From an unlawful detainer action to a 5 day pay or quit or simply an inability to meet your obligations, the strategy for finding a solution remains the same.

One of the issues we regularly come into contact with in our capacity as turnaround consultants for insolvent or underperforming units are our clients lease obligations. Typically executed during the “good times”, they have often proved to be an onerous burden on struggling units and when cash flow is tight and a business needs to be lean, the ability to renegotiate these leases is often the ‘make or break’ factor.

For a landlord to serve a 3 or 5 day notice to pay or quit, it may mean that talks to date have failed (or perhaps not occurred) and at this point the landlord is making it abundantly clear that they are willing to risk having a vacant property rather than keeping you as a tenant. Essentially, the landlord is looking to stop the bleeding as he or she does not have faith in your ability to remain as a tenant. At other times, the notice may merely be a strategic move to force you to repay some of the monies owing with no genuine intention of actually evicting you. Either way, receiving a ‘pay or quit’ is a nasty feeling for an operator and creates fear and insecurity for the business. As if cash flow was not tight enough already you now need to retain counsel.

Whilst we are not lawyers we do, however, work closely with our client’s legal team in defining a strategy that makes the most sense under the circumstances and provides the business with the maximum leverage. Our involvement is typically based on the competency of counsel as well as the operator’s ability to see the big picture. Our advice is ‘always get the best advice’. If you need legal advice, don’t use your local firm simply because you know them. Find out what they have done in your sector and ensure you are using someone with the right experience because good advice always pays its way, especially when dealing with something like an Unlawful Detainer – which has very little “appeal” process if you are on the wrong side of the judge’s decision.

Whilst OnSite can make a significant impact on the non fixed costs and provide drastic savings, increased operational profitability and streamlining the concept, if the rental amount (typically 7% to 10% of gross sales) is unsustainable, then the value in trying to save the business may be flawed from the day we arrive.

In a majority of recent cases we have been involved in and where we have engaged with landlords in cases of crippling rent, landlords have often been willing to make a number of concessions when presented with a fair option. It is critical not to ask the landlord to reduce the rent in order to offset operator error or concept failure – if you are running your business badly it is neither their problem nor their responsabillity to subsidise you. This is one area where our appointment provides immediate confidence and assistance to the business: We immediately step in to confirm that the operations are being streamlined and efficiencies are being introduced.

An operator who has made significant errors but successfully repositioned the concept and provided a viable and profitable model still has significant leverage because he or she has identified the problem and found a solution. Typically, landlords recognize the current economic challenges that their tenants face and to the extent that they have a good relationship with their tenant, a paying tenant is a better proposition than a vacant, non rent producing unit. You must engage with your landlord in a professional way as simply ignoring the situation will only make matters worse and enrage the already frustrated owner of your site.

When either handling a pay or quit, an unlawful detainer action or even thinking it may be time to attempt to renegotiate with your landlord, you must remember that as a paying tenant, despite your reservations, you certainly have leverage. You should offer a value proposition that makes sense, with financial payments you can meet in a timely fashion and that work both in the short and long term plans.

In all instances, we suggest the landlord be treated as a partner and where available, make modifications to the lease and rental amounts to provide for a base plus gross volume percentage. This would allow, in some instances, for an immediate reduction in the base but also provide the landlord with additional revenue potential based on the expectation that business will grow and ultimately, get back to its pre-recession top line revenues. This will only happen, however, when you can provide absolute data on your business and demonstrate its ability to provide the landlord with this upside.

We have clients where their landlords have offered rent reductions without it being offset into a loan for payback in the future, whilst others have required the operator to personally guarantee the value of the offset. Arguably this creates an unfair obligation and high level of personal exposure for the tenant, however in circumstances where the rent must be reduced to secure the future of the business, operators have to make tough decisions and compromise in areas they would typically consider off limits if they want a second chance on an existing rental contract.

When proposing a change to a landlord, it must be just that – a proposal. It cannot be neither theoretical or hypothetical nor can it be a napkin with some ideas scribbled on it. The operator is pitching his or her landlord to not only receive a reduced rent but also to have faith in the future of the business: This is a lot to ask. This pressure forces an operator to treat their business as a business and create the required cash flow statements and forecasts, to define a cash model that shows a number of different options to the landlord for them to be made whole and exactly how the tenant expects to realize that. You are pitching to your landlord and should make every possible effort to do so in the most professional way.

If your P&L shows a monthly loss, presenting a landlord with a burden you cannot meet and which you are likely to breach is much the same as saying you intend to breach it. You are not being honest and the landlord will spot this and have no faith in what you are proposing. On the assumption that the model will be redefined and the unit is either moving to, trending towards or is profitable, step one has been completed. A practical landlord has less reason to remove a profitable tenant if an equitable deal can be made and a clear path to get there can be defined.

With the P&L showing or trending towards profitability and the creation of cash flow allocations, forecasts and debt amortization tables, you should now be able to show your ability to manage the historic debt obligations you have and the shelf life on those. For most facilities, the P&L is not the problem – rather it is the cash flow that provides the greatest challenge. The ability (or lack thereof) to service the debt with the profits or available cash flow the unit generates is typically the biggest issue in turnaround business plans. This is immediately exasperated by the issuance of a landlord Pay or Quit notice, as lenders will now not be willing to lend money in such an unsettling environment.

This requirement to have a demonstrable business case also ties in to one of the important operational aspects of a business. You must understand your numbers and you cash flow because what it all comes down to is understanding your data and using the information the data provides to drive your business decisions. If you are running a business where you cannot see, down to minute detail, everything from your stock levels to your net margin on dishes served, then you are then running a business that is not worthy of a landlord workout. This financial information and the ability to scrutinize it is one of the keys to restoring profitability.

For our clients and now hopefully for you, with the creation and utilization of rolling cash flow forecasts showing your ability to manage your obligations, you are now able to create a number of options for your landlord or for that matter, any creditor. You can demonstrate with authority and confidence exactly how you intend to pay debts based on what you realistically earn and can pay. Every creditor would prefer to know what you can pay and will pay regularly rather than what you would like to pay but may not be able to with regularity. The intent to breach a deal or regular breaches of financial commitments made only compounds and exacerbates the problem and the relationship – and creates difficulty trying to structure a new deal.

In proposing to a landlord that an adjustment to the rent structure can be viable, it is important and crucial that the immediate recent cash flow shows that whatever is proposed can actually work now, not based on hypothetical projections of increased revenue.

It is also important to note that as a tenant, you should not be trying to salvage the situation if you are not confident that through renewed efforts and a workable landlord you can increase sales and improve the bottom line. This cannot be about working out a deal just to survive because that alone will certainly not incentivize the landlord to renegotiate.

While there are many different interpretations and variations, there are essentially two options for a reworked lease, “less now, more later” or “base plus gross percentage”.

The “less now, more later” option asks for the landlord to decrease the monthly rentin the short term but increasing the rent in the medium to long term. Less cash is therefore required ‘now’ when the business is in trouble but when it is thriving once again, the landlord can claw back rent lost in earlier years with higher income. This option provides for a set increase and is a less riskier option for the landlord but also negates any large reward for the landlords renewed faith and risk.

The “base plus gross percentage” model lets the landlord accept a lower base rental amount but participate in a percentage of gross revenue (important to note that this is always gross and not net revenue).  There are essentially two different types of percentage rent, the most common being based on receiving a percentage of sales benchmarked against a particular target (eg, $2k base and 6% of gross revenue over $500k). The other practical option is a percentage of total revenue but guaranteed with a base amount (eg, 3% of gross sales, base of $3k).  This is riskier for the landlord but has the attraction of a much more lucrative upside.

