These are difficult times due to the following:
1) a continued erosion of consumers disposable income;
2) the higher costs of items including food, labor, insurance and occupancy costs;
3) the uncertainty of the impact of tariffs and the potential of rising costs because of them; and,
4) the possibility of a recession occurring soon.
Consequently, this year will be another tough one for food and beverage operators.
Here are 9 ways food and beverage operators are handling challenges with these pivots.
1) Revising your menu.
a) Limiting the number of menu items. b) Focus on easier to prepare items that require less labor. c) Include items that have lower food costs and higher margins. d) Provide some lower priced items to capture those customers that have been impacted with less disposable income. e) Look for further cross utilization of products so sauces and specific ingredients are used on several menu items as this eliminates waste and makes food preparation in general simpler. f) Improving purchasing procedures. On high food cost items such as meat and seafood products the operator should periodically obtain quotes from competitive vendors to assure they are obtaining the best pricing and quality. Take advantage of any food promotions being offered by vendors to help minimize cost of goods.
2) Reducing the days and hours of operation.
This helps reduce labor costs during slower days and this also allows the operator to use their staffing more effectively due to the shortage of employees .
3) Renegotiating your premises lease with your landlord to obtain better terms and conditions.
a) In some cases, landlords are willing to negotiate percentage rents in lieu of high minimum rents. b) In many cases in new leases or in remodeling situations landlords are willing to give free rent for a given number of months until the tenant opens for business and/or completes their remodeling or in some cases the landlord will make monetary contributions towards remodeling.
4. Using technology to help reduce labor costs and increase efficiency.
a) The use of hand hold terminal devices that food servers bring to the table and presents to the customer at the end of the meal saves labor costs and improves financial accountability. b) The use of state-of-the-art point of sales systems enhances the operators control of food and labor costs which are the operators two largest operational costs. Additionally, these systems can be used to enhance inventory control. c) Installing kitchen display systems and smart inventory tools and using QR code menus and online ordering to reduce front-of-house labor.
5. Improving personnel procedures.
a) Offering competitive compensation including offering performance bonuses for the appropriate positions. b) Accommodating personnel in scheduling requests without compromising the service levels of the operation. c) Providing the proper training for all personnel. d) Close during holidays so personnel can spend quality time with their families and friends. e) Pay referral fees to employees who refer new hires that stick around for a minimum number of months. f) Enabling the hourly employee to feel more involved in decision making gives them more ownership/accountability (not just showing up for a paycheck – caring more about the marketability and growth). Examples include decisions in cocktail and food menu, valuing opinions in service operations – expanding on interests/skills they have outside the restaurant and utilizing them within it. g) Pay the GM and Chef a lower base salary but incentivize them with a meaningful performance bonus based upon sales and earnings targets.
6. Reducing energy costs.
a) The use of energy efficient equipment such as low temperature dishwashers, more efficient refrigeration systems and cooking equipment. b) Switch to LED lighting. c) Switch to energy controls such as dimmers, occupancy sensors and time clocks. d) Install door sensors which activate when refrigeration doors are not tightly closed. e) Make sure major equipment such as HVAC systems and refrigeration are on a preventive maintenance schedule. f) Additionally training personnel in water conversation, turning off lights when not necessary and training them how to use equipment properly will help conserve energy. g) For those operators that also own their building the installation of solar panels can reduce energy costs dramatically.
7. Efficient layout and design of the physical plant will help reduce costs.
a) The kitchen should be designed to minimize walking distance and allow for efficient workflow. b) The front of the house including food server stations should be designed with the same objectives as indicated above.
8. Remodeling the physical plant when necessary.
Try to schedule during slower periods to minimize reduced cash flow. Also try to use trade of the operations goods and services for some remodeling costs.
9. Other helpful recommendations.
a) Owners are wearing more hats reducing hourly labor by asking salaried managers to do more which yields the most immediate and measurable results. For example, taking on some of the opening and closing duties such as prep in the kitchen, setup in the dining room, blowing leaves on the patio, etc. If an operator can shave 4-5 hours a day it can add $30K or more to the bottom line.
b) Operators respond to online reviewers to enhance their online reputation and if there are negative reviews they respond to them appropriately to defuse any negative thinking the reviewer and reader may interpret.
c) Each market is different, but if you can get away with it, pass on credit card processing costs to guests, add fees for takeout packaging, pass on 3rd party delivery fees to customers, deduct merchant fees from staff credit card tips, surcharge for any mandated healthcare costs, and so on. If this is common practice in your area, get on board.
d) Reduce insurance costs. Insurance has skyrocketed. Increase your deductibles and decrease your coverage, if comfortable doing so or at least shop around for the most competitive bid.
Thank you to the following RRC agents who helped contribute to this article – former restaurant owners: Keith Simpson, Patrick Totah, Andy Mirabell, Jim Pate, Tamas Torok, and Dan Baker and thanks to current restaurant owners and/or managers: Giancarlo DiTullio, Davis Tran and Zachary Rager.
All of Restaurant Realty’s Agents and Brokers are well equipped to deal with a diversified group of sellers and buyers. For further information, please contact Principal Broker Steve Zimmerman at steve@restaurantrealty.com or call 888-995-9701.
Now celebrating our 29th year, Restaurant Realty Company® has a successful track record helping over 3,200 clients in completing over $1,000,000,000 (billion) of Business and Real Estate Transactions including the following: Selling/leasing over 1,600 restaurant, bar and/or nightclub businesses, Selling over 75 related commercial buildings, Leasing over 3 Million square feet of commercial space and Completing over 7,500 valuations. The majority of our staff have either owned and/or managed restaurants. Our deep experience as operators means we understand your business from the inside out.
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