In this episode, CEO Terry Montesi, and Chief Investment Officer Tommy Miller speak with Kevin Lillis, CEO of Hospitality Alliance. Kevin shares how he got started in real estate and transitioned to the world of food & beverage and food halls, as well as the work his company is doing with AT&T in downtown Dallas. They also discuss the role of trendy food halls and food & beverage in experiential retail and how these areas have been impacted by COVID-19, including how to move forward. Kevin also shares some unconventional thoughts on the future of retail and the role technology will continue to play.
For more information about Hospitality Alliance, visit hospitalityalliance.co
Transcript
Montesi: This is Terry Montesi, CEO of Trademark Property Company, and welcome to Trademark’s podcast “Leaning In,” where we’ll look at the future of retail and mixed-use and how we can lean into it, even though others are leaning out. On today’s episode, Tommy Miller, our Chief Investment Officer, and I speak with Kevin Lillis, CEO of Hospitality Alliance.
We discussed the role of food halls and today’s mixed-use environment, and his unorthodox thoughts on the future of retail and how he sees the current trends being impacted by the Coronavirus pandemic. We also touch on the cutting-edge work his company is doing and how he sees technology impacting retail. Thanks for listening.
Kevin, you’re the CEO of Hospitality Alliance, and you focus on hotel, F&B opportunities and including them in mixed-use developments and office complexes. Share with us more about what you and your company do, and when you started, where you’re based, what you’ve done to date. And I know your F&B work in the Plaza Hotel and the food hall sector is particularly interesting.
Kevin Lillis: Thank you. I come from a real estate and finance background and my partner, Kelly Jones, really comes from a traditional food and beverage operations background. He started culinary school then became a general manager of a restaurant. He’s really more of the traditional ops. Me coming from real estate and finance, I think I look at the projects a bit differently, but that’s why I think we work as a team. And that’s why I think we’ve been successful in mixed-use projects that really require different disciplines across how you look at the developments. But currently the one we’re launching right now is AT&T’s headquarters in downtown Dallas, the Discovery District.
We’ve just been able to open about half of that so far. And we’re looking to hopefully open up that in stages over the next six to nine months, depending on how everything goes with vaccines, etc. So that one is going to be unique in the state of Texas in that it’s a liquor license that extends across the whole campus, but it does combine inclusive concepts, exclusive concepts and a lot of different elements. So, it’s a really fun project.
Montesi: Tell us a little more about your background and how you got started and the work at the Plaza.
Lillis: Paid my way through school working at a law firm. Then got in real estate, became head of real estate for the largest owner of hotel, private owner hotels in New York, Dream, and then became a food and beverage guy when our restaurants were closing in the recession. I’ve done a lot of events. I was a partner with Friday Night Fights for about 200 events, and then I launched my own events company. I have traditionally looked at spaces in terms of events. Kind of think I was teaching myself by accident, kind of going into empty armories and ballrooms and things like that, setting it all up and then tearing it down. And it’s an environment that’s a little more forgiving because I think event guests don’t have the same standards often of restaurant guests. But it’s something that becomes really obvious once you let 4,000 people in the room, if you’d made some errors, you put things the wrong way, or you located the bar in the space where you shouldn’t have.
It’s something that through that, once I had become head of food and beverage for Dream, turns out I had known a bit more than I thought I had just from my event experience. And Kelly Jones, who’s now my partner, was my favorite operator that was reporting to us. And that’s where that relationship started.
At the Plaza, it was really a condo conversion deal. They had taken about 550 of those rooms, converted them to condos. They had made their return and then some, but in the meantime, they kind of neglected all the food and beverage and all the experiential aspects of it, because that really wasn’t the goal of the people that firm that I worked for was focused on.
When they acquired the property, it really wasn’t was a place where – it was mainly tourists taking pictures in front of the Christmas tree kind of thing. It wasn’t something where New Yorkers would be caught dead having a drink in there. We started the long road of bringing that back. And renovated the Palm Court, and did the food hall, which is, I believe, still the highest grossing food hall in the country, sales per foot and the basement space.
And it’s a really exciting project, and one I was proud to be a part of.
Montesi: And does your data show that you’ve been able to attract locals to that food hall, it’s no longer all tourists?
Lillis: Correct. The bar there was a challenge. It’s been open since 1906, Palm Court really famous room. So, it was landmarked on the interior.
