ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast I have a perfect guest to help us understand what is going on during lockdown with bars, restaurants and hotels, and what we can do to finally get out of it. His name is Jon Taffer. He is perhaps known best for creating the NFL Sunday Ticket, which you probably know today as Red Zone. He is the Star and Creator of Bar Rescue, a Night Club Hall of Fame Inductee, just somebody who has been incredibly insightful in understanding how to make bars and restaurants work better, not only for the owners and for the employees, but for the customers as well. He really understands the industry in a way that nobody else does. And he is very concerned that we are going to have a lot of problems keeping some of these restaurants and bars open once we finally come out of the pandemic. We have done a tremendous amount of economic damage, and it is going to leave a mark. He has some ideas how to get out from behind that.
So with no further ado, my conversation with Jon Taffer.
ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
RITHOLTZ: My special guest this week is Jon Taffer. He created the NFL Sunday Ticket before going on to star and create Bar Rescue. He was one of six inductees into the Night Club Hall of Fame. He has created several laps for managing a bar or nightclub, including BarHQ. His latest show Marriage Rescue is out. He is the author of “Raise the Bar,” an action-based method for maximum customer reactions.
Jon Taffer, welcome to Bloomberg.
JON TAFFER, AUTHOR, RAISE THE BAR: Nice to be here, Barry.
RITHOLTZ: So you’re the perfect guy to speak to about restaurants and bars, and how people are going to be able to come out of this quarantine. But before we get to that, let’s talk a little bit about your background. How does a kid who grew up in Great Neck ends up on the West Coast in the hospitality industry?
TAFFER: You know, it’s funny, when I went to high school, back in those days, a lot of us went West. You know, we just went to California. That’s what we did.
So I had taken music lessons when I was in high school. I was a drummer. I was very serious about it, took lessons for nine years, and went to California actually to pursue a music career. And in my pursuit of the music career, I started managing a night club one day, the Troubadour, the very famous Troubadour in Hollywood, California, which had opened in ’57. Lenny Bruce was arrested on the Troubadour stage, Barry …
TAFFER: … to say something I won’t repeat. That’s the kind of history that that place had.
So I got a job at — at the Troubadour and started managing it. And one thing led to another, and I’ve been in a bar and hospitality management business ever since, but I’ve run bars, restaurants, resort hotels. I really worked in every facet of the hospitality industry.
RITHOLTZ: So how does one transition from running a bar to running a consulting business to television?
TAFFER: You know, in — in the mid-80’s, tax code changed, Barry. And it got to the point that hotels could no longer write-off certain deductions. So restaurants, and bars, and hotels had previously been more amenities. They weren’t run as profit centers. They were run really a service mechanisms to support guestroom sales in the hotel.
Well, when those tax code changed, my company was very successful — this is back in the mid-80’s — and I created a company to teach the hotel industry how to make money and food and beverage which, believe it or not, they weren’t good at that. And these are all the hotel franchises around the country. I won’t mention brands, but household brands, 1,200 hotels in one company, 800 in another.
So we went in. And in those days, hotel restaurants, Barry, weren’t exactly the greatest. Hotel bars, you would even go to. So we — we’re the company that built all the outside entrances in and try to create, position them for the local market.
We’re also the company when we got it hired by all the hotel companies. I’m the guy who flew around America closing almost every top floor restaurant on every hotel, moving them from those things into — into food and beverage operations that would be successful. And we did that for many years, did hundreds of hotels, got very, very good at it, Barry. And we opened my first restaurant, which I owned myself, I opened in St. Louis in 1989.
RITHOLTZ: Let’s go back to that top floor restaurant. You — you’re saying there’s not a lot of pedestrian traffic when you put the restaurant at the top of the hotel?
TAFFER: Well, it becomes what I called the “dreaded special occasions syndrome.” You’ll go there on your anniversary, Barry. You might go there on your wife’s birthday, but you’re not going there more often than that. And when hotels would drop restaurants on the top floors, they inherently became that special occasion syndrome, which knocked off all frequency and destroy their potential day-to-day, so none of them were ever really successful with very few exceptions.
RITHOLTZ: So how does one transition from being a consultant to name brand hotel chains to something like Bar Rescue?
TAFFER: You know, well, Bar Rescue was interesting, Barry. In all my hotel work over the years, I became a public speaker, and I spoke at all sorts of hospitality and — and industry events all over the country, 30, 40 speeches a year to many companies. And many of those speeches were the brand conferences for companies like Marriott, Holiday Inn back then, Hilton.
And when I would go give a keynote speech at a brand conference, one day somebody came up to me at one of those speeches and said, “Jon, you should be on television.” So Gordon Ramsay was on TV at the time. This is about 10 years ago, 11 years ago. He had his show Kitchen Nightmares.
So I sat down, I put together my own concept, Barry. It was a cross between Kitchen Nightmares and Mission Impossible.
TAFFER: And I wanted to pick experts. Remember in Mission Impossible, they picked the experts out of the file at the beginning of every episode, and there could be different experts for different episodes. Well, that was the model I wanted to use.
So I created Bar Rescue, wrote it up on a piece of paper. And it was originally called On the Rocks and you like the story, Barry. So I take (inaudible).
