Even in the best of times, restaurant margins are thin. Challenges related to the pandemic, labor, food prices and the supply chain only place additional strain on them. But the good news is that there are a number of steps operators can take to cut costs without taking anything away from the guest experience. First, ease supply chain-strains by ensuring your inventory goes as far as possible. Encourage precise ingredient measurement across your menu – Modern Restaurant Management advises operators to measure ingredients in grams vs. ounces for a more precise result. Take stock of your energy use and find ways to use it more efficiently – by turning equipment on only at the time it is needed, using energy-efficient lighting, and adopting technology to monitor your appliances so you can be alerted and act quickly if something isn’t working as it should. Be just as mindful of food waste. To avoid having usable food scraps tossed out, Restaurantowner.com suggests eliminating trash cans in the kitchen and giving each kitchen employee a clear box with their name on it where they can place food scraps so managers can minimize food waste being generated from the kitchen. Where possible, consolidate purchases with a single supplier to gain leverage in purchasing agreements. Finally, make the most of the staff you have by scheduling people in accordance with your anticipated sales and traffic each week – your schedule should not be on autopilot
Restaurant sales are up 8 percent over where they were in June 2019, according to NPD Group’s David Portalatin. While that’s positive news for sure, business conditions are far different from what they were in 2019. People are preparing more meals or meal segments at home than they did back in 2019, whether from scratch or from meal kits. The business-lunch and happy-hour set is now spending more days working (and eating) from home, and the delta variant of the coronavirus is causing anxiety about eating out where it didn’t exist before. That may mean that your once-busy urban location isn’t getting as much traffic and that your suburban location is seeing more delivery and carry-out business. It’s more important than ever to know your guests’ habits – where they are eating, when they are most apt to order a restaurant meal, and what promotions would tempt them to buy a meal or drink from you instead of staying home. Treat each transaction as an opportunity to gather helpful data that you can use to plan your next menu item or promotion – or even your next investment in technology or real estate. At every order, are you gathering information on what items are selling the best and what channels those orders are coming from? Are you incentivizing guests to join your loyalty program and analyzing their orders so you know which promotions are most likely to inspire them to return? Your systems for automatically gathering, understanding and acting upon consumer data are what will help you flex with the fluctuations of the current environment – and better weather whatever challenges might arise down the line.
In the past year in particular, it has often seemed like restaurant operators have been asked to accomplish the impossible: Simplify the ingredients you use but accommodate everyone from carnivores to vegans to customers with allergies. Increase wages for employees but avoid noticeable pricing spikes on your menu. Make your menu feel special and unique, but it should not be complex or time-consuming to prepare. The list goes on and on. And as consumers venture back into restaurant dining rooms and order delivery in the months ahead, expectations will continue to climb. It’s a good time for you to take a look at your business and decide what you value – and just as important, what you don’t care about as much – so you can do your best with the people and resources you have and then filter out the noise. What are your core values? What impression do you want your customers to have of your business? In which aspects of your business are you not willing to compromise or accept a substitute? Assess each area of your business and identify things that are out of your control and can’t be negotiated – like managing food safety requirements and government-imposed business restrictions. Where you do have some control, where are your biggest pain points? Where are things going especially well – and how can you apply those positives to other areas of your business?
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.
To be sure, the vast majority of restaurant operators wouldn’t want to relive the challenges of the pandemic. But it hasn’t been all bad: The past year has also stripped away the clutter and forced operators to focus on making the kinds of improvements and adaptations that kept business running. As times improve, those changes should become permanent – while other possibilities should be considered with a more wary eye. Here are five key pandemic-era changes to embed in your operation (if they aren’t already permanent): Be transparent with your guests – about the origins of the food you serve and how you protect consumer safety – and make those elements central to your brand. Keep your menu simple to enable you to more flexibly manage your inventory and waste. Harness data to help you stay current about customer preferences, supply-chain challenges and areas of your business that are generating excess costs. Find ways to offer a personal touch while allowing guests to minimize physical contact with surfaces and other people – whether they are using your restroom or paying for their order. Finally, embrace structures that will allow you to be more nimble in the future. That could mean having a real estate footprint that can easily adapt to different service models, or adopting technology that allows you to more easily scale up and scale down your staffing based on changes in the weather.
At the time of this writing, the National Restaurant Association had just announced that more than 110,000 restaurants around the country – representing one in six dining establishments – had closed either long term or permanently due to the pandemic. If you’re reading this, your business has likely already developed strong survival strategies, but the winter months are likely to test them yet again as the country manages winter illness spikes and more potential lockdowns. Is your restaurant as ready as it can be? In a recent Restaurant Dive article, several attorneys from the global law firm Goodwin’s financial restructuring group offered guidance to help restaurants weather the challenges of the next few months. Specifically, they said restaurants have two critical capabilities now: their ability to identify and implement practices to enhance revenue and reduce expenses, as well as their ability to connect with stakeholders and create a mutually agreed-upon restructuring plan that maximizes the value of the business and develops a business model that is sustainable in the current environment. As part of this, restaurant operators will need to conduct a thorough analysis of their operations, including calculating all assets and liabilities, and consider potential opportunities for getting concessions from landlords and suppliers, as well as securing external sources of funding. While there are sure to be more restaurant closures ahead before this crisis is over, there will also be opportunities available. Savvy businesses that have a precise understanding of their operation, as well as contingency plans in place to provide help in various scenarios, will be in the best position to seize those opportunities.
