Arkansas Industries Attempt to Divine The Post-Pandemic Future

SARACEN ANNEX, Pine Bluff^*

^*Opened Sept. 27, 2019

SOUTHLAND CASINO RACING, West Memphis

Note: Gov. Asa Hutchinson ordered casinos closed from March 17 to May 18, when they were allowed to reopen at one-third capacity with social distancing requirements.
Source: Arkansas Racing Commission.

Expect Fewer Restaurants

The first difference most diners will likely notice about restaurants post-pandemic is that there will be fewer of them.

In Little Rock, at least 12 restaurants have permanently closed, said Jim Keet, a veteran restaurateur and chairman of the Little Rock Advertising & Promotion Commission. As of midweek last week, more than 300 restaurants were open in the city, 130 of those offering dine-in service, the rest offering takeout and delivery. And more than 30 remained temporarily closed.

Nationwide, in the next year or so, “a large number of restaurants are going to close. They’ve already closed,” said Alex Susskind, director of the Cornell Institute for Food & Beverage Management. “It’s already affecting the supply chain.”

Montine McNulty

He agreed with Montine McNulty of the Arkansas Hospitality Association that the increased emphasis on takeout and delivery that has allowed many restaurants to survive during the pandemic will become a permanent feature of the industry.

“Many of them were reluctant to get into that space or moved very slowly, and now all of them, to survive, have to do it,” Susskind said. “And it’s changed the way that their businesses operate. It adds layers of cost and expense to their models because the third-party delivery companies cost money. The software platforms that they use to collect orders and process orders cost money.”

In addition, many restaurants have moved toward “contactless” debit or credit card payment, eliminating the need for diner and staff to interact, but those transactions can also add costs.

Doing more takeout and delivery business also means an increase in packaging, another extra expense for restaurants that hadn’t been doing those orders previously.

During the pandemic, restaurants designed to do a lot of takeout service — chains like McDonald’s, Burger King, Domino’s, Papa John’s, even small independents — have seen increased and even record sales, Susskind said.

As at hotels, sanitation at restaurants — already subject to state and local regulations — will get even greater attention. “I’m not sure the general public realizes the expertise that restaurants have in that area,” McNulty said. But the pandemic “is taking that to a new level.”

Jim Keet

McNulty, Keet and Susskind all emphasized the importance of mask use for keeping restaurants safe and making diners comfortable.

“I know masks are controversial, but masks prevent this virus,” McNulty said.

“Face masks, I think, will be utilized for the immediate future until there’s no longer a threat,” Keet said.

And Susskind said restaurants may need to gently educate their guests about mask protocol. If, for example, masks are required in a particular locale and a diner isn’t wearing one, restaurants “shouldn’t make you feel bad for not having it on. They should say, ‘Here you go, sir or ma’am. Here’s a mask. I think you should know you have to have this on when you’re out and about.’”

Some restaurants will survive; others won’t, but the attrition in restaurants “presents an opportunity for the people who are nimble enough to navigate through this to actually pick up market share,” Keet said.

Ultimately, Susskind said, “the restaurant business is very resilient,” adding, “I have faith that we’re going to come out of this stronger.”

Energy Bounces Back

The saddest new normal in the Arkansas energy sector after COVID-19, at least for the El Dorado area, may well be the loss of a historic industrial icon, Murphy Oil Corp.

The company, with century-old roots in south Arkansas, announced in May that it is moving its corporate headquarters and 82 jobs there to a larger campus in Houston. In its announcement, the company cited “the extraordinary drop in crude oil prices” as its reason for economizing. The company’s 2013 spinoff, Murphy USA, remains in El Dorado.

Oil prices plunged as the world took a break from driving and flying early in the pandemic, and electricity use also fell overall as offices and factories closed.

“Movements to consolidate operations, like Murphy and other energy companies’ recent decisions to move to Texas, will be lasting consequences,” said Rodney Baker, executive director of the Arkansas Independent Producers & Royalty Owners Association.

