Inflation and labor ‘continue to be challenges’: A&W Restaurants CEO

A&W Restaurants CEO Kevin Bazner sits down with Yahoo Finance to discuss the brand's success and growth amid the pandemic, staffing shortages, and inflation.

Video transcript

- COVID took a big bite out of the restaurant industry with several hundred thousand restaurants actually closing their doors and never opening again. But many have learned from the pandemic and are surviving and are even thriving. Of course, on top of it all, inflation has now settled in. On top of that, a labor shortage. So how do you navigate it?

Kevin Bazner is the CEO of AMW Restaurants and its nearly 1,000 locations around the world. Good to see you, Kevin. Happy Friday to you. How have you learned? How have you thrived throughout the pandemic?

KEVIN BAZNER: Wow. Where do I start? Just like every other industry and consumer, you have a lot of volatility out there, a lot of uncertainty out there. And we're in COVID year three. But to answer your question, we've done extremely well, starting about late April of 2020 as people started to come out of their lockdown. And drive-throughs for us have been king. Supplement that with delivery and a lot of online ordering.

And we've learned a lot from that. Certainly, now we've got more and more consumers out in dining rooms and more competition even though we've lost a lot of restaurants. A lot of restaurants have reopened that were more of a dine-in capacity. And what we see is we see a lot of consumers visiting our dining rooms and other dining rooms.

So we've had two very, very strong years. Like the industry, we flattened out in Q1. Some of that's weather. Some of that is the economic conditions. But all of the things that you pointed out in previous segments-- inflation, labor continue to be challenges for us. And so still a lot of uncertainty out there.

- Well, Kevin, let's dive a little bit deeper into that labor picture. I'm wondering, what have trends been like at your restaurants? Have you been having concerns when it comes to staffing? And where are you seeing the most concerns on that front?

- Well, yeah, we still have labor concerns. It's a tight labor market. We've learned an awful lot over the last two years, certainly in the last 12 months. We think we have the majority of our labor challenges behind us. And it's really been through a combination of things. One is higher wages. There's no question about it. Our wages are up 15% to 20% from where they were pre-pandemic, if you may, for sure. And technology, self-ordering, et cetera, is helping us with productivity from fewer employees. And we're just learning to operate as we have in the past, learning to operate with your employees.

And the good news is the last two years-- and one of the learnings is for us in the industry is just a greater adaptation of some of the consumer technology has accelerated. We've probably gotten 10 years of acceleration over the last two years. So really just, like others, figuring out what works best for us and putting that into play to offset the higher cost of living. We're not quite there yet, but we're starting to see a leveling in our operators. We're mostly a franchise-operated business, have been figuring it out.

And we tend to do business in a lot of smaller rural communities where the labor challenges are just a little bit less intense than perhaps more urban areas. But no question about it, it's a day-to-day thing that we have to do.

- Kevin, sounds like you've come out of this leaner and smarter. Let's talk about the inflation issue. Some rough numbers earlier this week. How do you balance the desire to-- you talk about the communities you're in. You can't raise prices that much in those types of communities. So how do you balance the desire to pass on some of the costs to the consumer, or how much do you eat as the restaurant chain?

KEVIN BAZNER: Well, that's part of the volatility and the uncertainty. I mean, we're figuring it out. Average check in our category-- and we're right there with it-- has gone up 7% in each of the last two years, unprecedented in the history. Having said that, commodity prices is hitting our basket of goods in the mid-teens, as most QSR operators.

So there is a gap there. There's no question about it. We haven't quite passed along all prices. This is certainly not transitionary, as perhaps thought six months ago. But some of it is. You know, it's-- when will it level out? And that's what we're looking at in this year three of COVID, is where does that level off?

So we want to be mindful. We're watching transactions. We're eating a little bit on margin points right now. And we're trying to figure out the best way to get it through productivity, and really, menu positioning and menu engineering as much as pricing as well.

- And Kevin, of course, the company has changed quite a bit over the years. But AMW is over 100 years old, so it's weathered quite a few market cycles. As we have a number of economists, strategists talking about a potential recession, how has AMW typically performed during downturns? And do you expect this time to be the same?

KEVIN BAZNER: I do, actually, yeah. We have 102 years of history. We're one of the few-- really, the only chain that's lived through a pandemic before back 100 years ago. But we've experienced a lot. Our operators have experienced a lot.

In a recession, we have challenges with consumer behavior, but we also get-- we get trade down in a recession from casual dining, from family dining, et cetera. So we generally do well during recessions. Well is relative. Well is compared to the industry. And if we can hold our own, if you may, we feel good about that. And we think we're well positioned for that.

We believe we still have room for price, but we're being cautious and watching the commodities markets in particular. And once those settle down, we think we can get a better handle on it. But hopefully, the R word won't come to fruition. But we're ready for it. And we've lived through this before, and we'll get through this one. There's no question about it.

- Kevin, next time you're here-- it is a Friday. We're rolling some video that shows the root beer float. I mean, you got to hook us up next time, because there's not much in the world I love more than a nice, cold root beer float. So next time, you got to make me that promise.

But how much is telling your story-- and I've read some of your comments about the success of the chain-- how much is telling your story part of the future?

KEVIN BAZNER: Well, it's a big part of the future, and it's been a big part of how we've been able to take advantage over the last two years with the pandemic. I mean, we are 102-year-young brand. We are in a growth mode right now. We've got a lot of new development going on in the team. Globally, we will probably open somewhere 75 to 80 restaurants between now and the end of next year. We feel good about that. About a third of that is domestic.

And it's really telling our story during times of crisis. And clearly, for consumers, it's been a crisis for the last couple of years and continues to be, in many respects. Consumers tend to gravitate towards comfort brands, and we are certainly one of those comfort brands that made fresh root beer, which is the same recipe for over 100 years, and in that frosted glass mug. I mean, it's iconic to the consumer. And it's a comfort level. And we've been experiencing that. And we are certainly working on continuing to capture that.

And I will definitely, definitely take you up on the root beer float promise next time. We'll figure out a way to get it to you. Because it's 80-plus degrees here in Lexington, Kentucky, and it's a perfect day for a root beer float. And seasonality-- we're really excited. We're going into our peak season. First quarter, weather was-- versus prior years was not kind to us. A lot of rain in our markets, a lot of cold weather. But we're out of that now. We're looking forward to it. And it's never a bad day to have a root beer float. That's for sure.

- Certainly not. I'm with Dave on that one. Would love to get a root beer float. Kevin Bazner, AMW Restaurants CEO, thank you so much for your time this afternoon.

KEVIN BAZNER: Thanks, guys. Appreciate it.

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