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Published on July 25th, 2018 |

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Hotels, restaurants face labor, operating challenges

By Mary Welch
Atlanta’s hospitality market is in a great place but there may be some grey clouds on the horizon, according to a group of experts in both the hotel and restaurant arenas who spoke at two panel discussions, “Atlanta’s Thriving Hospitality Market,” sponsored by BisNow.

Heather Tuskowski, Lisa Smith and Mark Toro discuss the challenges faced by Atlanta’s hotels at a recent BisNow panel.

“I feel there are more good days behind us than before us,” says Brad Rahinsky, president and CEO of Hotel Equities Inc., a hotel development and management firm.

Occupancy rates are stable but the real issues facing the industry’s health are construction and labor costs.

“We’re in a labor shortage and that is driving up costs,” says Mary Beth Cutshall, senior vice president and chief business development officer at HVMG, which deals in hospitality and real estate. “In addition, subcontractors want to keep their people busy and are more selected and targeted in their projects. They want firm start dates and they need it to fit into their schedules.”

It’s a “zero unemployment economy,” agrees Rahinsky. “If you aren’t taking care of your employees, someone else will. Sometimes I feel like we’re a staffing service because we have to go out and hire 30 to maybe 100 associates and it’s a fine dance.”

Mark Toro, a partner in North American Properties, which owns The Hotel at Avalon in Alpharetta and is building Revel at Sugarloaf Parkway in Duluth, said that not having transit access is “significant” in terms of hiring. “It’s tremendous because you can’t get there and, even if you’re an employee with a car, you’re stuck on Georgia 400 in choking traffic.”

Gwinnett County’s talking about extending heavy rail beyond the Doraville station will make a “significant difference,” he says.

The increased costs in labor, construction and municipal tax rates are not causing any “significant decreases in pricing or in the inability to drive rates up,” says Brian Waldman, senior vice president of investments at the Peachtree Hotel Group. “There’s no significant pullback in rates. It will happen though.”

In terms of urban versus suburban markets, the general consensus is that it’s less about actual location, than what’s around that location.

“We offer an urban experience with Avalon that’s in the suburbs,” says Toro. “You walk outside and you have the restaurants, the shops. The mindset now is that when seeking a hotel you want to step outside and have everything there.”

Waldman agrees guests today want “walkability with good amenities, an experience.”

There are some changes in what guests want. A pool, for one. “Marriott, for instance, is backing off the requirement for a pool,” says Cutshall. “I would never have predicted that but not having a pool hasn’t made a negative impact.”

“It would with my kids,” joked John Hamilton, senior vice president of business development and acquisitions at the Pyramid Hotel Group. “I think guests want the hotel, the experience, to speak to the local market. They want a restaurant group with a local presence that will help sell weddings and other functions. They want things executed well. I just want a remote control with big buttons so I can see them; same with the thermostat and alarm clock.”

Lisa Smith, vice president of asset management with the Noble Investment Group, says technology is important, but panelists agreed there must be a balance between being connected via technology and being connected to other people and the environment.

Being connected is a theme that also came up in the second panel discussion on Atlanta’s “rocking” restaurants.

“I think what’s making something ‘hot’ is not so much the location as it is the experience. People want great food wherever they can get it,” says Ryan Pernice, owner and founder of RO Hospitality. “It’s never been more important.”

Garron Gore, corporate director, food & beverage innovation for HVMG, says even in a large development, people want a “neighborhood feel. Avalon is a neighborhood. But you have to be careful. Some restaurants at the Battery are doing fine; some have challenges. If there’s nothing going on to bring the crowds in, it’s a problem. I think the Westside is starting to look good.”

Garron Gore and Ryan Pernice talk about the restaurant scene in Atlanta.

Federico Castellucci III, president and CEO of Castellucci Hospitality Group, which includes the restaurants Iberian Pig, Sugo, Cooks & Soldiers and Double Zero, cautions that a lot of the developments are affecting neighborhood restaurants.

“You have Krog Street Market, Ponce City Market,” he says. “I live in Morningside and Virginia-Highland used to be the place to go. There were lines outside at the bars and restaurants. Now, they’re not doing so well. You have to make sure you execute well.”

He talked about having to move his very successful Double Zero to a new location over a landlord issue.

“We didn’t want to move but we never met the landlord who was in South Africa,” he says. “There was a proxy person here. The relationship was interesting. They flipped the building and tried to screw us. We said, ‘See you later.’” Double Zero is now at the Emory Village.

One competitive advantage some restaurants have is Atlantans give a local restaurants an edge.

“A lot of out-of-town players come in and people want the home team here,” says Gore.

“People here don’t like outsiders,” Pernice says. “They like home-grown heroes like Kevin Gillespie. But you take a guy like Steve Palmer [Charleston, SC-based restauranteur whose local restaurants include O-Ku, the Macintosh, Colletta and Oak Steakhouse]. He spent a lot of time here, learned the market and paid his dues. You have to be a part of the fabric of the community.”

Robby Kukler, founding partner of Fifth Group Restaurants, says his company changed its location model from finding older buildings that “spoke to them” to a variety of locations including new buildings and stand-alone restaurants like Ecco. “But there are challenges to being in a newer buildings. It’s changed dramatically in the past 25 years.”

In fact, restaurant finishes are less important than in years past, which sometimes ends up helping the bottom line. “You can save money by not having as much finishes, maybe saving the exposed brick but then labor costs are through the roof.”

Castellucci says he opened the first Iberian Pig for under $100,000. Today he’s opening a Buckhead location for $2.5 million.

As with the hotel side, labor is an issue for restaurateurs.

“MARTA has to have later hours for it to be effective for us,” says Castellucci. “I think they’re getting it. Some of the staff doesn’t leave till one to two o’clock in the morning. We’re also in an industry where it’s hard to find people who want to make it a career.”

The local craft beer trend has hit the restaurants — but only by so much.

“The craft beer scene has changed our business model,” says Kukler. “People have a passion for it, so we have to keep up.”

Castellucci says the local scene is not as “obsessive” as in other towns such as Charlotte and Asheville. Gore believes Atlanta is more of a cocktail town.

“When was the last time you had a $7 cocktail? They’re $10, $14; I had an $18 cocktail in Denver,” he says. “We’re buying cases and cases of fruit for fresh squeezed juices. It’s driving costs up.”

Pernice says he’s seeing the food game change. “People are better educated and with YouTube, you don’t want to tick them off,” he says. “We’re always asking, ‘How do I cater to these people?’”

As to the future, the restaurant panelists, like the earlier one, are cautious.

“Restaurant sales in Atlanta have been down the last 12 quarters and there’s been the first negative sales in a year-and-a-half,” says Castellucci. “It speaks less to the economy and more to the pressures of the industry.”

Two of Pernice’s favorite restaurants, Cake & Ale and 4th & Swift, closed. “These were good operations and good operators. I don’t mind failing if it was on me and I stopped performing but you can’t be 4th & Swift and have Ponce City Market open up across from you. You can’t see that coming. That’s what I don’t like.”

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