We’ve been hearing it a lot this year: To generate traffic when consumers are hesitant to spend on restaurant meals, operators have to provide value – or at least the perception of it. But that doesn’t necessarily mean offering discounts. According to Kinetic12, a consulting firm that works with emerging brands and identifies trends, there are many ways in which an operator can provide “value”: You can offer premium ingredients – guests will be more willing to pay top dollar if you’re offering high-quality food and it feels that way. You can offer a couple of portion sizes, so guests can trade up or down (this can be more palatable to guests who might otherwise notice that their usual-size dish is suddenly costing them more). Price is still part of the equation and you may well have guests who are looking for more budget-friendly options right now, so consider lunch deals, value meals and other promotions to draw traffic and allow people to mind their budgets. The service and overall experience you provide will continue to mean a lot, so prioritize your staff’s interactions with guests and ensure your website and app are easy to navigate and communicate accurately about timing. Your consistent execution is important – guests need to feel like they know what to expect in terms of their overall experience with you. Even if you’re cutting corners right now – whether it be with ingredients, serving sizes, staffing or something else – that shouldn’t come through in the overall experience you provide. If guests feel they are suddenly getting much less value for their money, they won’t return. Finding even incremental ways to elevate your brand’s value can make your guests feel like your meals are a worthwhile purchase, regardless of what you’re having to charge. Battling rising costs has been a challenge for restaurant operators across categories this year. According to the National Restaurant Association’s 2023 State of the Restaurant Industry report, operators have tried everything from adjusting operating hours and staffing levels to increasing menu prices and swapping out menu items altogether to manage these increases. One additional area of your operation where expenses are lurking is in energy and there are a number of steps you may be able to take to manage costs here in ways that guests don’t even see. While some (though not all) require a significant up-front investment, longer-term savings should outweigh these costs. For example, there are opportunities to cut costs by swapping in energy-efficient ovens, dishwashers, refrigerators and other equipment that can significantly reduce your energy costs over time. On a smaller scale, turn off equipment like ovens and lighting when not in use, or use timers and sensors to power down these items when they aren’t needed. Maintain your equipment regularly to make sure it’s operating efficiently — cleaning air filters and replacing worn-out parts can prolong the life of your equipment and ensure you’re reaping the most savings from it. Use a programmable thermostat to set controls for different times of day or areas of your operation. Also rethink light — make use of natural light where possible and use LED lighting elsewhere. It’s another energy saver and lasts longer than alternatives. Finally, consider low-flow faucets and toilets to cut water bills. Chip away at avoidable overhead costs Though the cost of food and labor tend to make the most headlines when it comes to current industry challenges, those aren’t the only budget line items on the minds of restaurant operators right now. According to the National Restaurant Association’s 2023 State of the Industry Report, a commanding majority of respondents are spending much more on overhead costs – including those for insurance, utilities, licenses and other items a restaurant needs to run – than they were a few years ago. While some costs are out of an operator’s control, there are a number of expenses that can be minimized with some planning. Consider insurance, for one. In addition to simply shopping around for the best quote, you can take steps to position your business for a better deal. While insurance prices are increasing across the board, insurers will provide better terms to a risk-aware business. Demonstrate your sound risk management by ensuring your fire alarm, sprinkler system and security cameras are up to date and functioning well. Document your staff’s safety training and provide evidence of your strong (or improved) accident record. If you do have a solid safety history, consider increasing your deductibles so you pay lower premiums each month. If your business has made major changes to its physical premises or how it operates, make sure you update your policies to account for those adjustments so you can avoid gaps in your coverage. Finally, if you’re in the market for several types of insurance, such as liability, property and cyber protection, for example, look for a provider who can offer a bundled package that can save you money – and ensure they have a solid record on claims payment. At the time of this writing, it had just been announced that Congress would not be replenishing the Restaurant Revitalization Fund as part of the omnibus spending bill, which would have given about 200,000 foodservice businesses a critical lifeline to help manage the ongoing challenges the industry continues to face. So what now? Stephani Robson, an emeritus professor at Cornell University who studies the restaurant industry, recently said the pandemic’s biggest lesson for restaurants has been to “be