4 Ways to Recession-Proof Your RestaurantAs the industry braces for a potential decline in spending, prepare by implementing these best practices.
The restaurant industry may be heading for a recession according to one analyst, whose recent prediction gave rise to attention-grabbing headlines.
In late July 2016, Paul Westra, a senior research analyst at Stifel Financial Corp., downgraded stocks of 11 restaurant chains, citing political and social unrest, terrorism, and economic uncertainty as factors making U.S. consumers more cautious with their spending. Adding to that, this spring market research firm NPD Group reported a decrease in traffic to fast food and fast-casual restaurants.
The National Restaurant Association has called the forecasts “overblown” and predicted that food and beverage spending will get a boost as jobs are added to the economy each month. July’s just-released numbers showed improvements on jobs added compared to spring’s figures, but the unemployment rate is stagnant, hovering at around 5 percent.
Whether an industry recession is looming or not, restaurant owners should be implementing best practices now to help them survive any downturns to come.
“Going from being a great restaurant to a crappy restaurant isn’t one decision,” said Ed Doyle, president of the Boston-based RealFood Consulting. “It’s a million little steps, things that don’t seem important on their own but end up a big bucket of compromise later on.”
Watch your financials
In his years as a consultant, Doyle has encountered restaurant owners who ignore their profit and loss (P&L) reports and don’t close out their months until the end of the following month — rendering any findings useless. “When times are fat, people get careless,” Doyle said. “The top line hides all kinds of problems.”
If your restaurant’s bookkeeping is nonexistent, lagging behind or not being analyzed, you’re already behind.
According to Doyle, when business is booming, restaurant owners should be socking away money for the future. “If you didn’t put money away when you were cranking it, then you’re in a situation where you’ve got to buy the cheaper stuff and that becomes a race to zero,” Doyle said. “When you lose liquidity, you become reactive.”
Look for cost savings
Ideally, Doyle said, restaurants should always be looking for ways to trim costs without sacrificing quality. If they can do this when times are good, all the better.
Doyle recommends thinking of P&L statements as a management tool. They should be analyzed constantly to look for ways to run the restaurant more efficiently.
“Look at your contracts and your cleaning, merchant processing and vendor costs,” Doyle said. “Find yourself a good expert to make sure you’re benchmarking yourself against your peers, or sit down with friends at other restaurants to ask what they’re paying.”
No amount of savings is too small, Doyle said. Assess whether you have too many or too few employees, and whether the schedule is working for everyone. Getting an energy audit and changing out incandescent light bulbs for LEDs may yield only small cost savings upfront, but with other improvements, the savings will snowball. “A half a point of savings against a 4 percent net is a significant change,” Doyle said.
Diversify your client base
A successful restaurant can’t succeed forever on just one type of client. If your restaurant relies on businessmen with expense accounts and those expense accounts dry up, that means less business for you, according to Doyle. Similarly, if you rely on tourists, you could hurt during a downturn as people travel and dine out less.
“Ask yourself, what are opportunities we’re not looking at and what are we missing,” Doyle said.
Street Meet, a family-owned restaurant on Hilton Head Island, weathered the Great Recession not by scaling back but by creating verticals for the business to attract new diners.
“We began selling merchandise such as hats, T-shirts and [drink] koozies,” said owner Carey Basciano. “We offered take-out orders, to-go orders, delivery orders, boxed lunches and catering, and we created a ‘healthy menu’ to attract a wider range of customers. Essentially, we created numerous little businesses within Street Meet’s brand.”
Stick to your brand
When customer spending slows, owners often react by cutting quality to save money. But to avoid losing customers, Doyle warns owners to stay true to their brand or reevaluate what the brand should be.
“If you stop using prime beef at your steakhouse, you’re changing what your resto is,” he said. “You’ve told your customers one thing, and you’re doing another.”
Yann de Rochefort, owner of Boqueria, a tapas restaurant with three locations in New York City and one in Washington, D.C, opened his second New York location in 2008, just as the recession was starting. Though it was a difficult launch, de Rochefort attributes his restaurant’s success weathering the downturn to doubling down on the brand and mission.
“We were a relatively affordable indulgence and, most of all, a fun restaurant,” he said. “When things are tough, that is what people look for.”
Though management and restaurant employees should always be providing good customer service no matter what the economic climate is, it is especially important during tough times.
“Respect what is happening in people’s lives,” de Rouchefort said. “Make it easy for people to enjoy themselves. They are watching what they are spending and worried about what’s around the corner. Give them a place that is a refuge from all that.”