The crude oil crash and rebound startled observers, and full recovery may take a few years, Baker said, but markets have already calmed. “Prices have already started to bounce back,” he said, though demand for aviation fuel may lag.

Oil is back in the $40-a-barrel price range after crashing into negative territory in April. Roger Williams, CEO of Energy Security Partners of Little Rock, said his long-term fear is that good job prospects will avoid the energy industry.

Roger Williams

Williams’ company has worked for years on plans to build a $3.5 billion facility to transform natural gas into ultra-clean liquid diesel near Pine Bluff.

“Nobody ever imagined a one-day spot price for crude oil below zero, almost $40 negative, but we saw it,” Williams said in a telephone interview. “Still, the price of oil bounced back faster than anybody estimated.”

Today’s disruptions aren’t a result of fundamental industry changes like the hydraulic fracturing boom that precipitated a 2014 pricing crisis, Williams said. “This came about because of a global economic shutdown related to the virus. In energy, I think we’re going to be bouncing back fairly quickly, but the real problem we’ll be seeing is this potential loss of talent.”

Entergy Arkansas and transmission organizations like Southwest Power Pool have seen declines in power use, but those may be temporary. “In the short term, we’ve seen demand across our service territory deviate from the historical average by as much as 8-10% when we’ve compared electricity use in 2020 against the same days in previous years with similar temperatures,” said Derek Wingfield, a spokesman for Southwest Power Pool, which manages the electric grid and wholesale power markets for much of the central United States.

Entergy Corp., the parent of the state’s largest electric utility, Entergy Arkansas, expects lower residential and commercial sales this year. Entergy Corp. Chief Financial Officer Drew Marsh provided an update in the company’s first-quarter earnings call May 11, predicting a 9.5% decline in commercial sales for the full year. Industrial sales were expected to be 7% lower, with “refinery and fuel customers” being “most impacted.” Residential power use, however, has been up 2% in the pandemic.

Mark Cayce, general manager of Ouachita Electric Cooperative Corp. in Camden, provided a typical view. “I do not expect a major sea change to come from the pandemic.” Modern metering, infrastructure and communication improvements were already changing the ways utilities operate, he said. “The bigger changes will come from distributed generation resources. This will be the new format.”

Cayce’s reference to distributed generation, or power generated near where it’s used, resonated with Katie Laning Niebaum of the Arkansas Advanced Energy Association. “There will be lasting changes in the advanced energy sector, driven largely by the decisions of energy users and benefits of advanced energy technologies,” she said, predicting growing interest in conservation, solar power and other advanced energy services.

AAEA members like Powers of Arkansas are helping customers with ventilation, exhaust systems and proper air pressure in rooms. That type of work is expected to remain in demand long after the pandemic. “The HVAC controls we provide allow for new sequences of operations that help customers maintain healthier buildings,” said Alan Hope, the CEO of Powers.

Niebaum said many businesses, schools and public entities are facing tight budgets and looking for energy services to reduce operational expenses — now and long into the future.

“Demand for solar across customer sectors remains strong,” she said, noting that the city of Fayetteville recently invited bids on 5 megawatts of new solar generation, hoping to start construction late this year or in early 2021. “Additionally, some solar firms are seeing increased interest in off-grid and hybrid grid-tied storage-plus-solar options, with homeowners citing the health pandemic and resiliency as motivating factors.”

‘Remote’ Takes Control

“Live and in person” will lose luster in a post-COVID media and marketing world, and digital touchstones will increasingly connect us, industry leaders predicted.

Remote work — from the 9-to-5 variety to screen-time meetings and media interviews — will become routine, they said, and e-commerce marketing will surge. Publishers, broadcasters and ad agencies will reconsider office space needs, and media use will evolve.

Newspapers, which were already reeling economically, are likely to face long-term ad declines, and video streaming and cord-cutting will accelerate, nearly a dozen industry observers said.