In some instances, however, the landlord is no longer willing to wait for rent or strike a deal and under those circumstances, a pay or quit is served. For many struggling venues, this is the final nail in the coffin and as if it could not get any worse, they now have to retain an attorney and use the few pennies left in the bank for legal service rather than operational or debt service.

In our experience, however, this onerous and unpleasant process provides a number of theoretical upside opportunities for both the landlord and tenant. If the process is managed appropriately, it can equally be a fresh start for the business as the decision makers are finally forced to make tough decisions that have likely been put off (perhaps in the hope they will disappear).

Upon being served, now knowing the landlord is willing to go ‘all the way’, the first step is to ask for an extension. This gives you all time to arrange to meet for a frank and open discussion (presuming the option is there) and with everyone’s chips on the table, it allows a thorough discussion as to whether there is a deal to be done. Whilst it is common to believe the landlord is in the driving seat, this is not always the case. If your financial modeling proves your ability as a tenant, the landlord is not looking for a vacant unit and financial exposure for the sake of it and would likely rather not restart the process of finding a new tenant. Equally, if no deal is to be found, you will have sufficient time to contemplate your legal position and take advice as opposed to making a rushed and insufficiently thought out decision.

This article is not about defenses to an unlawful detainer in an effort to find the landlord at fault with a defective service nor is this a step by step guide to the legal options available when responding (answer, demurrer or motion to quash) to such a motion. Furthermore, this is also not an article seeking to find potential covenant breach or retaliatory evictions. There are hundreds of options to drag out, extend and respond to a UD that your counsel can advise on. This is about the options or remedies that you may wish to explore if your concept is viable and you can “make it work” both on paper and in practical terms. This is about turning around your business and dealing with the issue of burdensome rent whilst also nursing your unit back to full health.

Understanding what has to happen and the legal strategy your business should take is unique to each situation. In some instances, the balance outstanding along with other debts may make a bankruptcy with intention of assuming the lease a viable option. In other instances, performing an Assignment for the benefit of Creditors (ABC) with your landlord allowing the debt to rollover to the new entity might be a potential solution.

At other times, it is just a matter of legal defense and starting the process of ensuring your lease is upheld. As an operator your entire business is tied to the lease and whilst there may be some assets (FFE, Liquor license and other items) the only real asset is the lease.

For clients who have run into difficulty with their lease obligations based on year on year and month on month revenue decline, we have seen successful use of California’s “hardship defense”. The value of this defense is that the entire concept of an unlawful detainer is the landlord asking for vacation of the property as an equitable remedy, grounded in fairness. If the landlord is asking the Court to act fairly and return the property then the court must provide you, by default, with that same level of fairness.

If you are experiencing this month on month decline in your business after you entered into a commercial agreement with specific revenue expectations you have not been able to meet – and where you have not been able to meet those due to the economic climate – then this hardship defense has merit. You did not enter into the agreement on false premise nor did you seek to mislead the landlord in committing to pay this rental amount because as an operator, the business case seemed viable. In this climate where business owners are struggling to keep their doors open, the hardship defense is very relevant and one you should turn your attention to and, where relevant, discuss it with your attorney.

This legal process of eviction is terrifying because it does not deal with overdue collections and summary judgments: Instead, the entire business is at risk. Think laterally and contemplate how you can involve your landlord to your mutual benefit because both parties stand to gain from finding a solution in these circumstances.

Hollywood Cues Up Food Fight

Rolling Stone to launch eatery near Hard Rock.

Photo by Ringo Chiu

Rolling Stone’s space at Hollywood & Highland.

Rolling Stone is making its red carpet premiere this summer at the Hollywood & Highland Center with the opening of its first restaurant and lounge, but it won’t be the only rock star on that mall’s stage.

That’s because Rolling Stone is set to open its doors just as Hard Rock Café is scheduled to launch a restaurant and live event venue in the same center – in a first-ever competition between the two iconic names.

Entrepreneurs Niall Donnelly and Joe Altounian licensed the Rolling Stone brand to develop the multilevel, 10,000-square-foot space, which sits on the back side of the entertainment complex along Highland Avenue. They’re using the venue’s Hollywood debut as a test case: If it’s a hit, the partners plan to turn it into a national chain.

“We are bringing the magazine and the culture and what it represents to life,” said Altounian, a real estate developer.

“The plan is to absolutely open more,” said Donnelly, an Irishman who moved to Los Angeles a year and half ago after a successful run of operating bars and nightclubs in the United Kingdom.

Meanwhile, Hard Rock, which operates a restaurant at Universal City Walk, has spent the last few years looking to strengthen its presence in the L.A. area. Company executives view the opening of a 20,000-square-foot Hard Rock Café along Hollywood Boulevard – complete with a retail store, restaurant and live event stage – as a way to make a splash.

“We’ve been looking into the Los Angeles area for quite a time for a second location,” said John Galloway, vice president and chief marketing officer at Orlando, Fla.-based Hard Rock Café International Inc. “An opportunity opened up on Hollywood Boulevard and we jumped at it. The opportunity to be in such a vibrant area as Hollywood is one that we couldn’t pass by.”

While executives from Rolling Stone and Hard Rock said the Hollywood & Highland complex is the ideal location for their establishments, they insist that any similarities between the two stop there.

“We are a different concept,” said Rolling Stone’s Donnelly. “They are a memorabilia restaurant and we are slightly different. Our design is vintage chic. It’s a very cool, modern design.”

But some industry observers said a sort of battle of the bands between the music-inspired venues seems inevitable. That’s because Rolling Stone and Hard Rock will be vying for the dollars spent by the 15 million people estimated to visit the Hollywood & Highland complex each year – the majority of them tourists passing through just once.

“Rolling Stone might be a little bit more upscale than Hard Rock and they might have a different menu choice,” said Gary Levy, a hospitality consultant at Roseland, N.J.-based J.H. Cohn LLP. “But it seems to me that they are going to be competing for the same diner.”

Slow start

The Hollywood & Highland open-air mall is anchored by the Kodak Theater – site of the Academy Awards and the future home of a Cirque du Soleil show. Lining the walkways of the multilevel mall are more than 60 stores and nine restaurants. When the complex first opened in 2001 it struggled to draw a steady crowd. The $10 parking fee kept people away, and critics said the layout made it difficult to easily access the restaurants and stores.

Parking charges were lowered, and Hollywood real estate investment company CIM Group Inc. purchased the center in 2004 and spent millions on improvements designed to boost foot traffic.

It worked. Tourists and locals can now be found walking through Hollywood & Highland late into the night.

What’s more, the center’s popularity as also been boosted by the ongoing redevelopment of the area. Hollywood backers said the opening of Rolling Stone and Hard Rock are a testament to the renaissance there.

“To come to this point where we have two iconic brands coming to Hollywood and locating at Hollywood & Highland is a reaffirmation that Hollywood is back,” said Leron Gubler, chief executive of the Hollywood Chamber of Commerce.

The high-profile Hollywood premieres of Rolling Stone and Hard Rock are likely to become an additional draw.

“They are going to be battling,” said B. Biggs, who works as a security guard in the L.A. area and who spends his free time relaxing at the Starbucks near the future site of Rolling Stone. “It’s going to be a tough run, but I think Rolling Stone will be for the old schoolers and Hard Rock for the young ballers.”

Rocking out

Rolling Stone magazine was founded in 1976 by Jann Wenner and music critic Ralph Gleason. The publication became a force in politics, rock and pop culture with the gonzo-style journalism of Hunter S. Thompson and memorable covers – among the best known is a posthumous naked John Lennon wrapped around Yoko Ono.

