 Welcome back to Think Tech. I'm Jay Fidel. It's a 12 o'clock clock and community matters. And this show is going to make you hungry and maybe frustrated too, hungry and frustrated. We have Cheryl Matsuoka. She's the executive of the Hawaii Restaurant Association. And she brought along two restaurant owners and entrepreneurs and managers that we need to meet. Because we want to understand today what's going on with restaurants. It's been a hard time for restaurants. On both sides of the equation, it's not only that the restaurateurs and the staffs are having a hard time in COVID. It's that everybody, you know, this is a restaurant town. Some people live a good part of their lives. My wife and me included at restaurants. We're eating out all the time. Hawaii is special that way. And we miss you guys. We miss you. Cheryl, tell us about the Restaurant Association and tell us who you brought along. Sure, I brought along Greg Maples. Greg is our current chairman of the Hawaii Responsibility Agency. Sorry, I've got a problem. And Greg is with the Polish Encolonial Center. He's the director of Rush Box Services. I also brought along Russell Ryan, who is with Highway 8N. Everyone knows Highway 8N. There's a location in Alamoana and a location over in Lake Papua. Russell Ryan is the chief financial officer and chief commercial officer. Welcome to the show, Greg Maples and Russell Ryan. Nice to have you here, you guys. Thank you. Yeah. Why? Why? Cheryl, why do we care about the Restaurant Association of Hawaii? Why do we care? We care about the Restaurant Association because we have, we represent the 3,600 restaurants, well, all the islands do. I'm talking, you know, the Big Island, Kauai, Maui, I mean, you go all the way down. We have, as you know, our current workforce as the restaurants are closed. Our current workforce is unemployed and we need to release that work in, open up our restaurants. We want to do it safely, you know, our message is of course when it's safe to do so, but our restaurant tours are just waiting to open up soon. Okay, let's start with you, Russell. How's the Highway 8N doing? What, how have you suffered? How has your staff suffered? And it's a terrible question to ask, but how's business? Yeah, well, I wish it could be better, but for sure. You know, to go, to go sort of briefly in chronological order, in March, it was the first two weeks we're just a wasteland, but little by little, they both picked up and they've kind of been steady ever since. Our town location is doing worse than our Wapapu location. We put that down to the difference in demographics and, you know, because people in town are buying for themselves or their spouse and people in Wapapu are buying for their families. And so they tend to be buying bigger meals and not to get sizes bigger. But so Wapapu settled on a higher revenue per, a higher revenue per month than Kakaako has, but the bottom line for everybody is that no matter if you're making less than about 70% of your prior revenue, you're not covering all your costs. And that is the big issue going forward. Restaurants, unless there's some government assistance with PPP or various other things, they're gonna start struggling pretty soon because most of them are through their first round of PPP already. So once that is all washed out of the system, people are gonna start looking at their fixed costs and thinking, how am I gonna pay my rent? How am I gonna pay my bank? Because right now, I think it's fair to say that most restaurants have sort of settled into their, their sort of revenue level is matching to their labor and their food costs. So they can pretty much cover those things, but it's all the other stuff they're gonna struggle paying. So that's really how business is. Our stuff, we've got, you know, during PPP, we kept everyone on payroll, but after PPP, obviously we've had to start cutting hours. So we're down to about half the total manpower in terms of full-time equivalent. And of course, you know, in the waitstaff, they make their money from tips also. Yeah, yeah. That tips must be suffering just the same way, huh? And PPP doesn't cover that. Well, you could use PPP for that if your math worked out okay. So we did a little bit of tips sweetening with the PPP, but not a lot. And because we just couldn't, because you know, with PPP there's various rules and restrictions you have to manage. But the big thing now is they're not making, they're not making enough tips. So their salaries are considerably lower. I mean, our waitstaff used to make, our full-time waitstaff would make, you know, 60 to 70,000 a year because of the lucrative tips that they would get. Now they're, you know, just currently they're probably only making like 20,000 a year. So that is a big, big issue. And of course, tips come back when demand comes back. Yeah, of course. So are you losing them? Are they moving off to other situations? Are they leaving town? It's a mixed bag. Yeah, we've got some that just leave and just want to go do something else. Some just stay at home. Some maybe have gone off to the island, some back to the mainland. Generally, it's sort of a mixed bag, but for whatever reason, we're running, I mean, we've had 20% resignations now. People are just going off to other things. So we'll have to do some rebuilding, obviously, but, you know, hopefully by then the pool of applicants may be a little more vibrant than historically it has been. Okay, I want to