In putting a bar in there, we needed to make it look like it was there from 1906, so we put this lattice around the edge of it, and they made us do it oval, which is a real challenge because all equipment really comes in – all equipment is hard edges. And when you have an oval bar, nothing really lines up. You don’t get oval reach-in refrigerators. So pretty expensive, but we made it look like it was always there and developed a cocktail program, and we started hiring people. They thought we were crazy, but then it was two at the bar and then it’s five at the bar. Now it’s a kind of bustling cocktail scene that actually Tommy once joined me for a drink there. Now it’s quite a scene, but when we opened up people’s thought no one’s going to come back to this building because it was such a long renovation that really the locals had completely given up on that being a neat place to grab a drink.
Tommy Miller: Great bartender there by the way.
Montesi: Perfect. Everybody go give it a try. Tell us a little more about AT&T and the genesis of that and what their goals were with that.
And then, any other exciting projects you’re working on and how your business has been impacted by COVID.
Lillis: AT&T I think it’s the goal with everybody, in that, for them, it’s really about attracting, hiring, retaining the best talent they can. I think that was really their focus here.
They really made their campus something that people want to work at and something that really instills kind of positive morale among their core employees there. That was the primary reason. They want to be a company that despite having such rich history and despite being cutting edge with their acquisition in Time Warner, and now owning HBO and DirectTV and all these other brands, DC Comics and in Turner, Warner Brothers Studios, and all the things that comes with that, they still have a very rich tradition. I think a big part of this was kind of taking them into the next phase of who they are as a company.
But also, again, really making it a place that’s great for their employees to work at, so we are helping them actually execute that. And it’s something that I think they would have been unique, but now it’s much less unique in the office sector as people have gone from three per thousand density to five per thousand density.
Now they’re probably closer to seven per thousand density. The same buildings used to have about 2,500 people and now it’s going to have over six, and in the pre-COVID world, we’re looking at a climbing toward 7,000 in the same buildings. As a result, people aren’t really working in so many exclusive offices the way they traditionally were before. It’s a lot great Wi-Fi and laptops and work where you work. That’s something that all of our spaces have to be extremely flexible in terms of yes, they’re dining spaces, but they’re also gathering spaces. They’re also spaces where people are just going to take a breakout meeting because if people can only meet in a reserve conference room and they’re taken, well, they just go down there, and they grab a cup of coffee.
And if they nurse that cup of coffee for four hours and have a couple meetings down there then that’s what we’re designed for. And we designed it, accordingly, making sure that we’re going to have the seat capacity for that to happen without any friction.
Miller: How important do you think that your facility is going to be for AT&T hiring and retaining great people? It sounds like that was the key motivation with this project.
Lillis: I think if you’re working there and you have best in class of the food offerings within your campus, you have a great place to grab a drink afterwards, they brought in Cowboy Fit to do their fitness center, and then we’re going to have yoga on the lawn, and we have this 106-foot media wall, 6K resolution, that’s going to be showing content, I hope all those things are going to contribute to making it a place that people really like to work at because candidly, it’s been a bit tough for them to work at it in recent history with the amount of construction that was going on to make it that way.
Montesi: And how has your business been impacted by COVID? And have you seen food halls impacted by COVID around the country?
Lillis: Our business really shifted because we’re in a downtown environment. If we think about your revenue periods, and we usually break it up in 28s, so breakfast, lunch, dinner, beverage, seven days a week, and the periods that are busy have completely flipped.
As opposed to having downtown Dallas where we had 135,000 employees of the downtown market, now that number is next to nothing. As opposed to being absolutely slammed for lunch and happy hour, it’s really the opposite, it’s nights, it’s weekends. There’s much less residents than workers downtown. And I think that’s probably happening in restaurants across the country where most are either where people work or they’re where people play. And if there were people work, it’s those 10 revenue periods, 15, if you include happy hour, breakfast, lunch, dinner, Monday to Friday, and you kind of roll it up nights and weekends and pick it back up Monday morning or it’s the inverse.
And right now, we replaced that. Originally, we were set to be that kind of a business, and then it was a completely flip flopped. But we have 90-minute waits for tables on Saturday nights. So that was something we were going to try to build into by year two, year three, and instead six months in, we’re already doing that.
But all the business we thought we were going to have hotel business, convention business, downtown office worker business, that’s all borderline non-existent. We’ve really had to be flexible. And the team has done a great job doing that.
Miller: And we all know that COVID is happening and that’s changed everything. But you’re in a business with big flexible spaces, supporting entrepreneurs, lots of choices.
How do you see this sector changing the way mixed-use places work in the future and single-use restaurants versus wide open food halls? Have things changed because of COVID or were these trends that were already in place?