lean.” Surely you’re already doing a lot of that, or aiming for it, but can more be done? To be sure, technology can help in the effort, but only if implemented in ways that make life easier and faster for guest and staff alike, and can be scaled up, scaled back or otherwise adapted when the operation needs to change. Does your technology ensure you don’t have too many staff working a shift? That you don’t accumulate food waste before a dish ever reaches a guest? That you can make incremental adjustments with ease when you’re short on a key ingredient and you need to incentivize guests to try another dish? If you can follow the waste in your operation – whether in food, time, staff or other resources – you may find some practices that can be improved and made leaner. Ask Team Four for help in uncovering them. Ghost kitchens: Do the numbers work for you? Ghost kitchens are continuing their climb: By 2030, they are predicted to hold a 50 percent share of the drive-thru and takeaway foodservice markets, respectively, according to Statista. As restaurant operators think about the best ways to serve existing customers and tap into new markets, ghost kitchens could be an important part of a business strategy. Perhaps you had to close a brick-and-mortar location before or during the pandemic – or you want to enter a new market that sounds like a good match for your brand. You could open a small brick-and-mortar location in a high-traffic area to collect information. But you may be able to gain the same – or better – insights with a ghost kitchen operating with a much smaller real estate footprint in a less-expensive area. Ghost kitchens’ ability to help brands test market viability in a low-risk way is exactly why brands like Famous Dave’s consider them to be important to their business model. As Al Hank, COO of Famous Dave’s parent company BBQ Holdings Inc., said in an interview with 1851 Franchise: “That is typically a multi-million-dollar test, and you never know what the outcome is going to be, but ghost kitchens allow you to do it in a much more cost-effective manner.” So exactly how cost-effective might a ghost kitchen be for you? Dan Fleischmann of the restaurant equity investor Kitchen Fund developed a ghost kitchen calculator, available at Restaurant Dive, to help concepts get an initial sense of whether a ghost-kitchen concept might make financial sense. You plug in some key data about the business, cost structure and volume assumptions, then the calculator projects the resulting profit or loss, as well as the return on invested capital. The value menu looks a lot different nowadays at a wide range of quick-service and fast-casual brands. McDonald’s, Denny’s, Burger King and Domino’s are among the companies that are skinnying down their most economical meals. The changes have included decreasing the number of chicken nuggets from 10 to eight, removing price caps on value-menu items and raising the prices of individual items across the menu, according to a recent Wall Street Journal report. Consumers are noticing the changes and facing a decision: Is this restaurant meal worth a few extra dollars (or a little less food) if I can find something less expensive at the grocery store? For some restaurants, this may mean recasting menu items as something special vs. a means of saving money. Understanding your menu cost has become more important than ever in the midst of inflation and supply shortages. Last year, restaurant prices increased 6 percent, the highest jump in nearly 40 years. But just as important as pricing could be how you’re presenting your menu items and promotions to your guests. Mine your data to better understand the dishes your guests love and when they are ordering them. What drives them to order from you? Is it convenience? An end-of-the-work-week treat? Tapping into what motivates them can help you frame your menu in a way that makes the decision to place an order an easier one for them – even if the bill is a little higher right now. In a recent legislative update from Washington, Sean Kennedy, the National Restaurant Association’s executive vice president of public affairs, said the restaurant industry had lost 45,000 jobs at the end of August. Further, new vaccine and testing mandates at businesses with a certain threshold of employees on staff could also make already-challenging staffing conditions even more difficult. To be sure, this is not exactly the Covid-19 recovery that restaurant operators had in mind – but there are efforts underway to try and change that. Industry advocates are urging lawmakers to continue to replenish the Restaurant Revitalization Fund (RRF), though Kennedy says it appears that members of Congress don’t want to add any Covid-recovery measures to the $3.5 trillion infrastructure spending plan in process, which is focused largely on climate initiatives, paid leave, childcare, education and healthcare. Because funding the spending plan will impact businesses in the restaurant industry, however, Kennedy is urging operators to add their names to Restaurants Act, a grassroots organization for the restaurant industry that is looking to generate broad support from the restaurant industry in order to urge lawmakers to continue to fund the Restaurant Revitalization Fund. (The fund closed to new applicants in May and according to a recent announcement from the Independent Restaurant Coalition, 82 percent of independent restaurants are concerned they may close permanently if the fund is not replenished.) You can join or learn more about the effort to refill the fund at