“I would not want to own commercial real estate,” said Tim Whitley, CEO and founder of Team SI, a digital marketing firm in Little Rock. “A lot of tech companies are realizing they do not need multiple campuses across the country. The question will become, is this long term or short term?”

Ross Cranford of the Cranford Co. agency agreed. “This crisis has let employers and workers see that this is a viable and productive way to do business,” Cranford said, adding that the change will affect media habits. “With fewer people commuting to work, we expect a dropoff in outdoor media and drive-time radio audience levels.”

Daytime TV and social media consumption could surge, Cranford said. Arkansas Broadcasters Association Director Luke Story noted that local news viewership “is way, way up.”

Ashley Wimberley of the Arkansas Press Association said her members have embraced savings from the office exodus. “Some APA members had closed their storefronts and moved entirely to remote work even before the COVID-19 pandemic,” she told Arkansas Business. Now others will “realize their employees can work from home without jeopardizing sales or work product,” she said.

Remote interview methods used “as a last resort before COVID-19” will become permanent, broadcasters said. “FaceTime, Skype and especially Zoom have changed the game,” KARK News Director Ernie Paulson said. “This new technology also helps with urgency. Rather than drive an hour to get to an interview, I can pick up my phone and do one right then. … The days of having everyone come into the studio for an interview may be a thing of the past.”

Ashley Wimberley

But remote coverage poses a downside, said Wimberley, who fears government officials have grown accustomed to less public scrutiny. “It’s become difficult in the past few months to fully report the news with elected officials conducting business through videoconferencing,” she said. Shoe-leather reporting suffers, Wimberley said.

Arkansas broadcasters feared a loss of drive-time listeners, Story said, but “some of that is easing now.” One lasting effect on reporting may be an increase in “good news that gets attention,” he added. “Whether that’s saluting recent high school and college graduates or just reporting on the good things that are happening, [it is] a salve to the wounds of the pandemic on our mental health and well-being.”

Whitley, of Team SI, predicted that connected-TV audiences will increase as cord-cutting continues, and that rural areas will gain more access to high-speed internet.

Marketing agencies will look to broaden their client lists because some of Arkansas’ biggest media-buying industries, including restaurants and travel, are likely to struggle indefinitely.

“Agencies will need to adjust service offerings, diversify their client base and embrace distribution and marketing channels,” said Pam Jones, president of Culturally Connected Communications in Little Rock. She said firms should search beyond the typical industries they serve, allowing them to “maintain current staffing levels.” As companies consider returning to pre-COVID ad spending, Jones suggests appealing to new customers, “particularly the often overlooked multicultural audience.”

Hospitals Focus on Recovery

Arkansas hospitals and nursing homes are focused on recovering from the financial blows caused by the global pandemic.

“It’s hard to have a crystal ball,” said Bo Ryall, president and CEO of the Arkansas Hospital Association. He said hospitals won’t see their finances improve until the number of COVID-19 cases start declining or a vaccine is ready to distribute.

Last month, the Arkansas Department of Health eased its directives that had postponed elective procedures, which had resulted in hospitals furloughing employees. Expenses for fighting the corvirus climbed as patients stayed away.

One bright spot for Arkansas nursing homes during the global pandemic, however, was the expansion of telehealth. The coronavirus also united some hospital competitors. Last week, the nonprofit Fifty for the Future, in a partnership with Arkansas Blue Cross & Blue Shield and central Arkansas’ six leading hospitals, announced a four-week advertising campaign to assure the public that hospitals, emergency rooms and physician offices are safe for patient visits. For the first time, the six major hospitals in central Arkansas worked together on that single message, according to a news release.

Ryall said hospital CEOs have told him that more patients have received health care in June, but “we’re certainly not up to the pre-COVID levels as yet.”

Meanwhile, nursing homes across the state are also struggling financially, said Rachel Bunch, the executive director of the Arkansas Health Care Association, the state’s largest organization of long-term care providers.

She said some owners are considering selling their businesses. “The last few months have been a really difficult time for our industry,” Bunch said. “We’ve got a lot of people that are stressed and under a lot of pressure right now.”

