to have you on. Uh, that's it for the latest episode of Power Players. Talk to you soon.