Lillis: They for sure have. For us, I think it’s something that outdoor space was always massively valuable, and now it is somehow that much more valuable in being able to have those kinds of spaces that people feel comfortable in. I think food halls are really going to like the transparency even more than they did before, in the sense of they watch the food being prepared and served to them, and they see every aspect of it, so it’s not behind a closed kitchen. They know exactly who touched their food, and they watched it happen right in front of them.
And I think those aspects people are really going to like more on COVID. But the community seating aspect is going to be a challenge. We have the benefit of significant amount of outdoor seating on two sides of our food hall, when we do decide it makes sense to open up.
But it is something that massive interior spacing or dependence on diners sitting inside is clearly going to be impacted, especially in an industry where, as it is, our margins are sub 20% for even a healthy restaurant. So, you take 50% of that room out, or even 25% of that room, and it doesn’t take too long before it’s really impacting your numbers.
Miller: I know this has impacted restaurateurs severely, and the cost of opening up a new restaurant versus maybe opening up in one of your places is different. Do you think that support of entrepreneurship and flexibility could usher in acceleration and the appeal of food halls going forward?
Lillis: It’s going to be there’s a lot of amazing chefs and restaurateurs that just because the circumstances of this might’ve been pushed out of the business and the food hall can give a chef an opportunity to get back in for a much more reasonable buy-in, 50, 75 grand passing the hat, as opposed to $1.5 to $3 million capital raise to really open a standalone restaurant, so that’s definitely going to have an aspect of it.
Candidly, I think things are going to be really difficult for unfinished restaurant spaces. Any of the smart restaurant money out there, and most of the people that are successful in the restaurant business are pretty sharp, they’re really going to be looking at second-gen, third-gen spaces, looking at food halls, looking at those kinds of things where they don’t have a big buy-in to be able to get their brand out to guests. And I think the other big thing that we had already seen those trends happening as Terry was saying, everything that was happening is happening more. In the sense that like, everything has been going so hard in this delivery business and this takeout business, and this is just amplifying.
At the food hall we’re opening, we have these touchless to-go boxes where you order on an app, and it’s no charge. And then you just swipe the QR code and the box opens up. Because that’s something that as the Uber Eats and Grubhubs of the world are charging 30%, in a business where great margins are 15 to 18, being able to give something seamless, give something touchless, and give that convenience. Our challenge was being able to do it in a food hall setting, where we’re at 19 different operators. And being able to have the order pull up to the right ticket, and the runner know how to take it to the box, and all those aspects.
I think those kinds of things, it’s always been something of the restaurant industry is a bit traditional as far as how people respond to some of the changes in the market. And I think the delivery side of it has really caught some people flat-footed. Because it really is such a departure from the traditional restaurant model, kind of how you prepare it, and for a lot of foods, it doesn’t travel that well. But it’s something that it created that gap where groups like Uber Eats and Grubhub filled that gap and became massively successful as far as their gross revenues.
But it was really hard to sustain as the restauranteur. I think now this is forcing – the change that the restaurant industry already had to make, now they really have to make with COVID. Be able to really extend their dining room and make their restaurant be able to extend into your own living room.
Miller: It’s kind of like the retail business, these trends were already happening. It’s just the changes that might’ve happened over two years happened in two months because of COVID. Is it changing the way you think food halls might be designed in the future or was the basic business model still the same today with some operating differences?
Lillis: Before, it was smart to really have delivery aspect incorporated, now it’s absolutely essential. I would think kind of an outdoor lifestyle center turning that into a food hall might be a detriment just because of exposure to the elements, but now I think that’s a concept that really has legs. If you really make that an outdoor food hall or we’re looking at a project of doing it with storage containers.
I think even in that aspect unlike a traditional retail or real estate investment where once you put that money in, it’s really hard to recapture the investment at the end of it. If you had decided to change directions, if you do do the storage containers, at least at the end of it, you have a fit-out storage container that you can sell someplace or take someplace else.
I think a lot of those concepts become a lot more interesting with such a focus on the outdoor space. People pretty clearly feel a lot more comfortable dining outdoors today than they do indoors. I think being able to take advantage of that. Yes, that’s exactly the point, things that were going to happen in two years have happened in two months.
We had seen the delivery business going up 15% per year, but the curve has become that much steeper through COVID for sure.
Miller: Are you doing your own delivery, Kevin? Or we talk about these delivery services, and I hear that they’re expensive and they take a lot of margin away, but how do you process through that?