The magazine has continued to leave its mark on society with provocative photos of stars such as Britney Spears posing with a Teletubby and Lady Gaga covered in bubbles. But Rolling Stone has also been faced with a decline in advertising revenue, which dropped 15 percent from 2008 to 2009, according to Publishers Information Bureau. The decline is blamed on a weak economy and overall slowdown in magazine advertising.

Donnelly and Altounian approached Rolling Stone with the concept of opening an establishment inspired by the magazine about a year ago, around the same time as Hard Rock announced it was coming to Hollywood & Highland.

Donnelly and Altounian are working with Brodin Design in Beverly Hills to turn the space into something that fits with the Rolling Stone concept. The selected motifs are black brick, tufted leather and vaulted ceilings, and there will also be an antique iron staircase connecting the second-floor restaurant with the first-floor lounge.

The pair hasn’t finalized the menu offerings, but Donnelly said the restaurant will serve American fare “with a twist.”

“It will be good quality food at a good price,” he said.

The restaurant will be accessible from inside the Hollywood & Highland complex and cater to the tourist crowd during the day. There won’t be a Rolling Stone retail store comparable to what Hard Rock offers, but tourists will be able to pick up a Rolling Stone T-shirt and other merchandise emblazoned with the magazine’s time-tested logo.

The bar and lounge area will be accessible from the street along Highland, and Donnelly and Altounian are hoping to turn the spot into a hangout for locals by offering pricey bottle service, access to two VIP entrances and celebrity deejays.

“It will be a higher-end lounge where people come to enjoy, relax and get bottle service, and listen to good music and get taken care of,” Altounian said.

The pair also plans to host private corporate events there, and Donnelly said the Rolling Stone name has already helped them book several groups.

Some industry insiders said they’ve got a few hurdles to overcome.

Jim Hustead, an executive with hospitality consultancy OnSite Consulting LLC, said Rolling Stone is less visible to passers-by since it faces the back of the complex. What’s more, Hustead said Donnelly and Altounian will likely have a challenge making a lounge at Hollywood & Highland a draw for locals.

“A nightclub doesn’t work for Hollywood & Highland,” he said. “You are never going to have the cool kids from Sunset Boulevard and West Hollywood. It’s the tourist mecca of Los Angeles.”

But Donnelly and Altounian swear by the site. They note that it’s visible from Highland, and they’ll attract people from the crowds who go to the mall’s second floor for views of the Hollywood sign.

“I prefer that it’s slightly off of Hollywood Boulevard because it’s not an obvious space,” Altounian said. “We are creating our own area there, and a lot of eyebrows are being raised as people drive by there.”

L.A. roots

They’ll be vying for dollars with a formidable competitor. The new Hard Rock Café will be sitting just around the corner on the more traveled Hollywood Boulevard.

Hard Rock, founded by L.A. businessman Peter Morton, opened its first U.S. location in 1982 at the Beverly Center and then opened a second L.A. restaurant in 1996 at Universal City Walk. Hard Rock now operates 150 venues in 52 countries, including 125 cafes, and nine hotels and casinos.

But the Beverly Center Hard Rock closed in late 2006 and the chain spent years looking for a higher-profile L.A. location that would draw both locals and tourists, many of whom frequent the establishment to sneak a peek at its rock memorabilia collection and snag some Hard Rock T-shirts, collectible pins and even golf balls. So when Virgin Megastore shuttered its Hollywood & Highland location last year, Hard Rock jumped at the opportunity to move in.

Hard Rock is turning the space into a 500-seat restaurant with a concert area and adjoining retail space. The store opened in November and sells limited-edition Hard Rock merchandise.

Hard Rock’s Galloway said the décor of the Hollywood & Highland location will reflect the flavor of Los Angeles by displaying memorabilia from local musicians, including rocks bands Guns N’ Roses and Motley Crue, composer and electric guitarist Frank Zappa, and pop singer Fergie of Black Eyed Peas.

“First and foremost, it will tell an L.A. story once you walk inside,” Galloway said. “The memorabilia will be focused and dedicated to Los Angeles and California music.”

While Hard Rock is known as a tourist-friendly brand, executives are hoping to attract Angelenos with the live music venue, which will feature performances by L.A. bands.

But industry insiders said Hard Rock will take center stage after it opens its doors to diners.

“This is a big splash to put yourself on the map,” said James Sinclair, a principle at OnSite Consulting. “I think this is one of their better moves – going back to what they do best.”

Indeed, entertainment-themed chains such as Planet Hollywood, which has filed for bankruptcy twice but has since made efforts to rebound with fewer locations and a Planet Hollywood Hotel and Resort on the Las Vegas strip, have struggled to turn a profit.

But if Rolling Stone and Hard Rock executives have it their way, both establishments will bring even larger crowds to Hollywood & Highland.

“I think it’s great for the center,” Donnelly said. “Cirque du Soleil, Rolling Stone and Hard Rock will draw in a crowd and feed off each other.”

Waiter, Bring Me a Fresh Idea
10 strategies that are working in the tough restaurant economy
By Jason Daley | Entrepreneur Magazine – March 2010

URL: http://www.entrepreneur.com/magazine/entrepreneur/2010/march/204986.html

It was about 20 years ago that the casual dining boom got started in the United States. It was a golden, batter-dipped age: We were lured in by the novelty of mozzarella sticks and artichoke dip, marveled at the cluttered walls and uniform flair and gulped down two-liter mango margaritas like every night was Friday.

But the bloom is off the bloomin’ onion when it comes to casual dining. The recession has customers trading down to fast food and the growing “fast-casual” segment of takeout specialists (think Chipotle (CMG), Noodles or Panera (PNRA)). Over the last couple decades, while drive-thru burger joints have kept their prices flat, the typical bill at casual dining chains has multiplied three or four times. And the quality of the food has remained pretty much the same while fast food has become better and more diverse. Add to that grumbles about predictable, high-fat menus and stale décor and it’s understandable why in 2009 the category was down 5 percent to 8 percent with a 3 percent to 5 percent drop forecast for 2010.

But some chains are figuring out ways to keep customers coming through their doors. Red Lobster (RT), for one, has designed a quick-turnaround lunch service designed to draw the time-strapped crowd, and its new wood-fired entrees are appealing to the health-conscious. Ruby Tuesday (DRI) redesigned its menu, retrained staff, modernized its décor–and brought in almost 2 percent more customers in late 2009 than in late 2008.

There are plenty of steps to take in a down market, and it’s important to remember that even individual franchisees are not powerless. We spoke with some of the leading thinkers in the casual dining field to find out what you can do to put a little flair back into your business.

1. Think locally
Casual dining chains are some of the most aggressive national advertisers out there. (Remember the “I want my baby back” jingle?) The problem is, plenty of franchisees think that’s enough, especially after a splashy grand opening with big media buys. “Local franchisees are advised to put 1 to 5 percent of their money into local advertising by their franchisors, but they think the national TV commercials are enough to drive customers,” says James Sinclair of OnSite Consulting, a Los Angeles firm that helps rescue flailing restaurants. “We often suggest local marketing like sponsoring soccer teams, participating in fundraisers, things like that. There’s no better advertising than getting buzz in the community.” Casual dining mom-and-pops haven’t been hurt as much by the recession, mainly because people feel a strong connection to the businesses. Becoming a local leader and integral part of the community, versus a faceless chain, can go a long way to developing customer loyalty.