come back to you on a variety of other things, but let's talk to Greg for a little while. Greg, you have a completely different situation at the Polynesian Cultural Center. Can you describe it? Ah, yeah, it's devastating. You know, we've been closed since March 16th and we probably won't open at the earliest till October 1st. So we've gone many, many months with, you know, no sales and we've done a great job in the first four months keeping all of our people whole, paying them, at one point we did have to furlough, we furloughed 300 people and we're in the process of doing a look at what we're gonna do next because we continue to pay people and their salaries as well as their insurance and at the clip of a $2 to $3 million a month, we don't have very much longer before we're gonna have to make some changes. Wow, how big is your operation? I mean, Russell's got two locations. When you have 50 seats in each place, Russell? Well, it's also 100 each. Oh, 100 each, okay. Greg, you sound like you have a lot more seats, huh? Yeah, so we have 1,600 employees at the Polynesian Cultural Center and we feed on an average during our peak tech times between 4,000 and 5,000 people a day. We have a restaurant, Pounders, which is our full service restaurant that seats about 237 people and then we have our Gateway Buffet area, which seats probably around 2,000 people and we have two Luao venues that seat around 500 seats each and we have four Luaos daily. That includes all of our concessions, but so we've had to do some extraordinary things because of the problems that we've had out here. Pounders restaurant is doing probably about 35% of their 2019 sales. So we're about 65, 70% down over prior year and the good news is we don't have any rent, right? We own our property. So without that rent, there's just, there is a way we can stay open by that. But if we had rent like everybody else, which is my biggest fear for our restaurant operators and owners is that not everybody has that, what we do and they are struggling with that a lot. And I know we'll probably talk about this, but one of the concerns we have also is this is the last week where the $600 feds plus up for unemployment. So you're gonna have what is it 280,000 people that starting next week are gonna get 600 a week less. That is going to affect the economy. It's gonna affect our comma Ina restaurants because right now we have a lot of people and in some cases, and I know there's controversy on both sides where they've been making more than what they did when they were working. But what that's done is allow some of those folks to go into the restaurants, into the retail and purchase and do things. But with that coming off, that is a very big concern of ours. Wow. So at one point, so if you don't have rent, then your break-even point, Russell was saying his break-even point is about 70%. Depends on the establishment, but 70% is what we can run with now by virtue of really interesting, the SBA had loans and they offered six months forgiveness. So with six months forgiveness, our break-even is about 70%. Okay, what about you, Greg? What's your, without rent now, what's your break-even point? Yeah, probably about 70%. We have to have about 40% of our sales from 2019 for us to break-even. And we had a staff of well over a hundred people. We had a staff of about 33 in our restaurant. My division had 588 people in it pre-COVID. And right now the division that I run has about 65 people. So who decide? I mean, is it government deciding whether you're open or closed or are you're deciding? Well, that's a great question. If it was up to us, we'd be open all the time, right? We're only doing this because of the mandates and because of COVID-19. And quite honestly, when this first started, we know that it was supposed to be a 14-day quarantine to help get our hospitals in order and what happened. It just ballooned into one week to a month to two months, et cetera. And here we are, as a restaurant association, we were really keyed in on the August 1st opening day for tourism because that was our hope, right? It gave us hope that we could bring things back. Couple of things to remember. You've got a lot of chain restaurants, not all of them, but a lot of the chain restaurants are doing really well. If you've got a drive-thru or you've got a delivery ability, you're ahead of the game, right? And you don't find a lot of drive-thus on these islands because of the cost of land. So if you're more comma-ina-driven, tourism is gonna be less impactful. But let's face it, everybody has impact some way by tourism. But for our restaurants, these 3,600 restaurants, the majority of them are impacted by tourism. So when we finally got the date, which we worked very hard, Cheryl and her team did, it's such an excellent job, to get with the local and state government to tell them we have got to get open. And finally, we get this August 1st date. To have it be pushed to September 1st is like putting a fist, a hole the size of a fist in a balloon. It just took everything out. We have seen Jay over and over every day reported restaurants closing, businesses closing. It has been my opinion from probably starting in April that by the end of the year, you will see almost 50% of the restaurants close on all of our islands. And right now, we only probably have 50% of them open. If anybody's been to Maui lately, I took a trip with my family to Maui and I was so sad by what I saw. One in 