Lillis: I think when you get on the bigger side yeah, it makes sense to do your own. It’s just that you still have to, whether you want to or not, you still have to leave them a place because the guests, in order to have your brands have exposure, if they’re really about the Uber Eats app that’s on their phone, they’re going to find you some Uber Eats or not find you at all.
It’s hard to block out those services. It’s just a matter of, do you supplement and do your own to the extent you can? That makes sense in a food hall where you have 12 to 18 operators that can all pay into the cam pool to pay for that. It’s tougher I think if you’re one standalone restaurant, you’re just going to hire a dedicated person or two, especially at peak times, to do delivery themselves.
And even technology-wise, what radius are you willing to do that in if a call comes in? It’s always been a challenging thing for the business, but it’s as much for the hotel business with online travel agencies, they would love for them to just go away. But since it’s not, you kind of have to play ball.
Montesi: We’ve been focusing as you know on experiential entertainment and retail as a way to get people off their computers and offer an environment that e-commerce can’t. How do you see those evolving in the future? I know you’ve got a lot of thoughts there. And then, how do you see F&B and food-based entertainment, food halls playing a part in mixed-use and retail places going forward?
Lillis: I mean, it’s something that is more critical than it ever was before in the sense that having these gathering spaces, I mean, we’re really a social species and, Maslow’s Hierarchy of Needs, it’s food, shelter, water, safety, and then a driving need to connect.
And it’s something that I think through COVID the isolation is really detrimental to all of us. I think those things that pull people out of their homes, if they can be done in a way that people feel safe, are absolutely critical to who we are. And it’s something that, being in the Discovery District and seeing these people on Friday and Saturday nights, and it’s not just that they are there to have fun, it’s something that, they’re there because they need it. And I think it’s something that as a lot of the traditional things where people were interacting get eliminated, in the sense that a lot of offices are talking about not bringing employees back. You lose that water cooler, you lose those day-to-day interactions, and that’s going to make it that much more important for the shopping experience, for the dining experience to have those interactions and have that shared experience. It’s sharing something with somebody. It’s eye contact. This touchless world is so difficult with that because who we are as a species still really hasn’t changed. I think it’s going to make those things that much more important and make people need to do that even more than they did before.
Miller: What’s interesting is we all thought we were doing the right things before COVID by bringing in F&B and activating our projects, and a lot of that is sort of counter to what COVID has brought us. And they’re sort of the other side of COVID. But I know you have invested a lot in activation. You’ve hired teams with musicians and event programmers. What is activation, events, and programs, what does that look like post-COVID, and how important is that going forward?
Lillis: It was critical, and somehow it is more critical. I’ve been regularly closing our restaurant on Friday and Saturday nights myself and again, you just see the need on these people’s faces. I can, to an extent, just ask them to wear their mask, ask them to social distance.
I think it’s also a bigger level to the people that don’t have families. It’s something that I think at times, people with families have been unfair in kind of understanding the experience for someone who doesn’t. If you’re home alone quarantining or home alone social distancing, and it’s just you and your television every night, or you’re working remotely and it’s just you and your pet, it’s something that you get to Friday, and you really feel pent up as opposed to being able to go home and have a family that you’re interacting with socially every night. And it’s something that one way or the other, they’re going to do it. Finding a way to do it safely, but I think it is going to be something that hopefully as we get to a vaccine, and I think it’s going to be temperature checks. That’s probably the easiest way to do it, practically.
I think it’s going to be something of cleaning supplies that stay on the surface that continue to disinfect, or I think that that’s going to be an aspect. There could be applications of UV lights, do they kill this? I think it’s going to be a lot of those things, but there’s really no option for this to go away.
There’s no option for social gathering to not exist anymore. The impact that this has had on mental health, that this has had on drug abuse, on suicide, on domestic violence, on child abuse, all of those things. It’s pretty terrible. And I don’t think we’re going to know how bad it is until probably early next year as the dust starts to settle. But as terrible as it is, we were doing a meal donation through the quarantine to a local children’s hospital, and they had more child abuse deaths in a month than they usually have in a year. So, it’s stuff like that. Just because on one side the quarantining and the distancing is helping people, but it’s kind of rears its head in other aspects of the mental health. And that’s where this coming together, we have to find a way to do it because as a species, we can’t not.
Miller: You talked about single people meeting one another and dating, and you can’t do everything on online, and you just worry about young people socializing, this year off when you’re 25 years old, and how do you date in a COVID world? And I would think F&B and food halls can maybe be a positive contributor to making that safe during this transition period.
