Surveys and Reports Just Verify What We Know on the Streets
The National Restaurant Association released it’s latest report on the Restaurant Productivity Index for the month of June. For the 22nd consecutive month the report concludes business climate is down. No surprise there. According to the NPD Group, a Chicago business research company, there are a net of 4000 fewer restaurants now than a year ago with independents suffering the worst net loss.
The issue for the industry is when will the indexes start to show some recovery? In my opinion, it’s simple. If people don’t have a job, they don’t eat out. When the employment picture improves there will be a direct correlation to the future of the restaurant industry. As unemployment numbers grow, so do the number of people eating at restaurants.
Recognizing the facts of our economic situation helps restaurant owners plan for next week, next month and next year. Your marketing needs to be tailored to the current data and trends. While there is some indications that there are some leading indicators that point to a recovery soon, that doesn’t mean new jobs will be available for some time to come. The job statistics still show an alarming loss rate.
Planning your future means finding the facts that suit your needs as a restaurant owner or manager.
Cut Restaurant Costs – Trash Cans Tell the Story
Don’t worry, you won’t set a new fashion trend, but don a pair of rubber gloves, dishwasher’s apron, the oldest clothes you have and those old tennis shoes you were going to throw out. Now start digging in every trash can, bag, garbage can and any other waste container inside or outside your building. What are you looking for? Here is just a small list:
- Look for what customers send back on their plates. Discover what they don’t like or the side dishes you are wasting money putting on the plate.
- Look for multiple half-eaten entrée’s. This may reveal a lot about the special of the night or that stuffed grouper you thought was so good.
- How about that half a pan of mashed potatoes your cooks threw out from the previous evening? You could have made many things from them. Or that half of a red onion the prep guys didn’t need.
- The celery tops, onion skins, parsley stems, green pepper centers and tomato ends would make an awesome vegetable stock.
- While you are in the trash digging around, you might as well pick out those cocktail forks you keep replacing, the ramekins and butter knives too.
- Seafood restaurants need those shrimp shells, fish bones and lobster heads for a soup base.
- Oh yes, then there is that quart of tuna salad that someone let spoil.
- What about those half dozen empty Corona bottles in the bottom of the kitchen prep bag of trash? Was someone pilfering beer and, worse yet, drinking while working?
It’s not a pretty job, but amazing things are uncovered in those thin little layers of plastic that hide many sins and waste. Everything from sloppy servers and busboys to poor kitchen management can be discovered in a morning of dumpster diving.
If you want to make an impact on your staff, save and separate everything you find. While gross and extreme, cost cutting internally is just lip service until people understand the lengths you are willing to go to run a profitable restaurant. Your employees expect wage increases, benefits and good working conditions. You expect conformity to policies, good judgment and common sense by each staff member. It’s a fair trade.
The Veto Vote
Both houses of congress can spend months deliberating a bill on the most important issues our country faces. It takes tons of research, thousands of man hours and many committee meetings to get a bill through both the Senate and House. However, one of the smallest words in the English language takes about one second to stop the bill from becoming law. That word is “NO” and it can come from the President when he refuses to sign legislation when it reaches his desk.
When a group gets together to make a dinner choice for the evening, generally there is discussion, negotiation and lobbying for the restaurant of choice. Each of the participants makes their case. There is a little give and take until the final consensus is reached. Then there is one voice from the group that uses their veto power – “sorry, but I am allergic to seafood” or “I am on a diet and their menu doesn’t have anything non-fattening” or “we just want a sandwich, not a big meal”. The process begins again!
Restaurateurs need to remember the power of “NO”. Every menu design has to eliminate as many veto votes as possible. Of course, you cannot be all things to satisfy all people, but you can highlight your flexibility and creativity from existing menu items. Fish and chicken can easily be broiled or poached. Gourmet sandwiches can be offered from most ingredients. Adding light meat or seafood items to basic salads is a common way to eliminate that two letter word.
Even ethnic and theme restaurants need some variation to satisfy that one person who doesn’t like Chinese, or pasta, or Thai, or Mediterranean, or whatever the group initially decides. Even quick service restaurants have learned. Hamburger chains always have chicken and/or fish. Even Chick-fil-a, the chicken chain, offers bacon and sausage at breakfast and fruit salads at lunch for the alternative taste or health conscious person.
A few words or a couple of menu items can eliminate that most powerful word in group dining – “NO”.