2. Speed up lunch
Lunch is when the fast-food joints and casual restaurants go head to head–and where casual dining loses out. “Business users want to get in and out quickly, and most don’t have a full hour for lunch,” says Darren Tristano, executive vice president of Technomic, a Chicago-based food-industry consulting and research firm. Shaving 10 to 15 minutes off a visit can mean the difference between drawing a lunch crowd or sitting idle for the afternoon. Cracker Barrel (CBRL) and Chili’s have invested in system-wide redesigns of their kitchens and service procedures to help cut big chunks off their service time, but franchisees can help keep things moving by investing in more lunchtime staff, making sure servers are trained and efficient and streamlining the lunch menu to keep the kitchen on track. Tristano also suggests keeping prices competitive. Having lunch entrees in the $5-to-$8 range makes it less likely that budget customers will shift to the burger shack if times get tougher.

3. Push the bottle
Booze is always a high-margin item for casual restaurants, but more importantly it’s a gateway to gaining customers for dinner. According to Technomic’s research, only 14 percent of customers find occasion to drink in the afternoon, which is why national chains have started placing a new emphasis on earlier happy hours. Ruby Tuesday recently revamped its bar lineup, retrained its bartenders and introduced $5 signature premium drinks. T.G.I. Friday’s offered free appetizers at the bar last year in an attempt to draw people in during the dead afternoon hours. Starting drink specials at 2 or 3 p.m. is a great way to attract shift workers, business people scheduling casual meetings or retirees looking for afternoon deals. “You have to remember,” says Jeff Davis, president of Sandelman & Associates, a food-service research firm in Irving, Texas, “when times are tough alcohol is the one thing people don’t cut back on.”

4. Push the plate
Besides offering an extended happy hour on booze, create a happy hour on menu items, suggests Tristano, who points out that Steak ‘n Shake’s afternoon half-price milkshake promotion can easily lead to an order of burger and fries, and Braxton Seafood Grill’s happy hour, when it sells lobsters at cost, often gets orders for a few beers and all the fixings. One innovative strategy to woo the late-afternoon crowd is offering items at ascending prices–$3 appetizers at 3 p.m., $4 at 4 p.m. and so on. “The only way to maximize opportunities is to trade up,” Davis says. “The main goal when you get someone through the door is to trade up.”

5. Focus on the quality
“If you’re at a Mexican restaurant, people are going to notice if you’re scraping broken tortilla chips from the bottom of the barrel and not filling their glasses to the top,” Tristano says. Many chains also make the mistake of charging for soft drink refills or reducing the number of servers to save money. This sends a clear message to the customer that you’re struggling. If it is necessary to reduce costs, he suggests making cuts across the board instead of pulling savings in the areas of servers and food costs. Instead of switching from a good cheddar to a block of “cheese product,” try to renegotiate prices with vendors. “Be careful to negotiate pricing and to take cost savings out of other areas,” he says, “not from areas where customers will feel it most.”

6. Don’t chase Subway
One of the big temptations in casual dining is to simply slash prices until hordes of $5 deal-seekers start filling the tables. But Sinclair says that’s exactly the wrong tactic. “All that does is draw in deal hunters, and when the promotion is over, they won’t return,” he says. “You can’t focus on the short term. You have to be focused on what is going to make the customer return. If you’re going to discount, rebuild the menu so the price of the dish doesn’t lose you money.” The same thing goes for cutting portions. For the most part, consumers see smaller portions as a loss of value–and the savings to the restaurant are small. In the end, Sinclair says, “you’re not saving money per dish, you’re losing customer satisfaction.” Some portion-cutting campaigns have been successful: T.G.I. Friday’s Right Portion, Right Price campaign hit a sweet spot and The Cheesecake Factory scored when it brought its lunch portions down to human scale. But the strategy was about “right-sizing” ridiculous portions. “Some places serve way too much,” Davis says. “Why pay $15 for a salad that I can only eat a third of?”

7. Give them something special
It might seem obvious: People go to a specific restaurant to get food they can’t get anywhere else. But that idea has become murky in casual dining, where fried appetizers and flatiron steaks have all melded into culinary clichés. Tristano says there are two ways to give your menu an edge: Offer items that are a healthful alternative for those looking to adopt a “better-for-you lifestyle” or dishes that most diners can’t cook at home. “Quality Mexican entrees are difficult for people to make at home, or Asian appetizers like pot stickers. For crème brûlée you need to have that little flamethrower,” he says. “People are drawn to items that require culinary expertise or ingredients that are difficult to purchase.”

8. Reward loyalty
The best way to earn loyalty–and repeat visits–is to provide quality food and service. But Americans are suckers for deals, and loyalty programs are one of the things that keep diners coming back to their favorite booth. Sinclair suggests implementing programs that don’t necessarily hand out freebies but still provide something meaningful to diners. Rewards can include priority seating, discounts or rebates on gift cards or–one of Sinclair’s favorites–the chance to sign up and win prize money. “The idea,” he says, “is to get customers involved in the brand and get them to feel a natural partnership with you.”

9. Get it out the door
Fast-casual establishments are striking a chord with Americans–the food is better than a drive-thru burger joint, but it doesn’t require an hour of time and a 20-percent tip. Full-service casual restaurants, however, can easily mimic fast casual. System-wide, Denny’s and IHOP are experimenting with fast-casual annexes attached to their restaurants, and Buffalo Wild Wings, which has dedicated takeout ordering stations, is successfully bridging the fast- and full-service divide. Tristano says providing alternatives to sit-down dining­–whether call-ahead, drive-thrus or catering­–is a great way to create new revenue streams. “The more you drive off-premises growth, the greater opportunity you’ll have to weather the economic storm,” he says. “You have to understand what the customer wants and adapt to this environment and this economy.”

10. Take time to train
In the constant rush of the restaurant business, sometimes it’s hard to stop and take a good hard look at the big picture. “We don’t always have time to train employees or go through a full menu evaluation,” Davis says. “Maybe, with the recession, we have that time now.” Don’t be scared off by the extra investment involved in training–when restaurants are fighting tooth and nail to earn repeat customers, exceptional service is a huge factor in their deciding where to go, and good training often leads to less staff turnover. “It will cost money,” he says, “but in the longer term, people who continue to invest in their businesses will succeed. Excellence always wins, top to bottom.”

Jason Daley is a freelance writer based in Madison, Wis.

www.jasondaley.com

On a daily basis we are required to explain to clients what we mean when we say that ‘a customer does all the work’ in a restaurant, not the operator. Whilst the concept is initially indigestible for an operator, it is nevertheless true. The customer does all the work.

The majority of our customers have focused time and effort contemplating everything BUT the customer. Handling and managing vendors, payroll, human resources and all the miscellaneous tasks that need to get done by someone running a hospitality venue. If these areas are either outsourced or run efficiently, the venues would see an immediate and dramatic increase in revenue – because they would have time to think about the key driver of their business: The customer.

As a restaurateur, you can only expect to get out (receive) what you put in and it all comes back to rewarding the customer for the work they do in arriving at your restaurant. Still puzzled?

When a customer decides they want to eat out there are hundreds if not thousands of different dining options that they can choose from. They made the decision to choose you. They are the ones who have to spend on gas and parking to get to your doorstep and they are the ones who chose to take a break from working (making money) or spending time with other family or friends to eat at your restaurant. They are the ones who took the time to rally the troops and make a reservation.