Lillis: I think some of the technology has gone with it, where again, those cleaning things, or UVs, or instant temperature checks, just line up with the little thing. Like line your head up with a temperature check with the dot thing on your head, and it gives you a temperature check in two, three seconds. I think maybe that’s going to be the way it’s going to be in the future, but as people have asked, what’s the new future?
Well, it can’t be that different than the old future because this is who we’ve been for thousands of years, and we can’t just do all this virtually, it doesn’t work. It’s always going to come out in some other ways. That’s where I think experiential retail, experiential food and beverage, that’s not only here to stay, but it’s going to become even more important without that community office environment, more important with people seeing each other less and less, and the ways it is even in schools. And if college kids are taking classes virtually, they’re going to need those nights and weekends where they can actually have shared experiences with people even more than they did before.
Montesi: And Kevin, as you look forward to the return of the customer post-COVID to F&B, to the restaurant business, which we’ll just include food halls in there. It’s interesting, some people think it’ll just go back to normal. Some people think it’ll never be the same. I tend to think there will be some changes at the margins, but you know, a 10% change is big. And whether it’s the office business or the retail business or the F&B business, how do you see the return of business, say we get a vaccine, what changes do you see that COVID really spawned sticking?
Lillis: The less obvious one is that, unfortunately cost of goods is starting to really creep up. As some of these food treatment facilities, these farms have had their own restrictions and their own procedures that now they have to do, so their expenses have gone up and that’s been passed through to the restaurant.
So that’s one thing that, as you said, it’s tight margins that that made it tighter. So even what guests see on the front on the obvious stuff of now, we’re at 75, now we’re at 50%, cost of goods have gone up through that.
Through COVID, fine dining basically disappeared. I think everyone through this really likes comfort food. People want tacos, people want burgers, people want pizza. They like that familiarity and again, they like that comfort. That’s really what’s been selling lately, but at the same time, I think that craving of experience that only fine dining can give you will come back.
But I do think that COVID has pushed some great changes that are going to continue. The things like being able to do virtual dinners through Zoom with a celebrity chef anywhere in the world, virtual concerts where different bandmates are in different places, and they can do a collaboration. Some of these things you wouldn’t have thought of, I don’t see that going away because that’s neat. And I think there are definitely going to be some of those things that we’re going to very gladly put in the rear-view mirror as a vaccine comes out and hopefully this becomes part of the past. Some of those things that were forced to incorporate that stick around and are part of the ongoing culture.
A big thing with us and the restaurant community I think has been charity, which I think that aspect is going to continue. We partnered with Family Gateway. They’re a charity here in Dallas and been one of the only ones that’s been accepting new families through COVID. A lot of single mothers and a lot of children, so we’ve been supporting them every Monday, 10% of our proceeds. We’re giving them gift cards. They can come in and eat anonymously because these kids have really been eating in shelters for the last four months.
We’re partnering with Wounded Warriors starting in October. We’re doing Warrior Wednesdays.
We’re doing North Texas Food Bank. We’re now working with Genesis, which is a domestic violence shelter here in Dallas. It’s something that I think is really important to the restaurant community and something that’s become that much more of a focus through COVID. My partner Kelly’s been working with Hope for the City in Vegas every day for the last seven plus months. I think they’re up to something like 6 million pounds of food and over 600,000 people served.
I think those charity aspects, really connecting the restaurants to the community, I think that’s going to stay as well as something that’s become much more critical during COVID, but it’s going to continue after it.
Montesi: Well, interesting you say that because we certainly feel in so many ways disconnected. And like you mentioned people that live alone, but people that are staying home from work with their family, whether the kids are home doing virtual learning or during the summer when the kids were home, so they’re more connected than they ever were. And then I think about some other ways that we’re more connected going forward. I’ve had several friend groups that we’ve been doing Zoom calls. We used to maybe see each other twice a year, but well, since then we’ve been talking to every couple of weeks.
We’re more connected. And you think about at Trademark, most of our people, majority are in the field at properties across the country, and we used to have like once a year a number of those people would come in, we’d have one meeting. Well, we’ve been having, it was twice a month, we’re having monthly, all company, virtual town halls, and we’re planning to keep those going.
And we never really even understood how that technology could be used pre-COVID. And then thinking about families, we polled our people, and 56% of our people said they’d like to work at home at least one day a week. So, in the future, they may feel more connected to their kids or their spouse than they ever were because of that. I think there will be some really good things coming out of this.
