Increasing demand for delivery predated the pandemic, and higher volume rewards unconventional innovation.
By Sam Nazarian as told to Zagat Stories
Sam Nazarian is founder, chairman, and CEO of SBE Entertainment Group, which owns and operates a wide array of restaurants, nightclubs, hotels, and other hospitality properties around the world. In 2019, he spun up a subsidiary, C3, that focuses on housing multiple “virtual” restaurants in a single physical kitchen, allowing for more diverse offerings in delivery and other channels. The model, in use at restaurants like Umami Burger, Sam’s Crispy Chicken, Katsuya, and Krispy Rice among others, has found particular success in delivering during pandemic lockdowns.
A year ago, I created C3 focusing specifically on delivery because the numbers were already evident. Millennials are ordering differently. They’re going out less. They haven’t been spending like the generation before them. A 25-year-old today is as smart as a 50-year-old was when I was growing up, as far as understanding the culinary scene. We were just happy to eat a pizza. I’d go to a club and buy a bottle of champagne or something. Now they’re much more savvy, they’re much more health-conscious, they’re much more environmentally conscious.
We have a couple hundred restaurants and bars and 40 hotels around the world. We started to see the habits of our consumers changing and going straight to delivery and delivery apps. We decided to look at it holistically, what is differentiated within the delivery space—very similar to what we’ve been doing with the lifestyle space, where we have five hotel brands, multiple food and beverage brands.
Our idea is to work with the best chefs we can find—like Dani García, Masaharu Morimoto, Katsuya Uechi—using our infrastructure and our operational platform to accommodate delivery and virtual brands. It’s really fun to pick the minds of these amazing culinarians. Give them a new goal—different kitchen equipment, small kitchens, food that lasts, food that delivers well, and packaging that brings the lifestyle into your living room or office or apartment. So if you could never have a dine-in three-star Michelin experience because you just couldn’t afford it, now you can try it for between $20 and $40.
Since the pandemic, we’ve signed 25 leases on restaurants that are dark in main streets in Southern California and in New York. We’ve found that landlords are starting to understand delivery, and understanding that some of these restaurants will never have a traditional tenant again. We’re able to open up six to seven brands within a restaurant that traditionally had one kind of full-service perspective.
I come from 20 years in the world of building cool places, and you hope everyone comes. You want to be on Sunset Boulevard in LA, you want to be on Collins Avenue in Miami, you want to be in Soho or Tribeca in New York, the Las Vegas Strip and the casinos. But everything I’ve learned in the restaurant space from an execution perspective, now you just have to completely shift. What we realized is that unlike before, where you open up and people come to you, now you’re looking instead at a 30-minute radius—whether it’s 30 minutes delivered on a bike, or 30 minutes in a car, or 30 minutes for people coming to pick up and go back home.
We’ve found that the ideal number is having four to five brands per kitchen. You’ve got to have the versatility, because you’re going to need it. On average, each brand in each kitchen needs to have 100 or 150 orders a day, and an average check of $25. That’s when it works. But if you’re less than that, you’re not going to make money. A lot of the players that are getting into this space, unfortunately they’re in for a rude awakening, because it’s not as simple as turning on an app and seeing what happens.
For us, the sheer volume of orders for our brands that launched in the pandemic environment was really unprecedented. For Krispy Rice, we ordered 200,000 delivery packages. We used up those packages within 11 days. We had to use Katsuya packages and put Krispy Rice stickers on them.
When it comes to menus, what’s interesting is that people don’t want à la carte. People want you to make the decision for them. We saw that with Krispy Rice when we offered four box meals, and the box orders were about 85 percent of all orders. People don’t want to go through the click, click, do you want this, do you want that. Combos may sound cheesy, but if you think about it, that’s what we’ve all grown up understanding. Give me a number two. Give me a number three. People want to see a pretty picture, and if it has the stuff they want, they feel there’s value by ordering a combo. Now we’ve changed a lot of our online ordering to allow combos. That’s one thing we didn’t expect. Obviously it’s better for us, and it’s easier from a training perspective and a ticket-time perspective.
When it comes to existing restaurants, the mom-and-pops or the one-offs or the people that have a couple of restaurants—they have an opportunity to create another brand, but use that same creativity they had to open up one restaurant, and be able to service people around their community with a whole different category of food. As hospitality folks, we have to evolve. As creative people who created these menus, that’s in our DNA or else we shouldn’t be in the business. There’s loads of great opportunities for us, for restaurants, and also for the community, because nobody wants a street full of empty restaurants, especially today.