10 restaurants were open, nine out of 10 were closed. Shops just boarded up. It looked like I had gone to the off season of Florida. It was absolutely awful. Well, there's no tourism. There's no tourism. And so the traction is what it was. So let me, Russell, are you in jeopardy of not being able to continue? Yeah, absolutely. We've got, I was looking at sort of how many months I could survive if there is not another government package come our way. And it's not gonna be this year, but if we get to the spring, basically, I guess the spring nothing's changed. I start selling properties, my personal property in order to get the business to survive. I mean, it's that bad. I mean, there's very little left. And when all that money is gone from selling the condo of it, I own, then that's it, that's the end. So it really is, it really is needs, it needs some interim government money and this vaccine, whenever it comes out needs to be coming up at the end of the year and it needs to be successful. And without that, what Greg talked about when it comes fast and it may be even worse than that. Because essentially what you find is the banks are not gonna help you out. They basically are gonna cut their losses. There is very little from what I can see motivation for them to help. They would rather just collect that collateral and be done. It's not a pretty picture. I mean, how about you personally? I mean, you seem rational and business-like in discussing this stuff, but it's gonna wreck your life, isn't it? Yeah, it would do if we got there. I hope that it won't. I continue to look every single day for alternative means of financing. But yeah, it could basically the end of the day, we'd be done. So that is a hard reality. I think a lot of people have gotten to that point ahead of us. It is one of those things that's going to be a survival, not of the fittest, because some restaurants have gone for other types of reasons, because of timing of expansions they've done, of timing of the financial situation they were in, because the business cycle comes and goes and you may have invested in something and then I know several people just invested in a restaurant and then COVID came immediately thereafter and when you spend all your money and resources, spend building out the interior of a restaurant and then all of a sudden nobody shows up, that's probably the worst possible timing you can get. Yeah. So as far as the restaurant association is concerned, you see this happening, it's happening all the time. You have the 50,000 foot level to look at it. We've talked briefly about some of these national chains and I suspect they're equally stuck. And what about them? Are they deep pockets enough to hang around or are they gonna close their branches here in Hawaii and leave us without the national chains that we go to see? You know, Jay, that part of them are national chains, but many of them are locally owned national chains, right? So I think McDonald's is an example, right? There's a local family that manages and operates all over McDonald's. I'm involved in a couple of chain restaurants also and friends of mine are like the Ruby Tuesday and the Duke of their local Kaiser graduates, local guys that invested in the chain. So yes, you're right. They are also in the same situation just like with Russell and many of our restaurant tours mentioned, they still have the expenses, Jay, with zero dining room income for the first couple of months and now our dining room capacity is at 50%. So you basically have 50% of the revenue coming in from your dining rooms, but you still have 100% of your rent and your utilities and your insurance. Landlords giving restaurants a break. I mean, on the thought that if they don't do that, they'll lose the tenant altogether. My experience, speaking obviously from my limited experience, we have the one in town, which is Kamehameha School and Kamehameha School says, step up to the plate and told us that they're not gonna default to us and they will work with us to renegotiate the lease. So we feel pretty comfortable there provided, provided obviously this doesn't go on for a very long time. Well, that's the thing, you guys are touching on that and I'm just integrating what you're saying with what we hear from other sources. I mean, there's no vaccine, there's no therapeutic, there's no immediate hope here and the thing is spiking all over the mainland which has an effect on people's confidence in traveling. So you have a very low possibility of a big increase in tourism even if we really, really, really want it. People are not gonna be comfortable traveling there, especially when, they're trying to find quiet places in the hinterland, in the Northwest, what was it, Walden Pond, with this nobody else around, that sort of thing. So I just wonder this though, if we look at this from an optimistic point of view just for a moment, okay? And we say that by the end of the year there is at least hope and thus confidence. What about your supply lines, Greg? You have to get the food, you have to get the supplies and those companies are also under pressure because they have no business right now. Restaurant supply is a big business. Are you gonna be able to put it back together again say in next year, when the coast looks better? Well, there's some great questions and there's a couple of points I wanna make. One is, I wanna talk about our local ag because that's part of our supply chain. So what's