RITHOLTZ: By the way, that’s a fantastic name On the Rocks. That’s even better than Bar Rescue.
TAFFER: That’s what I thought, but — but — so I go to Paramount, and years earlier I had done a project for Paramount, the Bubba Gump Shrimp Company. And I had worked on a restaurant concept, so I knew the President of Paramount. So I take my write-up On the Rocks to my friend at Paramount, he reads it, and I won’t repeat his language, Barry. But he said to me, “Jon …
TAFFER: … you will never blanking be on television. You’re too old. You’re not good looking enough. It’ll never happen.”
So I drive out of the Paramount gates a little — little disappointed, and I say, “You know what, I’m going to do this myself.” So I went, I shot my own sizzle reel, which is sort of a three-minute version of the show.
TAFFER: Sent that to sizzle reel to four different production companies in Hollywood. Unbelievably, I got four offers — from four. And one of them was that the television convention in France. They called me from France and said, “Don’t side with anyone until we come back.” So now I have deals on the table.
So I look at the four production companies, and I didn’t follow anyone’s advice. Everybody told me to take the money, the companies that gave me the largest offer. I didn’t. I chose the company I thought would make the best show, but it was a few, few less dollars for me.
So we put together the pilot. The show sold in two months (inaudible) on TV less than a year from the day that I went to the Paramount lot was told I’ll never be on television; the show premiered. And, of course, I got a beautiful phone call from my buddy who told me I’ll never be on TV.
But the show went to three different names. It started with On the Rocks. So when they tested On the Rocks, Barry, they found that it came up with a marriage connotation — marriage on the rocks.
RITHOLTZ: Oh, (inaudible).
TAFFER: So — so that brand didn’t work. Then we became Bar Rehab for a little while, and then we landed on Bar Rescue, and the show premiered. And, of course, during our tenth year, I’ll be shooting my 200th episode in a few months if things quiet down. And it’s been a heck of a run.
RITHOLTZ: You know, there’s an amazing book by William Goldman who wrote screenplays like “Butch Cassidy” and “The Princess Bride.” And his — it’s called “Adventures in Screenwriting.” And he has entire chapters about all the amazing movies from “Raiders of the Lost Ark” to “Star Wars” to “Princess Bride” that everybody passed on and said, “This is a disaster. This will never be successful.” You’re another case study.
TAFFER: I am. And — and — but there’s something to be said in this. There isn’t any one person in the world who can tell you you can or cannot do something, and there shouldn’t be a group of people in the world that tell you you can or cannot do something.
You know, this — when — when they walked out — when I walked off the Paramount lot, Barry, the close of that meeting it became important to me. It was an idea on the way in. But when he said no, it became of a vendetta on the way out.
And I — I thank him for that meeting.
RITHOLTZ: That’s quite fascinating. Let’s talk a little bit about the early part of your career. You worked at the infamous Troubadour in West Hollywood in the late 70’s. That place had a wild reputation. What was that era like when you were there?
TAFFER: Well, I think wild is a good word, Barry. This was a very different time in our society. It was pre-AIDS, so the sexual revolution was still going on in those days.
There was no gang activity, no threat of violence, so it’s a very different time. I hate to sound like a hippie and say love and peace, but it was sort of a little bit of love and peace back then. People didn’t fear each other. They were quicker to get intimate with each other. And music was exploding then. All different types of music were exploding on the scene. And the Troubadour was sort of the center of it in Hollywood.
RITHOLTZ: So let me give a short list of some of the bands that either premiered or played there — Jackson Browne, The Byrds, the Eagles, Elton John, Joni Mitchell, Van Morrison, Bonnie Raitt, Red Hot Chili Peppers, Linda Ronstadt, James Taylor, on and on the list goes. What was it like when you were there watching that talent go through that stage?
TAFFER: Well, it was an incredible thing. Doug Weston who founded and ran the Troubadour, we get these real (inaudible) tapes back in those days. If you would listen to these tapes — there were no videos, you would listen to these tapes and pick the bands that he would book in the Troubadour. All of those bands you mentioned played there when they weren’t famous. That’s the amazing thing of it.
TAFFER: Doug’s Ear (ph), you know, reacted to them and he saw potential, so they came and played in the Troubadour. So I wasn’t watching stars per se, I didn’t know it that we’re going to be superstars, in some cases, megastars. So to me it wasn’t as much about the star as it was the music. And when Elton would play or — or these people would play, I may get off the stage, you are overwhelmed by the performance and the music, and you would say to yourself, “This person is going to be a star.” And in the Troubadour, you got to see many of them learn your chops and become stars.
RITHOLTZ: So the music and the performance side seems to be running on all cylinders, but the actual management of the restaurant and the bar was kind of a disaster. Employee theft was rife, the books never balanced. You take over in 1981. What do you do to change how the place is managed?
TAFFER: Well, a number of things, first, (inaudible) there were no rules in the Troubadour. And everybody who worked there was a musician. I mean, that’s just the way it evolves. So if — if you’re a musician and you needed a job, you work at the Troubadour.
People would take a side (ph) of beef throw in the back of their car and take it home, Barry. I mean, people take full bottles of liquor home. There were no controls whatsoever. And the half of beef that they took home, the other half of it they ate while they were working that day. So there were no controls. The club had no money, and there was a floor safe in the kitchen.