Once they are in the door, they are taking a risk with their family, friends, business associates or date: They are hoping that this experience and food will be a great one and will be worth both the money they will have to spend and the time. Additionally, the central customer is hoping that the choice of restaurant reflects well on him or her and as opposed to the embarrassment of having made a poor decision. A restaurant, meanwhile, has no risk. A customer walking in is simply an opportunity for them to provide the customer with the experience they deserve which will bring repeat business and/or recommendations to friends or online portals.

The customer is taking all the risk and can end up bearing the brunt of the restaurants mistakes, whether it be disappointment in the service, food, staff, wait times or overall experience. Every time a customer dines out, it is a lottery for the customer.  The price vs. value and the eventual opinion on the venue is not just about food but also experience.

Once they have left your establishment they continue the marketing of your restaurant through reviews on online review portals, sharing opinions with acquaintances and most importantly keeping it in the social arena – being talked about, for good reason, is the critical to keeping a restaurant popular.

This can obviously be a positive or negative for the restaurant depending on the customer’s experience. The positive side is the priceless and essential marketing: There is no better or more valuable form than a recommendation via word of mouth. Your customer needs to have had a very good time to feel compelled to recommend your restaurant.  Conversely, it can also be the kiss of death if the experience was negative. So this is how the customer does all the work. The customers bring in the money required to pay the owners, the customers work to make money to go out for dinner to pay your bills, your vendors, your landlord and so forth. The common error is an operator’s belief that it is the employees that are generating the revenue but this is simply not the case. It is the customer NOT the restaurant generating the tax revenues for the city and state and most importantly, they chose you. When a customer takes a moment to provide critique or opinion, they feel like they are helping the restaurant. Their advice, be it compliments or criticism, should be taken very seriously – because this is the most important of your revenue.

So all in all, the entire process in your restaurant starts and ends with your customer, the one person who does all the work …. and you are not focusing on him or her. So spend some serious time and effort thinking about your customer before, during and after their visit because responding to their needs and evolving with your customer base is the best recipe for success.

OnSite Consulting is a nationwide hospitality and consulting company to the casino, hotel & restaurant market. Providing immediate solutions for sites seeking turnaround, insolvency and concept repositioning. www.onsiteconsulting.com

Onsite Consulting’s restaurant consulting division address areas of technology owners and managers should be looking at as a direct way to drive sales

In a restaurant market full of competition, what separates you from your neighbor? Service, ambiance, price, parking and décor can all be strong factors in swaying a potential customer’s decision. However one fact always seems to get lost somewhere and that is the ability for your customers to get in contact with you either to make a reservation, discuss special needs or even book their company holiday party. As restaurant consultants, we know that restaurant customer service is the critical and often overlooked as an area than can directly drive improved business when given appropriate attention.

People like good food at reasonable prices but every operator and owner knows that. We therefore advise clients to be one step ahead and engage with customers the moment they make contact in a manner that separates them from their peers.

When someone is looking for a restaurant and has specific needs (group of 12 for example) they start their day at home or the office visiting a few websites of restaurants they are interested in and attempt to make contact. Unlike the rest of the world, the dinner restaurant staff are not early risers and very often the potential customer is met with an answering phone message or an email to an inbox that resembles a black hole.

One of the first recommendations we make to our restaurant customers is to make yourselves more accessible via the web and website. Provide every opportunity for your venue to capture a potential client and most importantly, respond first. On the reservations page, contact page and events page there should be a quick and easy form for your potential customer to fill out spelling out their exact needs.

Now you have a HOT LEAD – someone that has come to you and expressed genuine interest and simply wants clarification on whether you can meet their needs. They have chosen to give you their name, phone and email address. You may or may not be the only person they have attempted to contact so the decision of where they visit now mainly comes down to whether you respond first – coherently and professionally. Of course you need to meet their requirements but the promise of good service and a restaurant that wants your business is a very compelling reason to chose your site. Grab that lead before anyone else and as well as focusing on inventory levels or special promotions that month, you have another very tangible opportunity to increase restaurant traffic and the health of your profit and loss.

Aside from the value of the potential sale you now have what is considered ‘promotions gold’; a live email address of a potential customer to use in your email marketing or other promotions. (It would be wise to ensure your privacy policy on the website expresses your intention to take any users form submission data for opt-in marketing programs).

In this economic climate you may not have an office manager or early office or restaurant staff who can go through and respond to these communications, nor may that person be the most qualified to answer your potential customers questions. It is critical that the person your potential customers are talking to can answer questions correctly and in the most beneficial manner for your business. Your management cannot work 24/7 and so about two years ago, after implementing this web form policy across our clients, we ran a series of tests by handing out a blackberry to the managers of the location.

When you hand a blackberry to your manager, express that you are taking care of their phone bill (if used reasonably, of course) but equally express that it comes with the added responsibility of responding to new business queries. The added responsibility, the perk of having no personal phone bill and, we would hope, the desire to see the venue successful and busy, should encourage that manager to respond to all email queries that come in promptly and professionally. If not, you need to question your choice of manager.

In owning your restaurant General Manager’s phone and therefore phone number, in the event of he or she leaving, the number, emails and communications role over to another member of staff in your organization. That handset and e-information belongs to the business which is another way in which providing this technology safeguards your business. Ownership of your customers is hot property and with ever increasing reliance on email marketing and promotions, the restaurant owner must under all circumstances not only own but also control any device used to interact with your customers.

We use hosted blackberry enterprise servers for our clients which synchronizes the users blackberry, email, contacts, calendar and sms messages to a server for backup and/or review. $14.99 per month is a more than reasonable price to secure your customers data and we encourage all our clients to understand the value of technology to increase productivity, secure data and therefore positively affect their whole business.

When a query comes in for a restaurant using this technology, a notional ticker starts with 30 minutes on the clock to respond, regardless of the requirement. “Table for 2 next Wednesday by the fireplace…” Whatever the message, customers appreciate a personalized email reply confirming their reservation and now more importantly a direct relationship has been created between the restaurant and potentially  the manager who will be onsite that evening. You have impressed and engaged that potential client before they have even booked.

We have all heard and seen the restaurants who are always too busy, unavailable and have the illusion of grandeur they are trying so hard to maintain. If you are so busy 24/7 then this level of bespoke response is not for you; if you are $$$$ dining you may want to implement stronger controls on communications and if you are a quick serve venue, this obviously does not apply. However for owner-operated mid level restaurants who are delighted to engage their potential customers, this is definitely for you.

There are times when the manager is unavailable and in those instances, there must be alternative mechanisms and people in place ready to respond. All responses should be sent with a set “template”, a style that leaves no room for errors – you must implement a top down policy regarding the manner in which your managers may speak to guests. We generally suggest an owner has access to the receiving and sending account in order to review communications in the early days. For our new clients, I ask to be cc:ed on all email traffic and that usually ensures rapid response and a little more thought on the manager’s part!

After running this test for only a few short weeks the results came back extremely positively. Not only did each restaurant report seeing a substantial increase in their email traffic from visitors coming to their website but also an increase of conversions from visitors to actual diners. This topic of conversions is the holy grail for restaurant e-marketing to be discussed at a later date.

The recipient of the email does not know whether the responder is sitting on a ride in Disneyland or behind a desk at the restaurant. To be frank, they probably do not care and whilst it is always optimal to be at your venue or office, it is even more important that this communication receives a response so at times, one has to be creative. The enquirer has a personal email and a name associated with the venue responding. Should anything crop up, need to be added or changed it is one simple email to the manager who confirmed the reservation or manager on duty which ensures the appropriate level of attention is bestowed upon the customer. This level of bespoke attention provides rewards.