Many of them that I just mentioned are technology enabled. Speaking of technology, any other impacts on retail, F&B, placemaking that will involve technology going forward? Cause I know you mentioned several ways in the food hall. Any other ways you see technology being involved in placemaking, F&B, retail going forward?
Lillis: Well, I think the QR code opened up a whole new door to things where we’re doing things with virtual menus, we’re doing things with whole animation you can call up on your phone based on what the ingredients are in a cocktail, and you can kind of go down the whole rabbit hole with that.
We can do donate buttons with the phones, because again, I think that tying to great things that are going to stay, I think even on the charity side, people that are doing fine through this feel compelled to give to charity, but I think that’s where a restaurant becomes a vehicle for that. Or it’s something of, I want to help but how? We give them the how. And that’s also part of the technology of kind of being able to do that directly through the app. But that’s become a touchless experience in restaurants everywhere where we’re just scanning a QR code, and less people are touching the menus.
And then obviously being able to do a seamless ordering experience. I think the challenge with that is we went through this exercise last year, actually with MasterCard, we were starting to explore what would be restaurant of the past, restaurant of present, restaurant of future.
A lot of the things as we started to mentally explore what the restaurant of the future is it candidly was a bit frightening cause we were like, wow it seems to me like this disconnected kind of a service experience. So, trying to utilize that technology, that’s going to become more and more available without separating what is that authentic person-to-person interaction that people crave as part of the deck. So, how can we do it in a way that would enhance the experience and maybe tell them more about what they are consuming? And I think is a huge part of today’s dining consumer, that with the creation of Food Network and all these kinds of programs, people are much more aware of what’s going into a dish and being able to show those aspects on the phone or on a tablet, and you can say what is in that cocktail versus this one. And maybe I’d want to make that one at home and being able to do that in a touchless way. And again, make people connect more as opposed to less.
I think the other big application that’s going to happen is in terms of decor and design. We’ve already seen it with the lack of expense and flexibility of LED lights being able to change a room and change the way it feels. And I think that’s going to become more commonplace as far as even LED walls on screens. Now we had the AT&T’s headquarters their main lobby you can walk through, and it can be the ice bars from Game of Thrones, or it can be, you’re in the middle of a ski slope at the Olympics with all these screens.
I think that’s going to be something that could be interesting how those can change by season. They could change in ways that connects you with the farm. And now you’re on the farm at the place where you’re having a glass of wine, and you’re now in the vineyard. Those kinds of things I think could start to become included. You hear the rustle of the leaves as the wind blows. I think those could be something that, again, enhances the guest experience while not separating them from human interaction. Because I think that’s always going to be the limitation as more technology gets included on it, especially in the restaurant world.
Montesi: I’ve heard you say before that your thoughts on the future of retail are unorthodox. I’m wondering what you think is unorthodox about your views and where you think retail, the consumer mindset, lifestyle trends are going.
Lillis: I think mine are a bit unorthodox because as you examine things of cause and effect or what’s a symptom versus what’s at the root of it. And for us, we really start with demographics and understanding what’s going on with the demographics of our world, of the developed countries of our world. Average life expectancy has gone up every year, with the exception of the World Wars, since 1900, has gone up significantly. And even over the last 30 years, that life expectancy has gone up about eight years. How that has impacted consumers in the sense of, 30 years ago it was kind of retirement and pretty shortly afterwards, going toward a retirement home. As opposed to today where people are working much longer. People are in their 60s to 70s, and they are very mobile, and they are eating, and they’re drinking, and they’re wearing bikinis. They are going to food halls, and they’re reconnecting with old friends. And I think that’s something where we’ve really seen the impact across millennials and kind of baby boomers in the sense of it’s really created a consumer that didn’t exist 30 years ago.
I think some of my thoughts are unconventional in that I really started with the demographic arcs. I’m trying to dig to kind of, as we’re all trying to predict what the trends are and what will be successful and what won’t be, and to why, try to get to the core root as to why these things. As opposed to looking at something of, well people like this food or this kind of experience more than that one, and just doing that experience. But trying to figure out why do they. And I think, because a lot of millennials came up with a lot of virtual experiences, a lot more online interactions, it’s that much more critical for them to connect over breaking bread. And I’d say again, the same is true with a lot of people that have now reconnecting with old friends or people in the baby boomer generation. And I’m seeing it with my wife’s parents, my parents reconnecting with friends from high school after kids are out of the house and old college friends and having a food and beverage experience that helps to break some of those barriers. And it’s much more interactive and it’s very non-COVID. I would have said, your hands on my plate, my hands on yours, and you’re eating what I’m eating.