And at the end of the night, we put the few hundred dollars we made in the floor safe, and in the morning I had to come in as the manager, empty the floor safe and use that money to buy liquor that morning because we were on COD, we had no accounts anywhere.
TAFFER: And in those days, the owner used to engage in recreational activities, and he would go in there at four in the morning and take the money out of the safe. So I would come in at 8:30 in the morning, hoping that money was there so I could pay for liquor delivery and it wasn’t there. So there was a real battle running the Troubadour. It turned into a system whereby I took the money home with me every night then came back in the morning with it so I could buy liquor and such.
But here’s a funny story. When I took over the Troubadour, we had about two inches of water in the kitchen, a flood, and we did — the Troubadour did not have the money to fix it. It was struggling at the time. So we put together the Troubadour’s 25th anniversary event for a month. Everybody came back, Barry — Linda Ronstadt, Elton John, Jackson Browne, even bands like The Knack. They all came back.
We made a fortune that month. We’re able to fix the floor and the Troubadour survived.
RITHOLTZ: So what you’re describing in first taking over the bar and restaurant is effectively the basics. What sort of basics of business do people who go to bars have no idea is happening behind the scenes?
TAFFER: Well, you know, when I took over the Troubadour it was fascinating to me because I had never run any place before, so I didn’t know how it should be. But I learned very quickly how it shouldn’t be. I mean, everybody giving away drinks to their friends, overpouring like crazy, making themselves drinks, giving away food, taking food home, no standards. If he’s your buddy, you cut the steak thick. If he’s not your buddy, you cut it thin. I mean, there were no standards, no rules, it was a complete free for all.
And I worried that a young age when I worked at the Troubadour, I was in a legendary facility when it came to music, but I was in the worst-run bar in America. There was no question about it. Nobody could survive with the set of rules or lack of them as the Troubadour had.
So I walked away from the Troubadour experience with a very powerful knowledge that great places can be poorly run, great places can close. And I learned how tight the margins are in a bar business, Barry, which is the …
TAFFER: … 12 percent. If — if it works, 12 percent — 18 percent is a home run.
RITHOLTZ: So there’s not a lot of room for error or employee borrowing of either food or drink or cash. How quickly, when you walk into a bar, can you identify if this is something that could be rehabilitated and made at least break even, if not profitable, or hey, this place is never going to make it?
TAFFER: Well, I walk in within about two or three minutes I can scope the operation. I can determine what operational potential it has literally in minutes. Things like smell, music, pace, energy, the setup behind the bar, how do the table tops look? Are salt and pepper shaker sticky? Are they clean? I mean, there’s eight or 10 things that you can use as pretty good measurements to determine ability.
But to me, the business isn’t what’s failing, it’s the owner that’s failing. And I’ve always looked at — taken a look at the start, and that the only way I could fix a failing business is to fix a failing owner. And every failing business has a failing owner, so I start there. I start on the owner.
If I can’t make the owner want to clean, if I can’t make the owner embrace change, if I can’t make the owner change his life day-to-day, his processes, his procedures that I cannot change the business. I could build him the Taj Mahal and he’d still fail back. So that’s why Bar Rescue gets so intense because I can build a bar with my eyes closed, Barry. I can put in the computer systems, the recipes, that’s easy. That’s logistics.
The challenge is creating an owner who knows how to be successful and has the desire to be successful. That’s always the biggest fight in Bar Rescue.
RITHOLTZ: You know, it’s funny, you remind me of something that one of the dog trainers at one of the dog shows once said to me. He goes, “I don’t train dogs, I train dog owners. The dog knows what to do. It’s teaching the owner.” And …
… you’re — you’re basically saying the exact same thing.
TAFFER: I am. You know, great employees know what to do. Given him an environment, let him do it, train him, of course, but so many cases it all comes down to — to the owners. And it gets very conflicting and it gets intense as I know you know, Barry.
And here’s why, because of accountability. I force them to tell me that they’re failing because of them. I won’t let them say they’re failing because of the bar. The bar is them. I won’t let them say they’re failing because of the competition or the recession or the – whatever the case is. They always push an excuse.
And my second book, which was a New York Times bestseller, “Don’t BS Yourself!: Cut the Excuses That Are Holding You Back” identifies, to me, the single denominator of failure in business as an excuse in almost every case. I made an excuse.
RITHOLTZ: Quite fascinating.
TAFFER: It is fascinating to think about it. What is an excuse, Barry? An excuse is a reconciliation of a mistake. You did something you shouldn’t have, you didn’t do something you should have or you screwed up somehow. And now you create an excuse, which makes you feel good about the failure. It lets you explain the failure to other people. As you go to sleep at night, when you look in the mirror, you don’t blame that shortcoming on yourself, you blame it on the excuse.
So in the morning when you wake up and you say to yourself, “Why am I failing?” Well, it’s that excuse, it’s not me so you have no reason to change. But if I can get you to wake up in the morning and look in the mirror and say, “I’m failing because of me,” you won’t like that, Barry. That’s self-accountability, then you’ll start to change.
So the ugly part of Bar Rescue is when I’m forcing them to say that to themselves, “I am failing because of me.” They need to say that.