“Running late – can you push the reservation 30mins?” is a common email and we are delighted to respond. This is not an opportunity for slang such as “np.” (no problem) and the veil of professionalism should never be removed, whether or not this is a repeat customer known to the restaurant staff.  In addition, we are alerted to special occasions and this contact provides a reason to make contact with the arriving guest, or for the manager to subsequently introduce him or herself to the table of guests. We delight in meeting new customers and install this at all staff levels at venues where we provide any element of food and beverage consultancy.

Placing the web form on the events page and keeping it very simple suddenly has traffic and emails daily requesting information on groups, birthdays, corporate parties and fun promotions. This is a hidden bonus for the venue.  As a restaurant owner you should also be tracking the number of visitors to your website, where they come from and what they search for – now you can track conversions into reservations.

Some restaurant owners have gone as far as checking in with the reservations the following day to ensure that their experience was perfect – a two line personal email is very different to automated review sites or other impersonal mechanisms. It creates a bond that makes people more likely to respond. We consult for a wide range of venues from casinos and hotels to restaurants and nightclubs. We do therefore recognize that this is time consuming. In restaurants where the check value is not reasonably high or in a venue which has high throughput of customers, this may not be best use of a manager’s time but if senior staff have capacity and the venue owner has an appetite for direct feedback.

What separates you from your competition is how delightfully easy it is to contact and do business with you and how attractive you make your restaurant and staff before a customer has even walked through the door. Technology facilitates this so we encourage clients to embrace it and use it.

Bringing in an experienced restaurant consultant can save money, find money and create money.

Restaurant consultants have long argued that the food and beverage industry is overdue a major adjustment. Relentless growth over the last five years has led to over saturation in the food and beverage sector. In a buoyant market, anyone and everyone can take advantage of sustained high per capita spend on dining out and cover over the cracks of a flawed business model.

In a tougher climate, however, the laws of the jungle apply: only the strongest will survive. Food and beverage businesses are suffering and restaurant consulting services can help to find and ‘fix’ those fundamental flaws these business had previously been able to ignore because customers were spending money. Whether it is poorly thought out concepts, unsustainable leases or a lack of financial control, the recent economic downturn has provided the much needed catalyst that the sector needed to clean up its act and it is restaurant consultants who can provide the experience a management team needs to guide them through these murky waters.

OnSite Consulting expects the economic downturn to enable operators with strong concepts, consumer orientated focus and back of house diligence to survive and prosper and force those who do not, to take a serious look at their business – or suffer the consequences. The economic reality is inescapable and whilst economic doom and gloom has been the flavor of the month for some time, the outlook can be positive with assistance from OnSite.

Arguably, a recessionary environment can provide a platform for innovation and economic growth through entrepreneurialism and creative thinking. This climate provides an opportunity for lateral thinkers and those with entrepreneurial flair to excel. For those operators, a restaurant consultant provides an independent view on how the business can improve – because there are always improvements to be made.

Conversely, those businesses with flawed models who are struggling for any number of reasons can benefit from a detailed review of every element of their business and troubleshooting – indeed their survival may depend on it. How can a struggling venue justify paying a restaurant consultant when cash is tight? We advise our clients, whatever position they find themselves in, to stand back and look at their restaurant from a fresh perspective. We emphasize the need to go back to basics and evaluate each and every revenue stream or cost center from the bottom up. Through this exercise of intense scrutiny, we know that almost all of our clients have the ability to improve or achieve profitability from existing revenues, without reckless and short term promotions that their cash flow cannot sustain, and safeguard the future of their business.

All too often, we see companies implementing strategies with a ’shoot from the hip‘ mentality, without thinking of the repercussions of those strategies. Quick fixes to get customers through the door with too good to be true offers do not solve long term cash flow problems. Whilst labor is always the biggest overhead, getting rid of good staff to the detriment of customer service is also a short term solution which tends to lead to medium term problems.

With experience in dealing with struggling and often insolvent businesses, we are able to provide an emergency review of a business. During a first phase, we can identify immediate cost savings and reduce pressure on a cash flow. Whilst this is critical, equally critical is phase two of our review which entails creating the foundations for that business to run efficiently when we leave.

When we meet potential clients, we discuss ways to save money: vendor negotiations, procurement and inventory systems, dynamic labor recommendations. All too often, these customers simply go back to their business, slash costs and expect the business to right itself. The trouble for such companies is that slashing costs is not the answer. It is one of many benefits our services provide to immediately relieve the pressure however it is the ability to maintain this change and tighten up procedures that is a consultant’s value.

When we cross the road, we are taught to ‘stop, look and listen’ before we do so. Fixing a business should carry the very same message.  OnSite avoids short-termist strategies and focuses on the fundamentals of the business; a bespoke review of profitability, efficiency and sustainability.

This market is providing restaurant operators with an opportunity to revisit their business and conduct an audit from the ground up, identifying wasteful cost centers and untapped revenue opportunities. A good consultant is someone who walks in the door with information, teaches it to the client and leaves that wisdom behind. An experienced consultant can also save money, find money and create money and it is these benefits that OnSite’s clients capture by bringing us on site.

James Sinclair is the founder of OnSite Consulting, a nationwide restaurant consulting firm with a specific focus on insolvent or distressed locations, insolvency or concept repositioning.  OnSite’s work is across multiple fields including hotels, casinos, franchises, quick serve’s, casual dining and single unit operators. OnSite clients range from from celebrity chefs to up and comers all seeking to redefine their business model for profitability. Quarter 4 will mark the release of his debut book “How To Save A Restaurant In 10 Days”. For more information please visit www.onsiteconsult.com

Recently I was on a restaurant client site having dinner and in the span of about 30 minutes the server, manager, busboy, owner, hostess and everyone else asked me “Everything OK”. In so many ways it sounds like a very reasonable question – until I asked one of the servers whether if someone asked me if she was pretty I responded “she is ok” would she be satisfied – immediately it clicked, if she is not satisfied with being described as OK then how can she be satisfied with asking our customers if the restaurant is OK – Dr John Self a lecturer at The Collins School of Hospitality Management at Cal Poly Pomona put it perfectly “By definition OK means the minimum acceptable level”

So next time think about a more inviting question that relates to the actual restaurant, food or reason that the table has chosen to spend their hard earned money with you.

A Customer Service Tip: Everything is NOT OK

Is your company striving for OK?

Sounds ridiculous, doesn’t it? But it happens every day in food service operations around the world. It is a pet peeve of mine when a manager comes striding to my table and asks the inane question, “Is everything OK?”

What’s wrong with this picture, you ask? Let’s break it down:

Everything? Is the manager asking if I am satisfied with the political, economic, ecological and sociological status of humanity? Or maybe the manager thought that I was about to burst out crying and was attempting to offer help?

What about the word OK?

By definition OK means the minimum acceptable level. I doubt seriously if the mission of any company is to strive for the minimum level of customer service! So when the eager manager excitedly receives the expected “yes”, knee-jerk answer to the knee-jerk question, the manager goes away pleased. But should the manager be pleased?

I think not.

I don’t blame the manager. He or she was trained that way. Indeed, it was probably pounded into him or her to visit every table. 100% table visitation. Asking everyone in the restaurant if “Everything is OK” is like a prime directive in most restaurant chains.

What’s so wrong with wanting to get the opinions of all your customers?

First of all, when you ask ‘Is everything OK’, you’re not giving the customer an opening to respond. Instead, it becomes a formality, like the greeting of “How are you?” You don’t really expect an answer, except for the polite “Fine”.

Of course, visiting every table in most restaurants doesn’t give you any time to actually stop and listen to the customers! By running around and asking “Is Everything OK?” you can quantify the experience, and give yourself a false sense of accomplishment by making your 100% table visitations.