Rachel Bunch

The association is compiling the cost of the coronavirus pandemic to the industry. She said labor costs are at an all-time high. For example, mealtime used to be in a communal dining room, but that arrangement has stopped to prevent COVID-19 from spreading. Instead, each facility serves food individually to residents, she said.

However, the use of technology has been a success story for nursing homes. Even though COVID-19 prevented family members from visiting nursing homes, residents could see their families virtually.

“We’ve never seen such an incredible use of technology,” Bunch said. “Most facilities have purchased a handful of iPads. … And we have been doing so much FaceTime with family members and grandchildren and children.”

She said nursing homes have also increased the use of telemedicine. Instead of taking residents out of the facility to see a specialist or physician, they’re able to have that medical appointment virtually with a help of a nurse practitioner in the nursing home, she said. “We’ve seen a lot of benefit from that over the last couple of months,” Bunch said. “And that’s something that I think will be here to stay even after this goes by.”

“Agencies will need to adjust service offerings, diversify their client base and embrace distribution and marketing channels… [Advertisers] will need to appeal to new audiences, particularly the often overlooked multicultural audience.”

– PAM JONES
President, Culturally Connected Communications

Online Shopping Here To Stay

The coronavirus ushered in a new wave of online shoppers, and those new customers are expected to stay faithful to e-commerce even as retailers work to keep their stores sanitized.

Across all retail sectors, online sales “skyrocketed during COVID,” said Charlie Spakes, president of the Arkansas Grocers & Retail Merchants Association.

Walmart reported its first-quarter e-commerce sales were up 74% and driven by “strong results for grocery pickup and delivery services, walmart.com and marketplace,” according to the company. Walmart does not disclose a dollar amount for online sales. Spakes said the transition to online shopping had been happening for a while, but “COVID really accelerated it.”

Older consumers most vulnerable to COVID-19 were the least tech-savvy at the start of the pandemic, Spakes said, but they quickly shifted to online grocery shopping. “We’ve been seeing the younger population start to do that, but when you get the older generation doing it too, it’s a big deal.”

Spakes said that regional and local grocers have joined the larger grocery retailers in offering online grocery service, and he expects that to last. “Once consumers start changing, they don’t easily switch back, especially when they’re doing something more convenient,” Spakes said.

Harps Food Stores Inc. of Springdale also noticed the increase in online sales, said Kim Eskew, Harps’ chairman, CEO and president. During the first week of the pandemic, Harps saw its online sales jump by a factor of eight, “and that happened like overnight,” Eskew said. “Obviously, no one is prepared for that.”

Since then, Harps’ online sales have setted at about three times the pre-pandemic level. “Some people think that this was a real jumpstart to online shopping that’s going to persist after COVID goes away,” Eskew said. “And there might be some truth to that.”

But most Harps markets are in small towns and the number of people who do online shopping is pretty low, he said.

Plus, he said, produce and meats are the kind of merchandise consumers like to pick out in person — which is better for the grocery retailer. “Every order that transitions from being an in-person order … to an online order is less profitable,” Eskew said.

The Kroger Co. of Cincinnati is testing fully automated warehouses that use machines to pick out orders for customers. The grocery chain plans to open the first such warehouse just outside Cincinnati early next year. Eskew said similar services have been used in Europe, “but they’re kind of new to us. And just because something works in Europe does not mean it will work here.”

Retailers also will have to solve the puzzle of keeping stores and carts sanitized after COVID-19. Harps currently sprays its shopping carts with disinfectants and lets them dry, a process that’s “kind of messy,” Eskew said.

The pandemic, he said, will speed development of “easier and cheaper” methods, like ultraviolet lights to disinfect carts.

As retailers enter critical shopping seasons, it’s unclear what the usual back-to-school shopping frenzy will look like if students aren’t physically back in school, Spakes said. And it’s difficult to predict what the economy will look like for the holiday season, the most important time for retailers.

“There’s so much unknown,” Spakes said.