Restaurateur Sees ‘Bloodbath’ Coming as Oil Prices Drop
A few years ago, the Bakken Oil Field in North Dakota was the new Wild West, and Marcus Jundt was Doc Holiday. But now that oil is trading below $28 a barrel, Bakken is more like the Dust Bowl, and Jundt is watching the tumbleweed blow by.
Jundt, the serial entrepreneur and financier who served as CEO and a principal founder of Kona Grill, formed Williston Holding Company in 2012, going all-in on North Dakota’s oil boom. The company bought four local restaurants in Williston, North Dakota, acquiring JDubs Bar and Grill and Gramma Sharon’s Family Restaurant, and starting Doc Holliday’s Roadhouse and Williston Brewing Company. The company had a large footprint in the community.
Then in 2014, WHC bought Mexican Restaurants, which operates and franchises 11 concepts mostly in the Houston area. The combined bets put the company into oil-heavy regions to the tune of $30 million.
“We have 61 restaurants,” said Jundt. “Ninety-five percent of our restaurants are in the greater Houston area and then North Dakota, so yeah, we have oil exposure.”
Soon after the acquisition of Mexican Restaurants, oil peaked at $107 and business was booming. There were long wait times, and even with the Bakken staff making $20 an hour, business was great.
But then came the steady decline punctuated with precipitous dips that brought oil lower and lower. At $80 it was worrisome, at $50 it was scary, and at $28, well, Jundt doesn’t see many of the 35 new Williston competitors faring so well.
While he doesn’t plan on shuttering any locations, “Mentally, I’m preparing myself for half the restaurants closing,” said Jundt about other restaurants in the area. “I think it’s going to be a bloodbath.”
But less competition doesn’t mean he won’t feel the adverse effects, either. “Depending on the day of the month, we lose money or make money,” said Jundt.
And that could affect his staffing, too. Noting that Williston is home to a nomadic workforce, “People who came up here came up here for money, and when they lose their job, they leave.”
Still, the restaurateur has no plans to join the caravan of roughnecks and itinerant fortune seekers traveling to other locales to pan for gold. The area is home to his paternal grandparents and his own home now. And even with a 30 percent to 40 percent year-over-year sales drop, the restaurants are still relatively popular.
“I think we’re the number one restaurant group in the region,” said Jundt. “We’ve sunk a lot of money into the area and our intent is to be here for the long haul; that was our intent in the beginning and it still is.”
Down in Houston, it’s a similar story.
“People say Houston is more diverse, and it is, but it’s an oil town,” said Jundt. “It’s not disappearing, but they’re being affected; how could they not be?”
Other companies have shared similar stories. Del Frisco’s Restaurant Group noted its own troubles in oil-exposed markets at the ICR Conference, an investment event covering public restaurant companies, saying that some restaurants saw sales declines of 20 percent.
Jeffery Currie at Goldman Sachs sees oil coming back as production slows to meet demand. But it’s not going to boom by any means. He sees a $40 price point in Q1 of 2016, but added “the material price declines are behind us.” Currie said there’s not likely to be a true recovery for nine months at the bare minimum.
In the meantime, Jundt said WHC will manage.
“We made educated guesses to the best of our ability, but it’s a set cost now that we’ve already put into it,” said Jundt. “Can’t get upset about it, you just do your best and try to optimize your returns.”
He said to stay at top of mind, WHC has reinvested in the community restaurants with new equipment, remodels and updated menus (ditching the Frakking Wings at Doc Holiday’s Roadhouse, perhaps). And with the newly branded Uberrito, Jundt is looking to grow via national franchises—starting outside of oil markets.
Even with hindsight, he said he doesn’t regret saddling up for the Bakken adventure.
“I had a hell of a lot of fun when it was booming. There was no place like it in America and I wouldn’t trade a single day away; it was the experience of a lifetime,” said Jundt. “It was the Wild West and it was fun.”