It is like the owner of a hotel demanding that the hotel manager keep the hotel full. All the hotel manager has to do is keep reducing the price of the room until the owner’s results are accomplished. Never mind that the hotel is losing money. It may be full now, but it sure won’t be around for long.

Don’t get me wrong; The concept of customer feedback is right, but the execution and results are dangerously wrong. By getting a stock response from a hastily asked question, you’ve learned nothing about the customer’s experience that night. And what if everything actually WAS just “OK”? In today’s market, will a so-so “OK” experience guarantee that the customer will come back? Of course not.

Here are four rules to follow when asking about your customer’s perceptions of your service:

1. Allow time to listen, don’t just go through the formality of asking.
2. Ask specific questions, not general, sweeping statements.
3. Use a superlative that you want to be identified with to the customer. Was your service excellent? Fantastic? Outrageous? Set your sights high not low. Never OK.
4. The quality of the effort is worth far more than the quantity of effort.

It’s time that the hallowed expression “Is everything OK?” was finally laid to rest.

WEST HOLLYWOOD UNVEILS ECONOMIC HARDSHIP PROGRAM
Program targets City’s Retail Stores, Restaurants & Hotels

In an attempt to boost local business during the economic downturn, the City of West Hollywood has partnered with the West Hollywood Chamber of Commerce to offer a special economic hardship package to local retailers, restaurants, hotels and other businesses.

The package was created by an ad-hoc committee comprised of businesses that assisted in the development of specific measures the city council should consider to sustain retail activity in tough economic times. The committee worked with the city, the West Hollywood Chamber, the Sunset Strip Business Association, Avenues of Art and Design, and the West Hollywood Marketing and Visitors Bureau to develop the newly released package.

While some elements of the package are still under review by the city council, including an increase to special events allowed per business from four per year to 12 per year, some of the package’s components have already been implemented. As of April, for instance, DJ’s are allowed to function as providers of ambient music in restaurants, and promoters are allowed to operate under a single permit, rather than a permit for each location in which they work. A reduction in fees for certain special event permits is also in place.

West Hollywood Mayor Abbe Land said the package is a great tool for businesses suffering economic hardship.

“While we are fortunate that our city budget is strong, we recognized that some of our businesses were struggling,” Land said. ” It is important to us as a city to have a vibrant, diverse and healthy business community, and so in addition to the Economic Hardship Package, we also continue to encourage our local residents and businesses to support each other by shopping West Hollywood and spending their dollars here.”

Sharon Sandow, president and CEO of the West Hollywood Chamber of Commerce, was a member of the committee that made the proposals outlined in the package. She said the city has been expeditious in getting the package enacted.

“The city wants to help business along, which I think is really commendable and really necessary,” Sandow said. “We are very grateful for the quick action the city has taken on this. They are trying to give businesses the most assistance possible in a short amount of time.”

James Sinclair, president of Onsite Consulting, operators of O-Bar in West Hollywood, said the economic hardship package is not only a financial measure, but one that will raise morale amongst business owners.

“Right now, restaurants have an increase in raw material costs and high minimum wage requirements,” Sinclair said. “With the sales tax increase, we can’t raise our prices right now if we want to get customers in the door. West Hollywood stepped up of their own accord to protect its own community. I have restaurants nationwide and I have never seen a city so proactive in protecting its businesses.”

Many of the items pending council review will be heard at the July 13 and July 20 West Hollywood City Council meetings. For more information, visit www.weho.org.

OnSite Consulting is a nationwide hospitality management & consulting company www.onsiteconsult.com

Dear Friends,

Over the past two years the State Board Of Equalization has been conducting a “pilot program” to determine the lost, unreported or otherwise uncollected sales and use tax revenue. Upon completion of the pilot it was determined that over 3% of all CA businesses operate out of compliance and according to the “marketing collateral” as a result of this pilot, a “Compliance & Outreach Program has been created”.

Considering the financial position of this state it should really come as no great shock that such a “helpful” program is being created but what is more important is that the collateral and information provided does not seem to mention or preclude a sales tax audit. The follow up actions likely to be taken for each particular location are, therefore, probably based on the specialists findings of this pilot program. (i.e. we can assume these findings will determine any further investigation, audit or compliance requirements.)

The key phrase “they may ask for more information about your business operations” should answer almost all your questions. It is the view of many that this operation is intended to directly correlate a sellers permit with factual data regarding your business (number of seats / hours of operation etc) and therefore the intention is that based on their recent budget requests, the State will use heuristic technology to electronically identify sales and use tax fraud.

As of Q4 08, retailers have begun receiving notifications of an intended visit and its purpose. The current review team is organized via zip code and your particular locale may or may not be in the short vs long term list: no further guidance has been issued as to who will be reviewed and in what order. The intention, however, is to visit every non-residential property over an x year period so eventually, your business will be reviewed.

I would hope that all recipients of this email have their licenses, permits and other operating requirements up to date and in order – as the tax gap gets larger we can expect stronger enforcement (outreach) on a local level. For any liquor licensed location, please remember that the BoE is the one agency that can suspend your right to sell or consume liquor with barely any notice and in these difficult times, ignoring any obligations can create immediate and indeed negative ramifications.

Recent reports have shown that the delinquency period allowed by the BoE prior to enforcement and attempts to revoke your sellers permit or suspend your liquor license have halved. With so many businesses closing, the collections activity is increasingly improving in efficiency.

I have attached the official marketing kit for this program along with a recent article from a Huntington Beach magazine discussing same issues.

Many Thanks

James

I have received a number of emails and phone calls recently in regards to the impact nightclubs, bars and restaurants have seen from what is, without question, an extraordinarily slow period. Operators are finding that they are not just having to deal with the annual, seasonal revenue cycle, but that they are faced with a simultaneous and overlapping crash on consumer confidence, the likes of which have not been witnessed for over a decade. On the assumption that it will not be getting better any time soon, immediate planning can allow for both current and future survival.

I. THE PROBLEM

When consumer spending and confidence hits this kind of dip, the first industry to suffer is the hospitality market.

It’s not very complicated: Consumers have a lower disposable income which, when combined with their view of the market leads to them moving any disposable income they do have to the warm hiding place under the proverbial mattress. As the time of writing, even the banks are under pressure. I was sitting in a client’s office when news broke that Washington Mutual had collapsed and the FDIC was seeking an emergency solution. My client raced to the bank to withdraw his maximum available amount and was freaking out about what would happen tomorrow. His worry was not losing his money – it was obviously protected – his worry was the potential interruption to his business operations.

After all, it is cash strapped businesses like bars, nightclubs and restaurants that write checks and pay bills on tomorrow’s merchant drop, and with credit card sales now making up the overwhelming majority of the transaction base, an interruption of any kind has a domino effect.

We have all seen it and been there; first the Sales tax does not get paid, followed swiftly by the payroll deposits to the IRS and EDD. You are faced with spiraling balances to your NET 30 vendors and, suddenly, within 60 days you are purchasing from a supermarket. Once you fall behind, catching up and becoming current become ever more remote. You are not the first and certainly will not be the last.

II. FOLLOWING THE MONEY LINE (FML) – A BIG PART OF THE SOLUTION

FML has been my strategy from day one – the solutions and options are obviously dependant on size and scope, but with many clients being single or few-venue owner-operators, my suggestions are geared to that market. Here are a few:

Get Your Hands Dirty

Many owner operators have not really jumped back into the hot seat of being their venue General Manager since the first six months of opening. The wear and tear of an NSO and the first months of operation have made hiring a competent manager (who allows you a day off) a delightful relief. From there we all get busy on our next venture, and it is all to easy to forget about the small things – while you may have spent a lot of time at your location generally, you find you have only returned to back-of-house operations and management, when there has been a larger problem.