But it’s something that I think it’s going to impact on the fine dining world, in the sense of having it with courses. And first course comes out at the same time, and you think it’s salty, I think it’s sweet, I think it’s this. You’re eating what I’m eating. It’s just a matter of how we do that in the COVID world because those shared experiences are so critical to making memories together.
It’s something that, I think again, it’s going to be that much more important through COVID. As we have been connecting less and less over the last five, 10 years, and it’s something that, again, as we’ve seen the average life expectancy go up over the last 120 years, pretty consistently, for the last three, four years for the first time, it’s dropped, which is pretty startling.
It’s really because of suicide, it’s because of substance abuse. You could even consider those in some ways the same category. But it’s something that we’re seeing that also increased exponentially with COVID and with this isolation and this social distancing.
So again, I think because it’s going to put more strain on people that are isolated if they’re not interacting in person as much in the workplace as they used to, or with shopping as they used to, or dining as they used to. If they are ordering out more on Tuesday nights, it’s going to be that much more critical for them to go out on Friday nights.
So, I think it is going to be one of those, the rope gets shorter on one side, it’s going to get longer than the other.
Montesi: Kevin, is there anything else that you see changing post-COVID or any other trends that you see that you’d like to share with our audience?
Lillis: I think the biggest thing we’re seeing is this is the first time we’ve ever had a situation where a) the technology enables it to be possible, but it’s the first time ever that you are encouraged to stay home to work. I think that’s the first time any of us has ever seen this.
As you were just saying Terry, now, some people are going to be working from home one day a week, and we have been able to, as bandwidth has expanded so much over the last 10, 15 years as far as what the capabilities. Us even having this Zoom call right now, really wasn’t possible with the bandwidth available 12 years ago in the last recession. This is the first time we’re seeing people really able to work from anywhere. And you can meet over architectural plans, and I can take over your mouse, and I can point out this, this, and this, and you never could do that without being in person before.
I think that’s really going to put a lot more pressure on a lot of the older cities, a lot of the bigger cities in this country, as well as others. We’ve already been seeing the loss of population in New York City, in Chicago, in Los Angeles, in San Francisco. And I think, if you’re a worker in those cities and you’re like, I’m commuting virtually anyway. It’s expensive as heck to live here. It’s a 90-plus-minute commute. Maybe my kids’ schools aren’t that great. People are going to leave, and people have been leaving.
Having moved from New York about a little over a year ago, a lot of my friends quarantined, they just didn’t go back. They went to their parents’ places in Charlotte or Denver, and they’re just six weeks later, ready to go back to New York? And you know, the round-table consensus was no, we’re not going back to this. I don’t want to go back to my twice-as-expensive-as-almost-anywhere-else-in-the-country place in San Francisco where groceries are expensive, and commute is brutal, and parking is impossible.
But at the same time, I don’t think everyone’s going to go rural. I think those amenities of the city are still absolutely crucial. I think it’s going to be kind of those next-tier cities. I think places like Raleigh-Durham, and I think places like Knoxville and even places like Waco are going to become – people still want to be able to have a great restaurant experience, a great shopping experience.
They’re not willing to sacrifice that in the move. But if they can have great schools for their kids and a 20- to 30-minute commute, as opposed to a 90-minute commute and living expenses that are 40% less, they’re going to make those moves. Because it is the first time that you really can do a lot of jobs from anywhere because of these advances in technology.
And I think COVID has really changed that world dramatically. And I think it’s also going to be a bit of a tighter examination of what the state tax rate is for a lot of the different states. I think that could be the decision making. I was talking to a friend, his mother’s in Greenville, South Carolina, and he was looking down there, but an hour over the border is Knoxville. And if you’re in Tennessee, it’s 1%, and if you’re in South Carolina, it’s like somewhere between six and eight, depending on what your income level is. And that matters if you’re just commuting with a laptop from kind of shared workspaces and home.
I think that’s something that as people are making those moves, some of that data, some of those key points of what your expenses are, what your taxes are going to become critical in where people are going to end up and where kind of the next hot spots open up in the country.
The only thing I would add at COVID that’s really been really interesting is that for us, with our expansion, our biggest challenge has been a lack of talent on the market. Because talented people are tied up, and great bosses aren’t letting them go.
And this was the first time for us that the people we’ve been able to add through COVID has been incredible. We have people that would have taken six, nine months of long conversations of trying to convince them to give us a shot, people furloughed them, and we snatched them up.