Restaurantsact.com. As the supply chain is being impacted by factors including labor shortages, extreme weather, gaps in the availability of raw ingredients, and a spike in demand from consumers returning to foodservice outlets, businesses at every link in the supply chain are feeling the stress. At a time when some foodservice operators have been completely dropped by their distributor(s), the strength of your partnerships is paramount. At the time of this writing, the average fill-rate from manufacturers to distributors was running below 85 percent. But the service level for Premier Value 4 members is considerably higher than this average. That is due to the work our distribution partner, US Foods, is doing to rebalance inventory to provide our members with the best possible service. In recent quarterly earnings releases, US Foods and Sysco disclosed their food cost inflation rates: 8.2 percent and 10.2 percent, respectively. To keep this in context, a normal food cost inflation would be in the 2-3 percent range. Value 4 members have protection against this inflation with contracted manufacturer agreements (CMA). CMA’s give access to 350 vendors covering 105,000 products. Over the past 15 years, inflation on CMA products has been half of the inflation of non-CMA products. Our CMA contracts are firmly in place and while we will not know if that 50 percent “savings” rate is less or more until the current hyper-inflationary period has settled, we are confident that using CMA products is your best protection against inflation – and will offer extra security until we return to conditions that feel closer to normal. If you do not have these protections from your suppliers and partners, consider calling Value 4 to see if you qualify for our programs. The pandemic has forced even well-established restaurant operators across the industry to think and act like scrappy, new entrepreneurs: flexing to new challenges, doing as much as possible with few resources, keeping overhead low, being willing to reinvent when the circumstances call for it, and even flexing work around other commitments at home. As a result, we’ve seen a rise in ghost kitchens, as well as more home-grown, chef-driven meal-delivery concepts springing up on Instagram. Much like how many employees who have spent the past year telecommuting from home are now resistant to working from an office building full-time, the restaurant industry may emerge differently from the pandemic too. Dining rooms may take time to fill and it may be even more difficult to keep people on staff than it was before. Can you find ways to take the best lessons learned in the past year and apply them in the new environment? At your foundation, minimize the resources you need, including ingredients, real estate and staff. Harness technology to monitor waste in areas as diverse as your inventory, ordering, energy use and labor. Take another look at your pre-pandemic service model and assess whether that is realistic now. Embrace multiple revenue streams and look for new ones that could help you adapt more easily to challenges going forward. Finally, think about how you can continue to act at a grassroots level to keep customers engaged with your menu and brand – from creating rotating dinner subscriptions that you promote on social media to offering meal bundles for delivery to different neighborhoods.
In recent months, consumers have ordered restaurant meals via third-party delivery companies in increasing numbers: Marketwatch reports that throughout the course of the pandemic, food-delivery apps’ business has more than doubled. Restaurants have long regarded these apps warily, weighing the benefits of being able to serve convenience-loving customers against the risks of having a delivery app’s fees dissolve their profits. Those fees aren’t likely to come down anytime soon, but what if other restaurant operating expenses can? Ghost kitchens are helping to make that possible by removing expensive overhead – like décor, prime real estate and large dining rooms – and freeing up revenue for delivery expenses. To be sure, the experience of dining in a restaurant is appealing to consumers (and something they will want to return to post-pandemic), but your food is at the core of people’s desire to order from you. Stripping your business down to its key ingredients – quality food and people who enjoy it – is about having space to prepare it and a means of connecting customers to it. That means locating a professional kitchen (minus the pricey real estate), setting up a technology platform through which people can place orders smoothly, and having a partnership with a vendor who can ensure your food arrives promptly and safely. The pandemic has made ghost kitchens a key growth engine for the restaurant industry at a time when few others exist. Businesses that already have strong brand awareness and delivery customers may find that a ghost kitchen can help them turn a more stable profit. Consider a ghost kitchen an opportunity to test a new concept for minimal investment, or to shift an existing concept to a delivery-only mode for minimal investment (especially if the kitchen is shared by multiple businesses). These kitchens aren’t likely to go away after COVID-19 is behind us – consumers have had too much time to get used to their convenience – so they may be one of many lasting changes to emerge from it. There are many ways to approach them. If you want to discuss whether a ghost kitchen could be right for your operation, contact Team Four.
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