Now they own failure. And once you own failure, I believe you have a chance of owning success. If you never own your failure, how the heck do you get the success? So finishing up this point, Barry, I believe that when I go in and train people and I do this at my public speeches and my keynotes like I have keynotes all the time.
These days I’m doing V-Notes. We have a special camera and a stage setup, and we do V-Note speeches, and we do very, very many of them. And every speech I give, I always start with the same premise — I don’t want to change what you do, I want to change the way you think.
You see if I say, “Don’t do this, do that. Don’t do that, do this.” When I leave, you’ll go back and do it over again. Seventy percent chance you will.
But if I can change the way you think, Barry, then I can help but change what you do. So I’m very aggressive in that focus, whether it’s Bar Rescue. Whether it’s in my educational or keynote programs, I am very focused on forcing people to assess what they do, not how they do it. And by changing how you think, I can help but change actions. So that’s become my signature, and as I give my speeches all around the country, I’m very focused on shaking up the way people think so that they can begin to think differently.
RITHOLTZ: I love that. That’s quite fascinating. You had a role in the creation of NFL’s Sunday Ticket. Tell us how that came about.
TAFFER: Oh, that’s a heck of a story, Barry. Years ago I had one sports bar operator of the year in America, and I also had a consulting practice and we consulted to not only people in the industry, but products looking to break into the industry. And I got a phone call one day from a company called COMSAT. And COMSAT is based in Maryland. They have a huge field of uplink business. And they manage most of the satellites in space, including government satellites.
So they’re a satellite management company and they manage the signals coming up, the signals coming down. So at the time — this is the mid-90’s — they managed things like pay-per-view cinema for hotels went through their satellites and most entertainment channels did. They came to me and said, “Jon, we would like your company to do a feasibility study on out-of-market sports programming.” Concept being that you sitting in New York, Barry, could watch a Dallas Cowboy game. You could get that signal on your home TV.
So they asked my company to assess it, what could we charge for it? Would bars want to buy it? What would be the fee structure? What support do they need to be able to sell it to their customers and promote it, et cetera? So they retained us to do this feasibility study. So we did. We did the feasibility study. We identified huge market potential for this type of product. They paid us dearly for that work, and then they came back with a couple weeks later and said, “Jon, we really like this. Tell us what the product would look like.”
So then we did a second phase of work where we started to design what Sunday Ticket would look like. And while we were doing that work, Barry, something happened technologically called “compression.” And compression changed the satellite industry where now I could receive multiple signals on multiple transponders off one dish.
Prior to that, you might remember, Barry, to watch seven football games at once, the bar had to have a half-acre field behind it with those big analog dishes. It became sort of cost-prohibitive.
Since compression was created — that second document — we then created the premise of Sunday Ticket. You could watch seven or eight games at the same time off one satellite system. The technology worked. And then we started putting together the ad slicks, the promo manuals, a marketing book, a promotion book for the bar. We put it all together and then we delivered that to COMSAT.
COMSAT then came back a third time and said, “This is great. Now give us a marketing universe, Jon. Who the heck can we sell this to?” So we put together another document filled with the Fridays, and Damon’s Ribs, and Applebee’s and all of those brands and their corporate offices and all their contacts — in essence, a target market book and gave them that. They paid us very well for each one of these.
COMSAT then took my three pieces of work, brought it to the NFL to license the signal. The NFL read the three Taffer documents and said, “You know, this is really good. Let’s do it ourselves.” So they put me on the board of NFL enterprises and Sunday Ticket came to be.
RITHOLTZ: Wow, that’s quite astonishing. And I imagine that that was as wildly successful as it sounds the way you make it. To this day, you still have an option of doing that, don’t you?
TAFFER: Well, you know, when Sunday Ticket launched, it was originally only in commercial licenses. You couldn’t get it at home for the first two years, so it became if you wanted to watch that Dallas game in New York, you had to go to a bar to do it, you could watch it at home. Of course, years later, Sunday Ticket evolved into a residential product, too. And now there’s NFL Red and different variations of it.
TAFFER: But when we did it, which was about 26 years ago, it’s still the model by which all sports leagues do their programming.
RITHOLTZ: Wow, 26 years ago, that’s a long time. So how does that then get parlayed into Bar Rescue?
TAFFER: Well, it really didn’t. So — so I’m back to my Paramount story. So I leave Paramount, they put together my sizzle reel, and I go to Paramount. Of course, I told you I’m told I’ll never be on television, so I didn’t accept that. I wrote it up, send it to four production companies. And the four production companies sent me four offers, I couldn’t believe it.
RITHOLTZ: And these guys all knew …
TAFFER: Now …
RITHOLTZ: … your background with the NFL. They — they saw the past success obviously.
TAFFER: Not really honestly. All they did was look at me on TV. Honestly, that’s all they did. These are television stations. Sure, they cared about my background a little bit, but, you know, I learned on television that, you know, a lot of television chefs can’t cook at dinner. They can cook one place of the TV, but they can’t run a kitchen.
TAFFER: So there’s a big difference, particularly in the hospitality space between TV hospitality people and operations hospitality people — huge difference, and I were in that Bar Rescue. So they did not care as long as I could create a good TV show. They knew I had a background in it so they knew I was a quote expert, but they didn’t put much effort into learning my background in the hospitality business. They were more interested in what I could do on camera.
