A Restaurateur Sees Vegan Food as Key to Post-Covid Success

(Bloomberg) -- As the restaurant death toll soars across the U.S.— nearly one in six U.S. restaurants have closed since the start of the pandemic— Matthew Kenney sees opportunity to grow.

The Los Angeles-based chef has opened five vegetarian restaurants since September in California, New York, and Buenos Aires, with plans to add at least eight others to his international roster of more than 25 existing Matthew Kenney Cuisine establishments. The locations are spread around the globe, from Dubai to Los Cabos, Mexico, featuring concepts like the pizza-focused Double Zero and Sestina, which specializes in plant-based Italian. 

Kenney is pushing forward with that goal even as a November surge of Covid-19 led Los Angeles authorities to limit service to takeout, and as the National Restaurant Association reports that about 100,000 restaurants have closed across the country this year. Pre-pandemic, the food industry added an average of 10,000 restaurants a year, according to a spokesperson for the NRA. 

“We’re finding it a very attractive industry to grow in,” Kenney, 56, says in a telephone interview.

Two forces are driving Kenney’s optimism: Rising demand for plant-based food—even McDonald’s is testing the McPlant, while the meat-free market is expected to hit $74.2 billion by 2027—and vacancies creating real estate deals.

Pessimists say discounts on leases aren’t enough to offset the risks of opening a business while the virus rages.

“There’s just too much uncertainty,” says Jennifer Frisk, a senior managing director at commercial real estate brokerage Newmark in Los Angeles.

Restaurants are likely to undergo a winnowing process with a barbell effect, according to David Portalatin, food industry adviser at the market research firm, NPD Group. On one end will be quick-serve, app-based eateries, which are already operating above pre-pandemic levels. On the other end, white napkin dining will recover for people willing to pay big bucks for a food-related experience.

“I wouldn’t want to be caught somewhere in the middle,” Portalatin says about restaurants that lack omni channel service or the bells and whistles of fine dining.

Kenney argues that the adversity caused by the pandemic leaves room for experimentation. When the first lockdown started in March, he introduced an online culinary academy that now has more than 1,000 students. In response to California’s latest closure order in November, he’s opening a ghost kitchen—for pick-up and delivery only—with three different menus for a fraction of the cost of creating a sit-down restaurant.

“We think this is a really good time to be creative and develop concepts,” he said. “So when things hopefully rebound, we’ll be prepared.” He sees local opportunity in the L.A. vegan market: Just 23% of the city’s restaurants offer herbivore alternatives compared with 40% in New York, according to fitness vendor MyProtein.

Kenney, who started his first restaurant in Manhattan in 1994, has a checkered history of disputes with partners. He blamed the Sept. 11 terrorist attack for the failure of an early New York venue. He was sued in 2005 by the owner of Pure Food and Wine in New York when he left as manager and opened another restaurant. He relocated to Los Angeles in 2011 where he saw opportunity for innovation, opening Plant Food + Wine in 2015, where vegan riffs on classics include beet carpaccio, avocado tikka, and cashew raclette.

One key to Kenney’s expansion is deep-pocketed backers who believe in his plant-based products. The international cast of investors include Sebastiano Cossia Castiglioni, Prince Khaled bin Alwaleed bin Talal Al Saud, a Saudi venture capital investor, and tech entrepreneur Kyle Vogt, who is co-owner of Kenney’s ambitious vegan San Francisco restaurant, Baia.

“Matthew Kenney plays a huge role in enabling people to try and love a plant-based option,” Alwaleed, an early backer of Beyond Meat Inc., said in an email. “This is one of my key drivers to backing him and his ingenuity, and his latest launch couldn’t have come at a more opportune time.”

Rents haven’t declined “dramatically,” but “we’re able to negotiate lease agreements that have, for lack of a better term, a Covid clause,” Kenney says. That includes provisions for tenant improvements and reduced payments if health authorities restrict operations, he adds.

“It’s created a lot of available real estate that comes with better terms than what would’ve been available eight months or a year ago,” he says. Both he and Newmark’s Frisk say there have been too few new leases to put a percent change on cost differences.

Kenney prefers locations with outdoor dining in residential areas, where guests can linger over wine and shared plates, running up tabs that are double or triple a typical lunch outing. Neighborhood restaurants have a better chance of building up repeat visitors than business area establishments, he says.

Still, making deals on spaces is not the same thing as opening restaurants. While Matthew Kenney Cuisine lists over 40 places on its roster, one-third of them aren’t open yet. 

Kenney argues that there will always be demand for places to dine out, especially now with the pandemic putting a lid on so many travel and entertainment options: “It’s not a good thing happening to the industry, but I think the transition we’re going through is going to last a lot longer then just Covid.”

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