happening is our local ag doesn't have anybody to sell their agriculture to because it's with restaurants, hotels, people that could charge more because locals don't buy local ag, they go to Costco, they go to food land, they go to Safeway, et cetera. So what's gonna happen is this local ag's gonna go away because there's nobody here to buy it. And then what's gonna happen is we're gonna have lost that cultural connection to our ag folks, which means so much to us. And then we're gonna be reliant on the supply chain coming from the mainland. So what happens is when you have a government like we have now, who gives us hope and then takes it away and then gives us hope and takes it away, that accordion is felt all through the supply chain. So you're a H&W, you're a Waihata and you're trying to get enough food on the island to be able to source these restaurants. And then one day somebody decides that we're gonna pull back dining rooms. Okay, so now you're sitting with warehouses filled with food and restaurants filled with food. So you gotta try to sell that, that goes away. So after a couple of those times, suppliers are gonna say, not so fast. We're not gonna do that, we're gonna hold off and then heaven forbid anything happens on the mainland with any kind of supply chain. And so what happens is we have a lag of getting that food here. And it's all because we have government officials who don't understand how that supply chain works for us or they're not at this point ready or willing to understand it and listen to it. And so supply chain is a huge deal. And what hurts me more than anything is that we are going to lose so much of the culture of restaurants on these islands if we don't do something because we're not gonna have that local food. I'm telling you, and I'm sure in Russell's restaurants and I know in our restaurants, we use local product. Right here, we have a pounder's garden. We use, you know, Kahuku Farms and Kupa Kaya Greens and all those things. They can't grow because there's no one to use it. So you're gonna end up being reliant on that supply chain which is just being jerked around back and forth. I'm sorry. Go ahead, Russell. You can say the other issue is, you know, we've been directly impacted by the problems of the meatpacking plant on the mainland which I'm sure you've all heard of. Certain cuts of beef that we use, because Hawaiian food has a lot of beef in it, it's gone up almost three times. So we've had to not only suffer from a lack of demand, we're also suffering from having to raise up prices significantly on certain menu items because the supply chain has been disrupted further upstream. And that of course leads, not only to silly yelp reviews, people complaining about the pricing, but it also leads to a reduction in demand which further exacerbates a problem. Plus what you find is that the unit size that those suppliers are bringing in from the mainland has shrunk. So the unit price has gone up. So everything has gone up to get imported from the mainland already. You know, all produce items are up. So we've started reaching out to some of these local farmers that Greg was talking about. We actually have one farmer who's grown stuff just for us on his land. He's going up to Carolese, Lualese, and we go out there once a week and we grab them from him and he's happy to get that. That's great, it works for everybody. Yeah, so it really is, the consequences of what's going on through the supply chain is showing up but it's on the diner's plate right now already. Sure, well, what about the whole notion of reinvention? I mean, have you changed the rules? I mean, when people come in and they have to wear masks, how long can they wear masks before they eat? You know, you can't eat with a mask on. And wait, staff, do they wear masks all the time? And I'm asking these questions because I haven't been out, see, I don't know. And do you have plastic pieces that separate people who have changed the configuration of the tables? What have you done in terms of the way the restaurant works? Yeah, I mean, pretty much you've hit on the three main things is we have the plastic shields in front of the cashiers like you may have seen in grocery stores. We have the servers all wearing masks and changing their gloves, sanitizing the table when people leave. And we space everybody apart. We shut off every other table and we have like little stickers on the floor telling people where to wait and just keeping everybody apart. But it's again, I just looked at our security cameras and normally at lunchtime on a day like today we have like 80 people in there. We just looked and we have about 12. Ooh. And you know, it's done. Well, Jay, I think it's important to remember that part of these guidelines is that we have to reduce our capacity by 50% in all the restaurants. So you can't even have 100% of your people of your capacity in there. And in some cases restaurants can't open their dining room because it doesn't accommodate. It's just too much for them. So they just stay takeout, which is really, really sad. Yeah, one thing, one thing. Does anybody come around and take a look and see if you're following the guidelines? We do, we have the health department came out with the new guidance on the placard system. So now, you know, as we have the green and the yellow and the red placards that indicate our health inspection status, they've added wearing of masks and six feet of social distancing