The head of real estate for one of Canada's oldest and largest full-service restaurant companies is planning smaller footprints at some of Recipe Unlimited Corp.'s establishments. At the same time, Mike Marino says diners are returning and the company has a few ideas about how to entice them.

Toronto-based Recipe Unlimited has more than 1,200 restaurants across 21 brands, including Swiss Chalet, Harvey's, Burger's Priest and The Keg, 82% of which are operated by franchisees and joint venture partners. The business is in the same battle as many other North American operators in finding real estate and workers as diners increasingly adjust to relaxed COVID-19 restrictions.

"What we call the quick-service category thrived during the pandemic," said Marino during an interview with CoStar News at an International Council of Shopping Centers Toronto chapter event last week. Brands such as Recipe Unlimited's burger chains Harvey's and Burger's Priest are competing for space against other brands that "are out there in droves."

Brands such as Swiss Chalet that have traditionally been more dining room-focused are being rightsized — which ultimately means shrunk — albeit with a much different layout catering to different customer needs.

"Smaller dining rooms provide greater ambiance. It provides cost efficiency both on construction and gross occupancy, and you can still drive top-line sales," said Marino, who has been with the publicly traded company for seven years through multiple ownership changes. The company's largest shareholder is Fairfax Financial, which is controlled by Canadian billionaire Prem Watsa.

One solution to real estate costs is an increasing focus on patios, which Recipe Unlimited said can be used in winter in some Canadian markets.

"We are talking three or four seasons," said Marino, who concedes patio dining might not work in Edmonton winters. But in Toronto, "we are talking about glass enclosures. Rent [is cheaper] or nonexistent on patio space. We build out the patios though each circumstance is different."

Before the pandemic, about 80% of the company's revenue was in-person dining, and the executive sees that returning because he believes people want to socialize.

"People are going to return," said Marino, who notes the company is hedging its bet by getting much better at meals meant to be eaten off the premises. "We have more non-dining-room sales channels, like the retail component and the beverage component. We will have a better top line as dining returns."

Recipe Unlimited's total e-commerce sales reached $169.8 million in the first quarter, up 13.3% from the same quarter last year.

But bringing people back is still a top priority, and one plan is to offer exclusive products unavailable via takeout, including Swiss Chalet's Nashville hot chicken ice cream sandwich, which includes a scoop of French vanilla ice cream on a spicy breaded chicken sandwich.

"It doesn't travel well," Marino joked, adding many of the restaurants are also offering exclusive drinks only available in dining rooms. "We are also leveraging technology" to help figure out how to bring diners back. "We have a dedicated in-house data analytics team that can tell us more about our guests and their tendencies and movements."

Recipe Unlimited reported total sales for its 1,251 restaurants for the quarter that ended March 27 jumped 34.2% compared to the same period a year earlier when it had 1,330 restaurants, according to regulatory filings. The company attributed the growth to an uptick of guests in March once capacity restrictions were lifted in some provinces.

Real estate brokerage JLL said in a report last month that retailers, food services, entertainment and shopping malls across Canada have seen traffic building up again, in some cases approaching 2019 levels.

"Like Americans, Canadians have been quick to return to cinemas, airports, and restaurants," said JLL.

One area still slow to rebound has been food courts at malls, since consumers are just not spending as much time shopping in-person, said Marino with Recipe Unlimited. The company does not have a significant food court presence, though its New York Fries brand has been mall-dependent.

"The dwell time is not as long, so that means they don't need food," said Marino about shoppers at malls.

While takeout was a strong driver for Recipe Unlimited during the pandemic and the company developed expertise in the sector, he said margin erosion is a significant issue when the sales mix changes from in-person dining.

"The percentage that delivery services takes plus the added costs of packaging practically eliminates profit margin from third-party sales," said Marino.

Some of Recipe Unlimited's store designs are being tweaked to support the expansion of its multi-channel offerings for post-COVID success by adding a dedicated takeout door or curbside pickup stalls. The company completed six renovations in the first quarter.

"We have found that renovations are most successful when they include changes to the exterior and interior coupled with a fresh approach to guest service and experience," Recipe Unlimited management said in its first-quarter report.

The company is also actively negotiating early exits and permanent closures for underperforming restaurants, according to Recipe Unlimited's first-quarter filings. During the first quarter, the company closed 12 locations as part of its long-term strategic portfolio plan that has accelerated faster than originally planned because of COVID-19 and successful landlord exit negotiations.

"Our new builds have a smaller footprint than in the past, too," Marino said.