The US-based One Group is due to open its first STK Rebel in the UK, in Edinburgh in 2017. The British-born founder tells Neil Gerrard why he is a strong believer in marketing to women and why the USA's tipping culture could be about to die out
You are best known for founding the One Group, but how did you end up in hospitality?
I started in hospitality just before my 16th birthday. I went to work in Paris for a travel agency there. My father had started a hospitality company on the island of Jersey in 1967, and I joined it in 1976. With his leadership and my support, we grew that to one of the largest leisure companies in the Channel Islands.
We had a lot of hotels, coaching, boat repair, nightclubs, restaurants, lounges. Simultaneous to that, my father, who lived in England, focused on corporate services. We had a company called Room Centre and then in 1991 we purchased off the receiver a company called Expotel [hotel reservations]. We merged that with our company and that created Europe's largest privately owned hotel booking company and it was sold in August 2008.
However, before that transaction occurred, I decided that I really wanted to expand our hospitality business and realised that the island of Jersey was going to suffer because of flights and services but also the competition that was around in Europe.
You ended up going to America instead and starting a business there. Why?
I was nervous about bringing hospitality to England, which has so many unbelievable operators, so I went to America, taking what I had learned about hospitality on the island of Jersey. In January 2004 we opened our first venue, One. In 2006, which really marked the start of the expansion of the company, we opened the first STK and then seven years later in 2013 we had grown the company's revenues from $6.5m (£4.6m) to about $125m (£88.1m). I had been operating for six years in America before I had the confidence to open in London.
Where does the name the One Group come from?
In the early 1990s, we created a concept called Rock Galaxy on the island of Jersey. You couldn't get big enough areas at cheap enough rents unless you went up to the second and third floor. So we created this concept where you could have vertical entertainment. You had a tiny little entrance, and then on the next floor we had a themed restaurant and a bar and a club and then on the next floor we had 12 lanes of bowling, and on the next floor we had an amusement arcade. Within that you had a place called Rock Galaxy and you went there after work for a drink or for lunch, then you stayed for dinner and then by 11pm everyone was standing on the chairs and the tables doing the YMCA and partying like rock stars. The place you arrived at was not the place that you left.
STK Las Vegas
How do you typically operate today?
Our company is split into two divisions. We have our hospitality division, where we go into hotels, casinos, high-end venues, arenas, and we take over the entire food and beverage programme. The second part is our branded restaurant division, which has one brand: STK.
STK has two price points - STK and STK Rebel. They are the same - the only reason why it is called Rebel is because it is open lunch and dinner and the prices are a little bit cheaper and the units are a little bit smaller.
What is the benefit to you operating food and beverage on the behalf of a venue?
Hoteliers are great at selling, marketing and cleaning rooms. They are not great at food and beverage. So if they go to refinance with banks or institutions, the banks will look at average daily rate [ADR] and occupancy.
There has been a sea change in the operation of hotels. In the 1970s and 1980s, hotels started to divest themselves of their real estate. They'd sell the property and lease it back. In the late 1990s and 2000s, the hoteliers realised, "why do we even need to lease it back? This is crazy. Why don't we just go and manage it?" There is virtually no risk to the hotel.
So the landlords or the developers make their money by the aggregate of the success of the hotel keys and the money made in the hotel food and beverage. If they make $1m selling rooms and they are not so good in their food and they lose $150,000, the net return to the developer or landlord is $850,000. So they have worked out that with our help, if you just split the contract, you still make your $1m selling the rooms, and maybe a company like the One Group will come along and guarantee you $150,000. So all of a sudden, instead of making $850,000, you are making $1.15m.
The hotels like it because we can drive ADR and occupancy. We are sitting today in Radio, which is probably the most successful and most popular rooftop bar in London. It is difficult to get in here. On a Friday or Saturday night, if you want to get six people up here, stay in the ME London hotel.
The bulk of your UK operations are focused around ME London. What do you operate there?
This particular hotel has 147 keys and we operate a 220-seat steakhouse (STK), a 90-seater Italian restaurant (Cucina Asellina), a 220-seat rooftop restaurant (Radio), a 5,000 sq ft events space with a banqueting hall and private rooms, 147 keys for room service and mini bar, and we pretty much do it with one kitchen, one management team and one general manager. It is highly profitable. But because we are operating as managers for ownership, the majority of the profit is in the hands of ownership.
What customers expect out of hotel restaurants is changing isn't it?
Consumers are less interested in the infrastructure of the hotel or what it cost to build and are more interested in the services. Most people don't even use the facilities, but it creates the package the consumer wants. What we will do for hotels is, if we can't give them a branded restaurant, we will create a brand for them. We created Radio for ME London. When we opened for them in Milan we created Radio Milan. When we open in Miami, we will open Radio Miami - all rooftop restaurants. We have created this brand, we conceptualise it and create the menu, the service, the design, and we give it to the hotel.
For W Hotels we have just created a brand called Hideout. The first one is going into the W in Westwood, Los Angeles. For the Hippodrome casino [in London], we created Heliot. So we will put a brand in or we will create a brand which we will either co-own with them or we will create the brand and give it to them.