Some of the best hires we’ve ever had as a company have happened in the last three months. And we’re like, we’ll move around whatever we got to move around on the budget, but if we can get that person, like we’re getting that person. I think that’s also been something in COVID that as we looked at our pipeline at times our biggest barrier to expansion has been having the talent to be able to handle the work, and through COVID, we’ve been able to address that. I think that’s been another interesting thing. Never seen before with COVID of people with spouses and kids and bills that might not if they’re getting paid every two weeks, they’re not going to take that leap. But they get furloughed, we made the offer, and they accepted it, and now we couldn’t be happier.
So, we have some amazing new members of our team. And I think it’s been something that I think a lot of the stronger companies are going to do better. I think, because it is you have to stay flexible and take advantages of what’s there.
Montesi: We’ve experienced that. I talked to a company yesterday that has experienced that. It is a great time to collect talent for those that you think they’ll have something for them to do for certain.
And I do have a question related to the restaurant business. As you read all this about – I read one article, 60% of the restaurants that were open pre-COVID will close by the end of the pandemic. Or whether it’s a fourth, or a half, or 60%, it kind of doesn’t matter. There’s going to be lots and lots of real estate. They’re going to be lots of second-gen real estate space. There’s also going to be lots of talent. So how do you see the comeback of the business if restaurants close? But then there’s always entrepreneurs and always, chefs and operators with family members or friends that have money. Give us the sense of how you think the entrepreneurial side of the restaurant business will come back. I’ve always seen that downturns and dislocations create opportunities for entrepreneurs. How do you see that happening going forward in the restaurant business?
Lillis: I think again, it’s going to be a lot of outdoor spaces, a lot of outdoor experiences, a lot of trying to give people that experience they’ve always craved, doing it in a place that makes me feel safe. Some people are leaving the industry entirely, and they’re just not going to come back. I think a lot of these people, they got furloughed, and they took the last three, four months to figure out what they want to do again. I think a lot of people really got shooken up by this. They’re coming out of it saying, “never again.” Some of the people we’ve hired have frankly been wanting to shadow me more in terms of, “I want to learn more about real estate. I don’t want to be just all in on food and beverage, and I’ve been doing nothing but restaurants for the last 20 years.”
We’ve started doing internal courses every Tuesday open to our whole team, where we just teach for two to three hours, or as long as people want to ask questions and just doing internal development. I think for us, we’ve been able to hire a lot of people also that are on the younger side that have amazing attitudes that might be a little green. We’re like, well, how do we make them less green? Let’s not wait for it to happen organically, maybe we can do it ourselves. I think the strong are going to come back stronger, but it is something that some people are just going to go away and not come back. And some people that are really talented and really have something worthwhile to contribute to the industry might go away and not come back.
There’s going to be less noise in the market, I think. There’s going to be less people that are there just to be there. I think there was a bit of a filtering I think that happened as a result of this. And a lot of those people won’t be there.
Montesi: Well, we talk a lot about the oversupply of retail in this country, and I felt like pre-COVID we had an oversupply of restaurants. I was going to ask: do you believe that? And it sounds like you think that the folks that had gotten in the business because money was flowing easily, not because they were passionate about it, those might get out. And those that are left will be more of the serious operators. Is that your observation?
Lillis: Yes, for sure. And I think with entrepreneurs, as I’m sure it is with you, the people that need to do this, need to do this. Like I need to do this. I can’t see myself – if there was any possibility in who I was of doing something else, I would do that. Because it’s so tough to be an entrepreneur. You’re here because you absolutely have to, and there’s no other possibility other than creating. I need to create.
No matter how rough it is storm is, I need to do it, so I’m going to keep on doing it. And I think that’s the same for a lot of chefs. A lot of our talented partners like we’re going to wait this out because it’s at a core of who we are. So, there is no I don’t do this.
I think the talent will come back, and I think, like you’re saying with the Zoom calls, I think there’s going to be more interaction. I think there’s going to be more cross pollination. I think there’s going to be some really international things that are going to be cool.
I think there’s going to be more opportunity for what happens if this chef from Dallas does something virtually with a chef in Tokyo. And I think there’s going to be a lot of neat things to come out of this. I think it is going to isolate people, and it’s going to connect people. Like you’re saying with the Zoom calls, there’s going to be people that never would have interacted that have really been taught through the last seven plus months of this really can feel authentic, this can feel like a real conversation. I have less barriers than I ever had before.
Montesi: I want to thank you for your time, Kevin. It’s been enlightening and interesting and fun talking to you. Thanks.