Don’t Buy a Dream if You Can’t Afford a Nightmare
New Restaurant Owner Almost Gives Up
A guest at a table wanted to say hello. I visited the customer just before the lunch hour at one of our restaurants. My instincts immediately told me he wanted more than a casual greeting. He wanted to talk. The customer was no stranger. He visits regularly and owns a casual franchise restaurant in the same market.
For the purposes of this story, we will call the restaurant owner Joe. His restaurant background began about 18 months ago when he bought an operating franchisee of a small chain serving casual food similar to a Friday’s or Chili’s. After retiring a couple of years ago, Joe fulfilled his life-long dream of owning a restaurant. He wanted to be primarily an investor while his family ran the operations. His purchase was reviewed by accountants and lawyers and the deal was done. Let the dream begin!
Not an unusual story, so far as I knew he was surviving well. Joe’s estimated annual sales were about 1.7 million and, to my knowledge, the chain was handling the economic pressures of the past year as well as others.
Joe began our conversation asking about how we were doing and we exchanged pleasantries for a few moments until he asked about margins in the business. Giving him my normal answer of saying the restaurant business is like buying a new car that states you will get 25 miles per gallon – if you are driving on flat highway, at the speed limit, with no load, your engine is maintained properly and you have a nice tail wind. Otherwise you will get 20 miles per gallon like everyone else. A chain casual restaurant in his category should return about 10% of sales under optimum conditions.
Joe seemed to ignore my answer and extended the conversation by saying the restaurant business open his eyes. He said he has worked harder in the last few months than he has ever worked in his life. So much for the aristocratic role of an investor.
As a new restaurant owner, Joe and his daughter, the GM of the newly acquired establishment, along with his wife realized quickly that the numbers on financial statements, contracts, disclosures, daily receipts and all the standard due diligence he performed, never told the real story of his operation. As I listened, the story became more common. The restaurant business cannot be pigeon holed like other businesses. You cannot do the “standard” pre-acquisition inquiries and base your decision to buy on what you get in return.
To convert Joe’s struggles into a few lines, here is a list of his almost disastrous challenges as he took over the operations:
- Equipment that had been in operation for 5 years or more began to fail from day one. The life expectancy had run its course, hastened by some poor maintenance.
- Employees were out of control. Many had known the restaurant was for sale and let their attitude reflect their uncertain future.
- The POS system was outdated and had many loopholes, which exasperated efforts to control costs and discover waste and theft.
- Until Joe took over, sales had been relatively stable, but took a nose dive as the recession kicked in and the new restaurant owner’s lack of experience required a long learning curve to handle the declining trends.
- As part of a chain, he could rely on the restaurant franchisor to offer a good menu and supplier relations were good, but execution was solely on his shoulders and that of his family. Another “learning experience” he hadn’t anticipated.
- He quickly learned that the price of the business would include additional expenses for equipment, computer systems, training, changing much of the staff and refurbishing some of the interior that needed to match the customer’s expectations.
- Finally, the attempt to equate marketing with advertising was an expensive lesson.
Joe’s eyes’ told as much of his story as his words. The feeling of a captain on a sinking ship starting to list must be similar. There are few things worse than deciding whether you will survive or face the mental anguish of failing. Joe and his family had one advantage over most new restaurant owners. They had the financial ability to weather the storm. Even deep pockets didn’t keep thoughts of shuttering the doors from entering his mind in the early stages.
The story may have a happy ending. The restaurant seems to have turned around according to Joe. Sales are doing comparatively better. He can feel the new enthusiasm of his staff and his food product is meeting the customer’s expectations on a consistent basis. The family may feel like they have lived a nightmare, but there are signs of emerging from a terrible emotional and physical test of stamina. The thought of ever only being an investor is elusive and long forgotten by Joe.
The story is still not unusual. Nothing was strange, unique or complicated. In fact, four out of five new restaurant owners face these same nightmares and close their doors. The odds may be slightly better for franchisees, but only slightly.
You can start a restaurant, buy a restaurant or become a franchisee; the struggles may have a few twists and turns, but are generally the same. If you can’t pay for the unforeseen nightmare, don’t buy the dream. Joe hopes to recover his investment someday, but it won’t be anytime soon – unless there is another Joe who is too quick to spend his life savings on a dream.