How long do you operate a contract?
A typical contract will be 10 years with one or two five-year options. We will have a review after five years based on service level standard, profitability, revenue, etc. You have to be a chameleon in this business and you have to be able to adapt the way you operate.
How did you come up with the idea of STK? It is aimed at women, which is slightly counterintuitive for a steakhouse, isn't it?
It is. Women have worked out how to make us men believe that we make 100% of the decisions when in fact they make 98% of them.
From a hospitality standpoint, men are going to go where the women are. Years ago, my father came up with the greatest marketing campaign that I have ever seen in hotel industry. We identified a number of things through Expotel and one of them was that women were travelling way more than ever before and, secondly, we discovered that women were the biggest users of room service. So we came up with this programme called 'Woman Aware'. For a hotel to get a Woman Aware accreditation, you could never put a woman on the ground floor. You could never announce the key, you had to write it down and hand her the key. The rooms had to have ironing boards, make-up mirrors, hairdriers. A lot of hotels didn't even have these things. I suddenly started to realise the value of marketing to women. When I decided I wanted to do a steakhouse, I realised that 100% of steakhouses are 75% men. If you don't have the predominance of women, then you don't have the vibe and energy, so we had to change the paradigm.
Why did you decide to create STK Rebel?
I realised that STKs are all 9,000-10,000 sq ft, which is about $10m (£7m) of revenue in each store. And I realised that there are cities like Boston, Austin and hundreds of others in America that are too compressed to take a 10,000 sq ft restaurant. So we came up with a smaller box; a slightly difference price point. The menu is 95% the same. How do we make it 20%-30% cheaper? We just don't have any of the big, expensive stuff, like the A5 Kobe, the Russian king crab, the big tomahawks or the big porterhouse. Cocktails are maybe
$1 (£0.70) cheaper. And that ends up at about 20%-25% reduction.
So STK and STK Rebel are basically exactly the same - one is just for the small cities and one is for the big cities.
Why did you choose Edinburgh for the UK's first Rebel?
Edinburgh is a great city for us to put Rebel in. It is a very cool, artsy, trendy city. The location in St Andrew Square is fantastic and there is other great food and beverage going in the facility.
In terms of our target markets, we are looking in Leeds for an STK Rebel, as well as Birmingham, and Manchester will probably be a full STK. I'd like Glasgow eventually, but I want to see how Edinburgh plays out. Ultimately, I have to go to Liverpool, because my dad is from Liverpool.
We will also operate more restaurants in a quasi-franchise licence situation, which is really new for us. We have just signed our first licence deal in Ibiza for an STK and that will be open next season if we are able to finalise the real estate. We are now looking to expand internationally. And the other side of our business we are heavily investing in stadium and arena hospitality.
What are your thoughts on tipping? Danny Meyer in the US has done away with it.
Let's understand why there is a problem in America. It is not predicated on the minimum wage, it is predicated on the fact that the law says that only the people who touch the guest can share the service charge. What the law should have said is 'people that touch the guest and the food'.
What they should have done is fix that rather than come up with this crazy thing of increasing the minimum wage. Most wait staff in restaurants earn above minimum wage. So now states like California have increased minimum wage from $7 (£4.90) to $15 (£11) in two or three years, and in New York it has gone from $7 (£4.90) to $8 (£5.60) and then it is going to $9 (£6.34) and then to $10 (£7.05). All you are doing with that is just putting way more money in the front-of-house pocket, you are not helping back of house at all.
So the obvious thing is what we looked at, and Danny was the first to do it, which is to say fine, we are going to increase our prices by 15%-20%, we will take the money as the restaurateur, we will do away with tipping and we will use that money to pay everyone the living wage. I am of the view that this will go across America. It may take five or seven years. Joe's Crab Shack, which is a chain, has just done it. Danny Meyer and Tom Colicchio have done it.
We as a company have considered it, but have continued to sit on the sidelines. But we are doing the mathematics to understand if it is a better route to go down. In the UK, it is different, but it is less relevant. A lot of people don't tip in England. They expect service included, so in that regard, I think there is less attention on it.
The One Group
Twelve STK sites (with three more coming soon), five STK Rebels, Asellina (New York City), Cucina Asellina (London), Bagatelle (Los Angeles and NYC), Gansevoort Park Rooftop (NYC), Heliot Steak House (London), Radio rooftop bar (London and Milan) and the Hideout (LA)
Staff 2,500 (3,500 by the end of next year)
Best-performing site Las Vegas - despite having the lowest alcohol sales (most customers drink for free in the casinos) it has the fastest table turn and averages of 900-1,000 covers on a Friday and Saturday in a 220-seater restaurant
Projected average annual turnover per STK site $9m (£6.2m)
Projected annual average turnover per STK Rebel site $5m-$6m (£3.4m-£4.1m)
New openings Eight scheduled for 2016
Annualised total food and beverage sales at owned or managed venues $140m+ (£97m+)
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