So we created a sizzle — a sizzle reel, and the network picked it up in four days. The show launched. You’ll get a kick out of this. First season was 10 episodes. Second season was 10. Third episode was — season was 40 episodes.
TAFFER: Fifth season was 50 episodes in one year. And it takes a week to make one, so you can imagine the amount of work that year. But, you know, Bar Rescue was successful, I think, for one main reason and one reason alone, it’s real.
I never met these people before. I get a 60-second briefing before the show starts, Barry, that’s it. I’ve never been in a bar before. So Bar Rescue last because people know real. They know fake. And I don’t know anything about these people at the bar. When I find out, the audience finds out at the same time.
So I’ve worked very, very hard to keep the show authentic. Sometimes I’m — I’m at odds with the network to do so because, you know, in the television business they want to know what you’re getting before they write a check.
TAFFER: In Bar Rescue, you’re not going to know what you’re getting until after you write the check. It just doesn’t work that way in my show. You have to trust me. So it took some time.
Now, of course, we have the level of trust with the network. You never have network executives on the show. The network really has very little to do with what we produce. We do it all ourselves, deliver the show to the network, and we operate very autonomously of the network, which enhances the reality of the show.
RITHOLTZ: Let’s talk a little bit about what’s going on with shelter-in-place, and working from home, and lockdowns. The bar and restaurant industry has been pretty decimated by this. I spoke to Pat LaFrieda, a meat purveyor in New York City who said about half of his restaurants are just shut totally. And of those that are open that are doing curbside service, take-out to go, they’re running about a third of what they traditionally run. What is the world of bars and restaurants going to look like coming out of this quarantine?
TAFFER: Well, I think decimated is the right word, Barry. And, obviously, I’m heartbroken over this. And many restaurants are running a closer to 90 percent off, 10 percent of what they did.
TAFFER: And many, of course, haven’t opened yet. And I’m making a couple of points. I’m very concerned about the difference between sustaining and opening. And …
TAFFER: … while we gotten government stimulus dollars, we’re all spending our money sustaining ourselves when we have no revenue potential. And I’m terrified we’re not going to make it and have the resources to open properly when we do have potential. That’s what’s horrifying me about the industry. And every week, more go down that don’t reopen again because what we’re doing, we were causing them to bleed to death slowly.
Now I’m not saying every restaurant, but I think, in many cases, I wouldn’t open now. I would stay closed. I would retain my resources for a real opening.
TAFFER: I would open in a few weeks when people are more comfortable. I’ll open with a bang with a little marketing. I wouldn’t just open quietly with everyone else, and I’m just very concerned.
And in our government stimulus package, Barry, they gave us money for payroll, rent and utilities, but there’s no inventory allocation. Now when these restaurants really open to 100 percent capacity down the road, three to four, whatever months from now, keep in mind they’ve been running at a deficit, so they don’t have resources. Now they have to fill the refrigerator, really fill it because everything is bad. They even have to change their beer kegs because those are bad, Barry.
So now they need the resources to create a completely new inventory to open properly. They don’t have those resources, which means they don’t order from the food distributor, the manufacturer doesn’t make it and the farmer doesn’t grow it. So if we don’t get America — Americans’ restaurants to refill their refrigerators, we’re going to have an impact right down the whole supply chain. That scares us the heck out of me.
RITHOLTZ: So they really — yeah, they really need a new line of credit so they could ramp-up.
TAFFER: Correct. We need some type of an inventory credit so that we can spend dollars on product, and it should be structured the same that the money spent on product, it’s not repayable. If it is not, it is. But we must get these refrigerators full again so that restaurants can get to real capacity levels as far as having the products to sell.
But the other thing that — that terrifies me, Barry, is the separation between bars and restaurants. The industry doesn’t separate them. We talk about them in one (inaudible).
TAFFER: And they’re not. Bars, for example, if you look at the regulations around restaurant openings, you’re not allowed to walk up to the bar. You’re not allowed to sit at the bar. There’s no standing room allowed. You have to be sitting …
TAFFER: … at the table. So by effect, the regulations to open a restaurant has closed the bar. Now you can order a drink at your table, but the bar itself is closed for walk-up or sit-down customers.
Now that, to me, I get it, but the bar, in fact, is being clustered. Oh, the restaurant is open. It’s a 30 percent. No, the bar is at zero. We — we must …
TAFFER: … remember that. So all of these bars across the country, particularly ones that don’t have food, people can’t walk up to their bars, can’t sit at their bars. They can’t have standing rooms.
Barry, that’s almost every small neighborhood bar in America. So the bar industry is far more challenged than the restaurant industry is. And I’m very concerned we’re going to lose about 40 percent of them.
RITHOLTZ: Wow, that’s a giant number. My understanding of profitability at restaurants is that the bar plays an enormous part in that. If we reopen restaurants and the bar portion of a restaurant remains closed, does that mean we’re dooming these restaurants to not be profitable for the foreseeable future?
TAFFER: Well, yes, that’s in many cases. The numbers that you’re talking about is product cost. Food cost in a restaurant could run 30 percent. Beverage costs can run 20 percent, so you’re making considerably more dollars per revenue dollar off of liquor.