By retaking your position at the wheel of back and front-of-house operations, you will immediately see a million things that need to be fixed – most of the time, there will be a solution to remove the problem in entirety and save money, or a cost/benefit analysis will show that you will actually make money by spending a little.

So, first things first:

• Your office should be moved directly into your venue if it is not already.
• You should have access to all your accounting data including vendors and payroll.
• You should be working adjacent to your management team.
• You should be on location day and night for a short period, having a hand in every decision, action or dollar spent.

Share the Load – Motivate Your Managers

If your staff are not aware of the cash crunch you are facing, now is the time to bring your upper management up to speed – they are the executioners of your objectives and the motivation of being involved in the solution will have them looking for ways to save or become more efficient, which will produce better results.

Set Your Targets and Chart Your Progress

The first item I generally always try to create is a “money saved spreadsheet” with simple columns: ITEM and then money saved into columns of DAILY/WEEKLY/MONTHLY/YEARLY.

Once you have an item and the associated saving, the number can be placed under the appropriate column and excel can generate the savings in either direction. This spreadsheet, which should be shared with management also allows for tracking progress, so that you actually see the direct result on paper – seeing the saving itself helps bring about the goal.

Don’t Ignore the Little Things – They Grow

The accumulated results of small savings are IMMENSE. A recent client provides a nice case study of how you can achieve immediate savings (not including payroll and COGS):

CASE STUDY: Of course every venue is case specific but in this instance there were so many small items that they actually represented a majority of the wasted expenditure. Just moving to a larger CO2 tank instead of the smaller ones saved $8,000 annually, and having the cleaning crew removed and using existing staff instead saved over $42,000.

Paying attention to very small line items can deliver fantastic savings when amortized over the course of a year. In our case study, cancelling directTV saved $1,400, and having the staff use their own knives instead of using a service saved $1,200.

That’s over $52,000 saved right there, without even trying very hard.

But it’s more than just the money – by forcing yourself back into every nook and cranny of the business, you will find other problems of inefficiency and leakage.

Cross Utilizing Your Staff

In the current climate, a venue operator would do well to use a dynamic scheduling strategy – a scheduling process that can adapt to slower nights without degradation of service.

On a slow Monday can your:

• Busboy also bar-back?
• Second bartender also be a server (and vice versa)?
• Runner be used as a busser?

The payroll is the largest single expense you have and by being on site you can see the opportunities for cross utilization. 30 minutes after you close, why are there still hourly employees clocked in? 2hrs before you are open who is clocked in, what are they doing and could they come in 1hr later and just work harder?

CASE STUDY: A client of mine with revenues of $2.3m was able to shave $350,000 off its annual payroll after 15 days of evaluation. That’s 15% of revenues saved using a dynamic scheduling method. Obviously there was significant data analysis and historic number crunching required, but the only important factor is whether the customer noticed any difference to the level or quality of service. From small bar to fine dining, every operator has uttered the magic words “if the customer had any idea”. Plunging a toilet of one of our client’s restaurants last week I wondered the same thing!

Staffing is and will always be a problem area, but time served preparing, analyzing and creating a solution will recoup serious dividends.

Remember: Vendors and Operators Live in the Same Space-Time Continuum

It’s simple really: your vendors are suffering under the same economic conditions as you are. They don’t live in a parallel universe. And their only insulation from the downturn is for their customers to stay in business.

By way of example, Sysco Food Services are experiencing one of their highest months of returned checks and delinquent accounts – so much so, that they now have a delinquent account specialist who can keep you ordering, even with a past due balance. Smaller vendors with large balances can be asked to move deliveries to COD with 5% of the past due balance added to each order. Sysco is well aware that you still need your product, and will find it from somewhere, so they may as well try and recoup the loss and mitigate their exposure by helping you work your way out of difficult times. So many clients just stop answering the phone when their best bet might be to maintain the existing relationships they have (however strained they may be).

If, however, you are a good or at least quasi-decent customer, now is the time to negotiate with your vendors. Maybe if you change your terms from net 30 to net 10 they will give a larger discount? Smaller vendors would love to shorten their exposure to loss and bring down their AR. Maybe if you consolidate your meat, fish and produce under one company, they will provide savings that surpass the smaller vendors. These are all questions which, if addressed, could provide immediate savings.

Get Smarter About Your Inventory – Product on Your Shelf is Money not in Your Bank Account

Almost every site I walk into has thousands of dollars worth of inventory they rarely use. It doesn’t matter whether we are talking about incessant liquor promotions or just plain bad weekly ordering – the net effect is the same.

So one of my most important recommendations in tough times is to manage your inventory better:

• Order Just-In-Time for the week or half week.
• Pick a vodka brand and stick to it (by ordering more of a single product you can generally get purchasing discounts per case).
• For the akward bottles that no-one drinks, simple solutions can include a drink special for a slightly reduced price or a custom cocktail to a small private party so they believe they are getting a good deal. (In a more up market establishment, a custom cocktail list may allow for the products to be sold for a premium.)

CASE STUDY: Our mixologist took a recent client who had a huge amount of non-moving inventory including a terrible (lets keep it un-named!!) vodka and created a cocktail which sold off the shelf for a premium and forced the client to purchase more product. The end result was the creation of a “Specialty Cocktail List” which works very well.

However, before one races to create this, the costs of the other ingredients, the shadow costs of training staff in preparation and up-selling and the education of customers costs real money and must be properly analyzed prior to execution.

CASE STUDY: A recent Mexican restaurant we worked with was suffering from low sales and generally poor returns so, before they phoned us they added a tequila bar and an inventory of rare and expensive tequilas. None of them sold and now they just have boxes of tequila on a shelf.

CASE STUDY: In a recent nightclub just taking the excess product and creating a fun shot was an easy and quick way to get rid of the product and still see a return. It may not have been the return they originally envisaged when they first purchased the product, but they certainly received more cash than they did when it was sitting on the shelf gathering dust.

The Lesson: There is a method to adding to menu items or twists / extensions of the concept and not following them has as much chance of leading to failure as to success. Many fine restaurants do the same thing with their wine list as the Mexican restaurant did with tequila, but such a one-dimensional approach, if used in isolation, will almost certainly fail every time.

Remember the Point – They’re There to Enjoy Themselves

The product being offered to the consumer and the overall dining experience MUST BE flawless. No ifs, no buts and no maybes. In this market with so much competition, there is no margin of error for a bad dining experience.

II. YOU NEED MORE THAN JUST AN ARTICLE

It is so important to read this article as a guide to the kinds of things you should be thinking about, not a comprehensive step-by-step to instant success. The suggestions set out here have been proven to produce some immediate results, but you will need more than a few tips. A serious process of evaluation, planning and execution is an absolute must. And in the final analysis, I have found the key to lie in constant, honest and intense scrutiny of the data delivered from back and front-of-house. No amount spent is too small or too sporadic to merit your full attention.

- James Sinclair, OnSite Consulting

James is an expert in maximizing returns from hospitality venues, whether in relation to a start-up new venue, redeveloping an existing venue or saving problem venues from insolvency. In addition to owning a number of successful bars, nightclubs and restaurants himself, his advice is sought around the country by owners and operators who need his specialist expertise when tackling the specific problems they face.

If you are interested in any of our services, please don’t hesitate to contact us.

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