to that placard policy. So inspectors are out. If they see you doing it once, you get a warning. If they see you doing it twice, you get closed down. And you're closed for an indefinite amount of period, probably about 24 to 48 hours until you can get back open again and recommit to doing the right thing. So that is out there. So let me ask you this, Greg. You know, everybody talks about reimagining, reinventing. And I would imagine, you know, that would apply to the restaurant industry as well. And so when this is over, restaurants are gonna be different. I'm sure you think about that. Of course, when is the question, but, you know, there will be a reinvention of things. I don't know whether they'll all be COVID type of things. Maybe they'll be marketing thing, maybe a different, you know, consumer taste. Who knows what, but what does the restaurant of the future in Hawaii look like? How would it be reimagined and reinvented? Well, I think there's a couple of things. I think first of all, you've got the whole new world of takeout that has happened, takeout curbside delivery. I know our restaurant, we did minimal takeout orders and today it's 20% of all of our sales and in some restaurants, I'm sure it's a lot more. I think you're gonna find that our POS systems and our technology is going to be greatly enhanced. And when it comes to contactless payment and different ways to pay, we use at our restaurant Chao Now, which is our takeout, but it's so easy and that's not a plug for them in particular, but it is so easy and made it so much easier for guests. They just come in, they pick up, it's already paid for. But I think technology, and then I think you're gonna have equipment in the back. I think you're gonna have different parts of our supply chain and Russell, you've probably already seen some of it in your restaurants. Yeah, yeah, in fact, we jumped on it pretty quickly. We had, we implemented online purchasing platform. We implemented curbside delivery. We use Alexa to, when the car is showing up, it announces, a car is, oh, now I've got Alexa talking to me in the background, do I mention that? That's really funny. So we have that device announcing the car's arrival and the cashiers as a result have had to get a little more familiar with technology. They've had to monitor the iPad, monitor the delivery pad, monitor those sort of things. We also do our own delivery now as well. So we actually made a deliberate choice when we selected our location of our restaurant to be in the location they're in with easy access to driving up, people driving up. So we'd always been in control of our own destiny. So that has helped us now in this particular scenario. So we've seen that aspect of technology crop up. So now we're seeing one third maybe of our payments coming in online. The other thing in terms of reimagining, and this is more in my wife's area, but what she's done is she's started to work on the presentation of the food and the takeout containers to make sure that when people get it, it doesn't look like it's a shake or not swap. That's just really important. Yeah, so when people receive the package, it looks nice. So we've invested in that. And then the other aspect is we actually just hired a consultant and got a variance to the DOH code to sell vacuum sealed product. So we're just about to relaunch that because we started it, but the DOH said we couldn't do it until we met that guideline. And the guidelines didn't exist. So we helped them write them. So once we got that done, which was approved a couple of weeks ago, we're just about to relaunch selling of that. So you've seen the mucine shrink wrap packaging of food. We're gonna start that here locally. So reimagining is we're gonna try to get our food into people's dining rooms a little easier that way. And we're working on shipping with UPS and that type thing, refrigerator packaging. Such an innovation. I'm very impressed with the technology, the approach, your innovative approach. I hope you can get through this, you guys. The worst result would be is you have to fold and then because of your expertise, you wanna go back into business, but that may mean starting from scratch. What a horrible experience that would be because it's hard to open a restaurant. It's hard to make it work. It's hard to get people to come around and so forth. So one more question and then we gotta go. Cheryl, I wanna ask you this. What does the restaurant association do for the restaurants right now? Because it's obvious that these guys can help each other. And you are the exchange program. You are the one that, you're the hub and the wheel. How are you helping them? We're helping them to all of them. As you know, we are affiliated with the national restaurant associations. So we are the Hawaii location, the Hawaii chapter here. So we're helping them by being sure that all of our national delegates and our local representatives all know what we're looking for. So we are the voice of the food service industry. Well, carry on, they need your help. And you guys, I'm very impressed with your fortitude and your creativity. Greg Maples, Russell Ryan, thank you so much. It's been a great meeting you. Kind of more appreciate your restaurant, your effort. I can even taste your food from this discussion. Don't be afraid to come and visit us, Jane. Our restaurants are safe in Hawaii. Thank you, Greg. Thank you, Russell. Thank you, Cheryl. Aloha, you guys. Aloha.