You also can sell liquor without the burden of a kitchen staff, so your labor cost is connected to liquor and to drinks is a little lower as well. So yes, when you take the beverage sales out of a casual dining operation, let’s say, where it’s 30 percent beverage sales, now it’s 100 percent food sales lower profit item and it’s only a 30 percent potential. There’s no way it can make money. It’s barely sustaining itself. And when it runs out of the resources to sustain itself, Barry, how does it reopen when the pandemic is over?
RITHOLTZ: So here’s one of the questions that I keep hearing from economists. They are saying it’s not so much that we’re forced into lockdown that’s preventing us from going out and about to these places that a lot of people, on their own, are afraid to go to restaurants and afraid to go to bars or concerts or shows or whatever. So two questions for you, first, how long is it going to take for people to get over their fears? And second, can restaurants and bars wait that long? Are we basically going to be stuck in a slow circle the drain situation?
TAFFER: I’m worried about the latter, but if I can, I (inaudible) this pretty simple. Barry, let’s cut it off in thirds. I believe the third of the population, the younger third, the invincible third, they’re going to go out right away. They’re going to go out, they’re going to party. We’ve seen a bunch of them out the past weekend or two in states that are allowing it.
TAFFER: The second third I called the “reserve third.” They want to watch and see for a couple weeks, what’s happening, you know, there — was there any spike in illnesses? Do the restaurants look safe? Are people wearing masks? OK, if it looks good and feels good, that second third will start to come out in a few weeks.
The third third I call the “certain third.” They’re not going out until there’s a vaccine and they can be absolutely certain. These are people who are a little older demo, maybe preexisting conditions. But, Barry, that’s the sector — the audience that has the highest disposable income.
TAFFER: It– it’s going to impact the luxury sector. And nobody is talking about this far greater than the casual and other sectors in the restaurant and bar industry. They’re the last ones to come out. And that’s why I worry about brands like Neiman Marcus and luxury brands on how they’re going to be impacted during this whole thing because of the certain third, as I call it. So that’s what’s happening outside.
But here’s the interesting part, I have great confidence in the restaurant business, Barry. We’ve been dealing with invisible enemies since our inception. We call it “bacteria,” and bars and restaurants deal with bacteria every day. We know how to clean our surfaces. We know how to wash our hands. We know what chemicals to use to clean those services. We know to separate raw product from cooked product. We are really good at this.
A good restaurant operator manages bacteria in his kitchen every single day, and people don’t get sick. Well, now we have a virus. It’s a different invisible energy — enemy, but the chemicals have to change a little because it’s viral rather than bacterial, but the processes don’t change that much. We still have to wipe our surfaces all the time. We still have to wash our hands all the time.
Now we’re adding masks and other PPE to the process. But make no mistake, unlike the retail business or the car business or the furniture business, restaurants know how to do this. We’ve been doing it our whole lives. Here is my fear. I am scared more about the customers than I am the restaurants. So let me give you an example.
We talked about that first third, that second third and that third third. If that first third goes out, doesn’t wear masks, doesn’t employ social distancing so that we, on the news, that second third, all they see is images of people being irresponsible in restaurants — nobody is wearing masks, they’re hanging together, there’s crowds in front — that second third is not going to go.
So I suggest that the actions of the customers these first few weeks — more than restaurants — are going to determine whether this works or not. And think about it, Barry, if you’re driving by a restaurant and it’s four people standing in front spaced and they’re wearing masks, your immediate impression is, OK, they got their stuff together, that must be a safe place to go.
Drive to the next restaurant, crowd in front, nobody wearing masks. Are you going to go in that restaurant?
RITHOLTZ: If I’m 22, yes. If I’m 52, no.
TAFFER: So my point is this, those customers that are saying, “I refuse to wear a mask because of vanity,” are risking all of these businesses, not just the health of the person standing next to them. And it’s a powerful point.
The only reason why somebody would not wear a mask today is because of vanity. And that makes no sense. Vanity shouldn’t come before safety. Vanity shouldn’t come before the safety of the person next to you. Vanity shouldn’t come before destroying the local business. So I’m trying to communicate to people that if we don’t behave in these ways, we’re going to lose more of these businesses. People are not going to come. So I put the burden equally on the customer as I do the restaurant.
RITHOLTZ: Well, that’s very interesting.
TAFFER: I know the restaurant will do what it’s supposed to. Will the customer do what they’re supposed to? And if they don’t, that restaurant is doomed.
Today we’re living in a culture of accountability, Barry. If you go out to dinner and have a bad dinner, it was on Yelp in a matter of seconds. If we have infections in any of these restaurants, and we have crises to break out in any of these businesses, it will go public and it will destroy that business. So think about it.
A restaurant operator does everything right by the book, PPE procedures, processes, a bunch of customers come in very responsible. People get sick, now that restaurant is shut down.
RITHOLTZ: I have two questions about how we come out of this. One is sort of short-term and the other is long-term. Let me start with a shorter-term one.
So if we’re doing social distancing and some of these restaurants are — are running at half capacity, can these guys break even with every other table and every other seat pulled out of the restaurant? Is that — is that really a viable financial option?
