The Clouds are Gathering. Is down 3 to 5% the new up?
The restaurant industry is dealing with a number of different factors impacting growth and profitability. Same store sales are declining and no sector is exempt from that trend. Consumers aren’t trading down. They are opting to eat at home. The price gap between supermarkets and restaurants is widening and home meal replacement companies are capturing more and more of the market share. In addition, Baby Boomers are retiring and their incomes are shrinking. Millennials don’t spend a lot of money when they go out because they are balancing mounting student loan debt. On top of all of this, the upcoming election is creating doubt and causing significant turbulence.
An operator’s ability to control costs is getting harder and harder. There is a labor shortage that drives up wages and new regulations are creating significant inflationary labor pressures. Minimum wage is increasing and in some states by as much as 67%, from $9 to $15, by 2017. The rising minimum wage is becoming a national trend. In New York State, for example, an hourly employee working 55 hours per week will see an increase in salary from $562.50 per week to $937.50 per week. Never in our lifetime have we seen such a drastic increase. Many operators say they plan to cut hours as a solution but more regulation may be coming that won’t allow for that.
Add on high rents with no sign of landlords lowering them. Raising prices might seem like your only option but this will only increase the price gap and encourage a loss in covers.
The Silver Lining: Best Practices to Stay Profitable
Even when economic and industry trends are headed in the wrong direction, there are a number of best practices that operators can employ to successfully navigate the rough waters ahead. Here are 10 ideas to consider:
- Start with a comprehensive menu review. Spend time analyzing what sells, what doesn’t, what is easy to prepare, and what is labor intensive. Can you increase prices on some items and eliminate others? Check the marketplace, are you competitive?
- Drill down on the contribution margin of menu items. Dollars pay the rent, not percentages. If a menu item isn’t generating dollars - should you keep it? Go over recipes with chefs, implement weekly budgets for spending.
- Look at your hours of operation. Can you modify the hours you are open? Would it be beneficial to open later, close for lunch, or close earlier at night? A change in your hours of operation may allow you to reduce labor hours and costs. Do this now before new regulations go into effect.
- Reward top performers. Create incentive plans for employees who produce better sales. Keep the best staff and pay them well. This will ensure a more profitable operation and a more successful brand.
- Control your cost of goods. Utilize smart purchasing. Ask vendors to give you discounts for early payment, vet out alternative vendors. Focus and incentivize the kitchen staff, eliminate waste, and count the inventory!
- Consider delivery. There are companies that can make this turnkey for you. Curbside has had good success for several of the chains. Will home delivery work for you?
- Marketing, Marketing, Marketing. Review your social media strategies and guest retention programs. It is much easier to get a guest to return more frequently than it is to attract a new one.
- Can technology be a solution? Depending on what kind of restaurant you are, technology may be able to help lower your head count. There are robots that flip hamburgers and tablets that take orders and enable guests to pay. There are machines that can make the perfect cup of coffee. It’s only a matter of time before all of this becomes commonplace.
- Re-run your budgets. Make adjustments for new menu pricing and items and tweak your labor schedule. If you don’t have budgets, you need to build them now. Review flash reports daily and weekly with your management team. These reports are easy to implement and provide a wealth of information to run your restaurant more efficiently.
- Focus on culture and motivation. Make sure everyone is rowing the boat in the same direction. From the hostess to the wait staff to the dishwasher – get the whole team involved. This business is made by watching the nickels now more than ever and your entire staff needs to be more vigilant.
The state of the restaurant industry is a lot like the weather. You can’t control it and it’s hard to accurately predict it. Sometimes, the economy, consumer dynamics, competitive influences, and a host of other factors can bring uncertainty to your operation.
While the skies of the restaurant industry may be a bit showery these days, by planning ahead, taking the proper precautions, and leveraging the best practices outlined above, you can keep your operation on the right track toward profitability and growth.
For more information, please contact Gary Levy, Partner, Hospitality Industry Practice Leader, at email@example.com or 646-254-7403.
For information on CohnReznick’s Hospitality Industry Practice, visit our website