The unprecedented events of the last year have created an unbelievable opportunity for restaurant and foodservice operators. Indeed, over the last 20 years, labor cost has been continually indexed upward, often well in excess of the operator’s ability to rise menu prices.
Government mandates, intended to improve the lives of employees from both a social equity and political perspective, have intensified dramatically. The ramifications of the Covid travesty have brought the importance of restaurants in the social fabric of society into sharp focus as never before. The destruction of our industry has been stark and eye-opening.
Historically, our industry has always been culturally relevant; centered on personal lifestyle; social fulfilment, and entry level career opportunities. For the market at large, the ‘restaurant experience’ only follows home and work in terms of how consumers have historically allocated their free time. Business-related entertaining, long a mainstay of the full-service segment, has been decimated. So as the economy gradually recovers over the balance of 2021, the operator has a unique opportunity to rebuild their profitability model much differently.
My message is about being forced to address a new business model, forcibly re-engineered to deliver higher profits than ever before contemplated. If not now, amidst the Covid crisis; when?
Navigating the rocky road
In my view, after assisting current clients and colleagues through the Covid carnage for the last six months, and also having personally experienced a reduction of sales by (at least) 70% virtually overnight 20+ years ago in my own restaurant due to a road closure, I have been down this rocky road before. Inasmuch as an estimated 50% of your competitors will not reopen, the professional and disciplined approach should be to address the 20% of your concept, brand or business model that delivers 80% of your profits. This simply means eliminating marginal menu items and service complexity while adding takeout and delivery.
Needless to say, the online delivery services like Grub Hub and Uber Eats allow the seamless execution of fulfilment (and are here to stay) but to be clear; this is NOT a recipe for success but rather an opportunity to keep your key kitchen and back-of-house employees working to keep your brand alive in the mind of the market.
Without the margins associated with the full-service, celebratory gatherings, (large and small) restricted by social distancing, and high profit alcoholic beverages, this segment has to radically ‘re-think’ its business model. The reality is that in the full-service segment, serving alcohol is usually where 80 % of the profits originate. In the casual dining/ tavern/pub/theme restaurant segment, 100% of its bottom line usually comes from alcohol.
The fact is that beverages of all types usually have a 20% cost and are not inordinately complicated (on the non-alcoholic drink model, ask Starbucks how that model works for them).
From survival to prosperity
I have developed a management hypothesis built around survival leading to huge prosperity.
It has three key components:
- Create dramatic wage increases. Strive to eliminate part-time workers. Pay overtime liberally. Pay (dramatically) more money (at least 30-40% higher) to fewer people who will execute perfectly. One great employee is always better than two mediocre, high-turnover employees.
I know this is counter-intuitive but think labor dollars in total. Virtually eliminate turnover and all the costs associated with hiring, training and food quality and service inconsistencies. This model allows your best employees to apply their proven, considerable skills to cost controls and service excellence.
- Downsize your menu by 75%. Only feature historically high sales items that have become signature items. Go from a three-panel menu to one panel. Eliminate plastic menus; immediately build single-page menus that can be delivered on a color copier. Invest in (fewer) server and counter workers becoming true marketers. Grateful customers will allow a line to form. They will wait in line, because getting away from sequestration is part of the reason they are there.
- Optimize your hours of operation. This means ‘being open’ for the same number of day-parts but reducing off-peak guest visits. For example, lunch is now 11-1, not 11-3. Dinner is 6-9, not 5-10. Your customer base will respond favorably and will change their lifestyle accordingly. And will likely allow you to raise prices on fewer items, leading to a higher average check by at least a dollar.
These are unprecedented times for sure, but they represent the greatest opportunity for dramatic increases in profitability in my lifetime.
Bill Main FCSI