TAFFER: No, it’s not at all. And, you know, I’ve said to myself, if we can’t do 100 lunches in an hour because of the 30 percent capacity, you know, now I have to do those lunches over three hours. OK, so I can do early bird lunch specials, late bird lunch specials. I can spread the business, but now I’m doing the same revenue for three times the labor cost, Barry. That doesn’t work either.
So if I recover the revenues over more hours, that doesn’t solve the problem. I have to recover the revenue in the same hours to make my numbers work.
RITHOLTZ: That makes a lot of sense. And then the second question, I keep hearing people saying, “This is going to change just forever. Everything is going to be different.” Fast forward two years, we have a treatment, we have a vaccine, does the restaurant industry return to normal or are we forever altered by this experience?
TAFFER: I’m with — I’m with the belief that we do return to normal? You know, I think we’re social animals and we need social interaction. And — and six feet apart isn’t going to work for us long-term.
Once we have a vaccine and people feel safe, I believe we go back to normal activity. And — and I think that there might be some adjustments to society. I think kitchens will never quite be the same, and I’m all for that.
I’m opening a restaurant in Atlanta in July called Taffer’s Tavern. We created the kitchen of the future. It’s all robotic cooking. There’s no human touching of food as opposed to the cooking (inaudible) process.
TAFFER: And if you look at the kitchen today and — and — we’ll send you pictures when it opens, Barry. You can see what the kitchen looks like. But — but we’re changing the industry. You look at a kitchen today, it almost looks more like an operating room than it does in a kitchen.
TAFFER: You know, we can’t have street clothes in kitchens anymore. We can’t let people wear their ball cap from home in the kitchen anymore. You know, we have to have gloves. We have to have uniforms in the kitchen. We have to have hats that we issue, not hats that they wear from home. It’s a different style of operating now. They have to have masks. They have to have gloves, but we have to have less contact in the kitchen. So I think it’s designed the way it’s going to change the way future kitchens are designed, and it’s changing kitchen equipment hugely.
Companies like Middleby who owns about 60 professional-grade ovens and cookers, they’re focus on all these robotics. And everyone is focused on how to do this without people.
What’s interesting, Barry, is six months ago we all were doing this. We were all trying to create robotic kitchens without people in them because we had no labor pool back then. Remember just a few months ago?
TAFFER: We couldn’t find any people. We had $15 minimum wages. Many of the hires we had with new Americans. They didn’t speak so well, so we had to simplify and reduce the labor burdens in kitchens.
So it’s interesting. When I started that process two years ago because we had so much labor in the market — we didn’t have labor in the marketplace, I wound up with the kitchen that’s perfect for post COVID-19, but that wasn’t what we built. We just tried to build the most sanitary kitchen that would be the most efficient kitchen in America, and we wound up with a COVID-19 kitchen. Is that interesting?
RITHOLTZ: That’s absolutely fascinating. So I know I only have you for a couple more minutes. Let’s jump to our speed round where we’re going to find out a little bit about you personally. And let’s begin with the question that’s on everybody’s mind, what are you streaming these days? Give us your favorite Netflix, Disney Plus, Amazon Prime shows? What are you watching or listening to?
TAFFER: Well, I’ve been — I’ve been watching Ozark, of course, which — which I love. And I — I just finished the new season, so I’m a little bummed. They got no more Ozark for a while.
There’s another show on Netflix called Stranger, which is a British show that I’ve been watching, which is really great. It’s a mystery show. And then, of course, on Disney, I must confess I’m a classics guy. I watch Little Star Wars, but I must confess I watched Beauty and the Beast the other day.
How good (inaudible)?
RITHOLTZ: Yeah, nothing like a little cheerful escapism to forget the mess …
RITHOLTZ: … we’re dealing with.
TAFFER: A cartoon works pretty well in the middle of a — of a pandemic.
RITHOLTZ: It really — it really does.
Tell us — by the way, the cartoon I’m watching on Disney Plus is — after I went to the Mandalorian — is a Star Wars series called Rebels, and it’s surprisingly good plot lines for an animated series. Tell us about your early mentors. Who helped guide your career and turned you into the television powerhouse you are?
TAFFER: Well, you know, it’s interesting. I — I didn’t really have any television idols per se. Gordon Ramsay, of course, was out before me, sort of created the genre. So watching Gordon, of course, the way he works has impacted me.
But, you know, I have strange mentors. I mean, Thomas Jefferson is a huge mentor to me. I know everything about his life. I have huge respect for Jefferson. He’s a real mentor to me.
Believe it or not, Howard Hughes, I’ve read every book ever written on the man. He’s been a huge mentor to me. The fact that he stepped from one industry to another was huge — was hugely powerful to me.
You know, more locally, there are people — a gentleman by the name of Stillman who created Fridays was a mentor to me. He redefined the whole dining segment. But I tend to be more motivated by global figures more than smaller industry figures.
And, of course, the greatest motivator of all to me was my grandfather who taught me that the only way you can become a millionaire in life is to be the smartest guy in the room. And the other thing he taught me was, “Jon, if you don’t have a big checkbook, you better have a big idea book.”
And those are the things he taught me when I was young, but he was probably my biggest mentor.
RITHOLTZ: Speaking of books, what are you reading? What are some of your favorites? What’s keeping you occupied these days?