Restaurant Lessons from a Recession (Part Two) – Marketing
Perhaps marketing is the most challenging task a restaurateur faces with or without the impact of a recession. Recognizing that there is a recession is always in hindsight and pinpointing the day it started is impossible. You don’t wake up one morning and the newspaper headlines tell you your business is down, people are losing their jobs, there are fewer dollars for dining out available and prices are going up. Those things occur over a period of time. Recognizing the trends and realizing the impact it is going to have on your restaurant is the key to keeping the damage to a minimum.
If your restaurant had a marketing budget and programs in place, you at least know the importance and value of planning. The challenge is knowing how you must change as the consumer changes in a financial downturn spread across literally all parts of your demographic.
Restaurant visits is one of the first things to be curtailed when your guests have less discretionary dollars to spend. When they do go out to eat they are looking for value. There is more focus on price and the total experience – in simple terms, diners want to know what kind of bang they are getting for their buck.
Another phenomenon is people want to feel good. The media is plastered with bad news, so the small window to feel good is at a restaurant table eating comforting food they may not normally eat. Comfort food becomes a big seller. It’s interesting that even fine dining restaurants have jumped all over the gourmet hamburger trend. Casual restaurants are reviving dishes that were stored in the recipe books for years as the pre-recession consumer was looking for more healthy foods, less fried foods and watching calories closer than their wallets. During this economic downturn it appears the “feel good foods” are a hit.
Another aspect of evaluating consumer habits is the sympathy choices. Rich or poor, there was budget tightening. Even people who had plenty of income and assets have changed how they eat and spend money. There are fewer $75 dollar bottles of wine, $50 dollar steaks and extravagant desserts. The fine dining establishments have seen a double digit decline in sales for months.
How do you combat all of these negative forces? As always, give the guest what they want and keep your regular customers loyal.
Regular Customers
If you hadn’t developed a method to communicate with your loyal clientele before the recession, you are discovering how important it is when they are not at your tables as frequently (or not there at all) any more. Direct mail and email are the tools of choice. Other media possibilities include newspaper, website, television and radio. These are expensive and make it difficult to reach your client base specifically. Email is perhaps the most effective and less expensive. Regular communication about the changes you have made in your menu to reflect the guest’s focus on value is important.
Getting New Customers
New customers, while difficult to motivate, are more susceptible to your contacts than ever before. They are looking for value. Your competition may not be as aggressive at changing their operations to meet the consumer’s demands. There are fewer dollars to be spent and fewer new diners, but the ones that are out there are looking for new experiences. Their eyes and ears are more tuned to listen for things that fit their budgets and taste buds in this economy.
Clearly the best source of new business, in any economic climate, is word of mouth. That is why you want to make every effort to maintain and increase you regular customer frequency. The second best source of new clients is personal contact with you or a member of your staff.
Your Marketing Plan
The key to keeping your revenue and profits up is having a viable plan based on the facts known about the consumer environment we have pointed out. If you had a previous marketing plan for your restaurant, scrap it and design a plan on the new circumstances. Key elements include;
- Make sure you have a customer loyalty program in place and direct communication ability with your regular guests. Step up the frequency of contact.
- Be creative. Anyone can offer 15 or 20 percent off existing menu prices through coupons, specials and discounts – don’t do it. The potential long term damage to your brand is inevitable. The look of desperation is not a message you want to convey. Look at your inventory. What can you menu that is a value to your guest, but keep your margins within reason. Use your suppliers. Find new products that offer bargain pricing and comfort to the diner.
- Service must be impeccable. The guest is looking for value in their experience at your restaurant. “Value” is more than just price. Value is a package. It is meeting and/or exceeding what the customer expects. Whatever your concept, from fine dining to quick service, there is a minimum of standards that the diner expects when they walk in the door based on the price points you have established for your concept. Get your staff involved, informed and re-trained if necessary.
- Consider additional changes to cut costs and increase sales. Everything from catering, brunches, party trays, group sales, additional hours (or shorter hours) and operational procedures have to be examined. Make the changes that will add sales dollars and cut costs.
Summary
You may think it’s too late to react. If so, you must have a crystal ball or some other method of knowing the recession is over or won’t last longer. As recessions go, the end is as elusive as the beginning. What if the end is a year away? How about two years? What if it gets worse?
In reality, the plan you put in place now will work in any business climate. There is never too late in the restaurant business. We work on deadlines – some in the next minute, next five minutes, hour, day or week. One big deadline is while your doors are still open.