COVID-19 is not done with us yet, as recent virus spikes and tightening local restrictions around the country have demonstrated. While everyone wants to avoid a repeat of this past spring’s restrictions, if you were suddenly faced another four- to six-week lockdown this winter, could you power through? What would your top concern be? The restaurant industry management platform Restaurant365 asked this question recently in a large survey of operators that included independent restaurants, restaurant groups, fine-dining and quick-service establishments, and full-service franchisees and franchise brands. The top concern – for nearly 26 percent of respondents – was generating enough revenue to break even. So what can you do now to fortify your operation and make sure the items you are offering are generating the largest-possible profits for you? Are there profits lurking on your menu that you could promote a bit better? Now is the time to identify which items give back to your restaurant. Sure, you might be able to tell right away that your bar menu and desserts are money-makers. Can you reinvent those items for take-away? There are likely other items that may not seem profitable on the surface but save you money because they minimize preparation time and ingredients. The app Eat says high-profit menu items that are often overlooked include, among others, low-prep dishes, nose-to-tail items, foods that minimize waste, and foods perceived as value items.
As restaurants have struggled to accommodate the need for meal delivery during the pandemic, a number of cities have stepped up to limit the steep fees third-party delivery providers can charge. Restaurant Business reported in late July that Philadelphia – which had just joined the effort alongside cities including New York, Los Angeles, San Francisco, Oakland, Portland, Ore., and Washington, D.C. – would immediately cap total fees on delivery orders at 15 percent. The report said delivery commissions could not exceed 10 percent of the order total, and separate nondelivery fees could not surpass 5 percent – until 90 days after the end of the current public health emergency. As for what happens in other cities, and, for that matter, across the country after the threat of this pandemic passes, restaurants need to dissect their data and understand their customer base so they can negotiate the best terms of third-party contracts. Even with the major providers, there is room for small restaurant brands to bargain – particularly as provider consolidation remains likely. This Fast Casual report (https://bit.ly/33vocmi) provides some tips about the best ways to secure a fair deal with third-party companies – including what you should know about your profits, customer habits and existing ordering channels to get the best leverage when negotiating an agreement. If you think in-house delivery might work for your restaurant with a little guidance, you can also check out the Native Delivery Best Practices Work Group, an effort launched by the Restaurant Technology Network.
As if it wasn’t important to know your true food costs before the pandemic, it’s all the more crucial now as many restaurants around the country are having to operate at a reduced capacity, rethink their menus and determine where to best allocate diminished resources. By getting an accurate handle on your waste, over-portioning, theft and even the shrinkage of ingredients, you can see what menu items are really costing you – then adjust your promotions so you encourage guests to select your highest-margin items. A recent webcast from Restaurant365 reinforced the power of tracking actual vs. theoretical food costs as a means of accomplishing this. Theoretical food costs are what your food costs should be based on the cost of your ingredients, while actual food costs are what your restaurant actually spent. There will be variance in those numbers, but getting a more precise understanding of where it comes from can help you minimize it. While there are a number of places to focus to help cut waste, it can be most helpful to analyze your individual ingredients and identify those with the greatest cost variance. Drilling down like this can help you zero in on what needs attention or adjustment, whether it’s your portion control of a certain dish, the prices you are getting from a supplier, or the need for a substitute dish on the menu.
If you currently lease your space, you have likely had some interesting conversations – hopefully productive ones – with your landlord in recent weeks. While restaurant operators may be struggling to pay rent, it’s not like there is a long list of businesses waiting to take your place if you were to vacate. Use any good will you have accumulated to negotiate more beneficial terms to your lease. Even the big guys are testing their leverage: Restaurant Business reported recently that Starbucks has asked its landlords for a year’s worth of rent breaks due to the pandemic – and The Cheesecake Factory claimed it wouldn’t be paying rent in April at all. Of course, landlords have their own bills to pay, so if you’re struggling to pay rent, acknowledge your shared challenges. Can you get your rent reduced for a few months initially and then deferred over the course of your lease if you continue to pay taxes, maintenance and utility costs, for example? Can you pay rent on a sliding scale based on your revenue in the coming months – and provide proof of your efforts to keep business flowing? If you are getting support through the Paycheck Protection Program, how can you factor that into your negotiation? Refusing to pay rent likely won’t help your case, but if you can have a discussion about what fixed costs need to be met, you may be able to come to an agreement that’s preferable to the one you started with. What’s more, you may buy yourself a bit more time to adapt your business to current challenges and keep business coming in.