TAFFER: Well, you know, I’ve — I’ve been looking at a number of books. It’s interesting, I just read one of mine again the other day, (inaudible). But there’s a book that I love that I’ve been telling friends to read it. I read years ago and I pulled it out again, it’s called “E-Myth Revisited.” And it’s a book about the entrepreneurial myths. And it’s — it’s a short book, it’s a quick read and it really makes us think about ourselves, whether we truly are entrepreneurs, business people, administrators. It cuts us into categories to business to personality and helps us to understand ourselves. It’s a — it’s a fun book. It’s called “E-Myth Revisited.” It’s written by Michael Gerber.
RITHOLTZ: I will definitely check that out. Tell us the sort of advice you would give to a recent college grad who is thinking about going into either the hospitality business or the television industry.
TAFFER: Well, you know, both industries are — are — are somewhat of a metamorphosis, if you will, or a fork in the road. The hospitality industry is not going to go away. We need hotels, we need restaurants, we need bars. It’s an important part of our society. But those who go into that business today are going to be the instruments of change.
Great marketers are going to bubble to the top, Barry. Great promoters are going to create revenue. Great operators are going to find new systems. So I personally see this is a time of rebirth. You know, it’s almost like when there’s a forest fire and those new sprouts pop out of the ground …
TAFFER: … (inaudible) one grow quicker than others.
I really believe that. I believe there’s going to be an exciting time as soon as that vaccine comes out in the industry. So I’m telling to people that want to go into the space don’t not — don’t hold yourself back. Think of the greatness, think of the amazingly powerful ideas and programs that are going to redefine and re-launch the industry. So I would not divert into a different way. I would remember for every person who’s graduating this year that great marketers are going to market really well — great promoters, great operators. Be one of those.
If there’s anything that this pandemic has taught us, it’s mediocre is not going to work coming out of this. We need energy to come out of this. We need ideas to come out of this. We need those young minds, those young ideas that understand social media so well, grew up living these things. They’re going to be the biggest contributors to this change, I believe.
RITHOLTZ: I love that suggestion. I think you’re — you’re dead on. And our final question, what do you know about the world of hospitality today you wish you knew back in the late 70’s when you were first getting started at the Troubadour?
TAFFER: Well, you know, I think the world of hospitality today is we didn’t appreciate loyalty like we did today. You know, we didn’t have loyalty programs, and frequency cards, and all of those things. We used to look at guests as transactions. We didn’t look at them as relationships.
It was only in the later years of the industry that we all started to understand the power of frequency and building guest relationships. And that’s when all the software programs created and the tracking programs and the frequency programs. The one thing that I didn’t know when I started in this business — and I learn my financials, I learn my operations, I never learned what really marketing was until much later years.
Marketing is only three things, Barry. And in the hospitality industry, I didn’t know when I was younger. I don’t think they did. Marketing is new customer programs, frequency programs and spend programs. That’s all we got, Barry. I got to get you to come the first time, I got to get you to come more often, and I got to get you to spend more while you’re there. That’s all we got.
Most hospitality operators don’t cut marketing into those three things, they just spend the money generically. And if ever post-pandemic we need to isolate our dollars into new customer programs, frequency programs and spend programs, now is the time to do that. But I didn’t know any of that. I was just spending the money and trying to build buildings. Today, this type of knowledge or frequencies and season customer loyalty is what’s made our industry so successful. And (inaudible), Barry, that’s what’s built the brands that we have today is those loyalty efforts.
RITHOLTZ: Jon, let me throw one more question at you because you kind of tickled something in my memory. If you are a customer today and you want to help keep your local restaurant and business even though we’re under lockdown, what could an individual do to help out that restaurant?
TAFFER: Well, a number of things. One, gift cards are a great way to do it. There’s a website anybody can go to. It’s called shift4cares.com, S-H-I-F-T-4, the number, cares.com. If you go to that website, you can buy a gift card for any restaurant in your local town and they pay them five percent more than the value of the gift card. So if you’re going to buy gift card, go to shift4cares.com, get them the extra five percent. I think that’s very, very important.
I think calling restaurants and trying to do some catering programs, if you’re having any kind of family over, if you can order dinner for four’s, I think that’s very, very important. I think bars should start selling deconstructed cocktails. You know, some of us have tequila, vodka, rum and stuff at home. Show me the cocktail without the booze. The government can’t regulate that. That’s only regulated when there’s booze in it. I’ll put the booze in at home. So we have to be innovative as restaurateurs to offer packages to people that they can buy.
But I really think, look, the second public building ever built in America, Barry, was a bar. The first public building built in America was a church. Those bars were called “public houses.” State borders were — were discussed in those bars. Our constitution was originally discussed in these bars all across the country. So bars are in the fiber of America.
Our first distiller was George Washington. So bars have a place in our society that coveted third place, Barry. You go home, you go to work, and then there’s that coveted third place. To some people it might be a country club, to other people is their local bar, but that third place is an important place to our society. It’s where we all converge. It’s the place of community, so they can’t go away. And as people, we want to fight for this industry and protect it. And I’m asking the government to step-up and look at some inventory credits to help get us over this hump.
RITHOLTZ: Quite interesting. Thanks, Jon, for being so generous with your time.
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I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.