On every news medium we are reminded of the carnage in global markets. Banks are collapsing, governments are making epic financial contributions to the private and public sector and job cuts are increasing. Commercial and personal financing is harder to source and the amount and terms somewhat sharp compared to the last few years. Confidence is low and inflationary pressures have been driving up energy and food prices. Businesses are naturally concerned about surviving and the next few years are clearly not going to be an easy ride.

Most all of our clients – from hotels and casinos to bars and restaurants, are challenged like everyone else. The economic reality is inescapable. However whilst doom and gloom may be the flavor of the month, and for many months to come, that is not the only thing we see.  Arguably, a recessionary environment can provide a platform for innovation and economic growth through entrepreneurialism and creative thinking and we encourage our clients to take novel approaches to countering the downturn.

We are all suffering. Companies will continue to suffer and the insolvency practitioners are clearly going to be kept busy for much of 2010. People are spending less and selectively as disposable income is depleted or conserved in most economic groups. A difficult economic climate requires considerable ingenuity and the ability to look at things differently. And in looking at things differently, the reality is that there are many opportunities out there – opportunities not just for new business but also to improve existing businesses. When things are at their most difficult, you cannot just maintain – by doing that, you’ll in fact move backwards – you have to grow.

Along with a long list of sectors taking a beating, the world of hospitality and leisure is suffering. Bankers are calling in loans, rents negotiated in the ‘good times’ can be stifling and cash flow is constantly under pressure.

With thousands of sites standing empty, landlords and business owners must contemplate other sources of revenue generation to counter their existing challenges. What can they do in this climate if there are less customers, no customers, low spending customers or a business with a model that is currently untenable? Look at your stock, your financials, your customer base, your payroll and your marketing. Look at your margins – in your overall business all the way down to individual services and products. Take this opportunity to look at what makes you money, what draws in the customers and what is essential to the underlying business to ensure that when times improve, you have the infrastructure and team in place to handle that. At times, make tough decisions because you need to be lean to operate in this climate.

The message we give to our clients is be cautious but don’t be inward and conservative. Look outward and look differently at your business model, at your job remit and/or your skills and work hard to seek out where the prospect lies.

There cannot be any “sacred cows” or unchangeable tenements of your business, you have to look and relook at all aspects of the way things are done within your business.  Whether it’s redefining your customer, your product, your delivery method and or your staff, you’ve got to make the changes that make you undeniably viable; you cannot rest on past results or simply what’s worked for years.  The manifest of “Doom & Gloom” is not a given and in fact is only a reality if you allow your business to be stagnant and ignore the need to constantly evolve when times are toughest.

When completing a casino cage audit, you are normally required through REGS and MIGS to undertake certain tasks several times a day, making sure that every cent is accounted for. Employees are held firmly responsible and have to undergo background checks, licensing and 24/7 surveillance. Reports are sent out to be audited, the process is repeated every few hours and there is not a second that the accounting department responsible for the cage do not know exactly how much is in the cage in both cash and chips.

Multimillion dollar software tracks money and generates reports, shows audit failures and identifies system weaknesses. A casino  will not open without gaming management be it a Japanese replica or the Ballys cream of crop. Not a penny moves without a form and a thing and a process.

Civilian vendors cannot even think of being able to look inside the cage without the granting of specific permissions and security and without being thoroughly vetted. Furthermore, if an audit shows a $90 short during a cashiers shift, there are rigorous protocols that remove that employee from the workplace, with he or she being suspended pending investigation.

The cashier’s float was only $25,000 so why, when a chef has an inventory of the same amount – or more realistically stock with a value of millions – are the same protocols not applied? A refrigerated produce order with a wholesale purchase value of $25,000 is worth $100,000 when sold – add margins, the cost of preparing the food, the notional cost and marketing of attracting a guest to eat at the venue – or $0 in three days when its lifespan is complete and the stock has to be thrown away. We therefore ask the important question of ‘why are the perishable supplies in your food & beverage inventory not treated with the same respect?’

The reason is because it is not a legal and regulated requirement: Indeed to many, food is an annoyance or necessary evil to satisfy the gaming customers. Often operated and managed by underqualified staff and those who do not think of the inventory as a currency, venue management are not treating this valuable stock as they ought to.

The Casino Floor has multimillion dollar software given the rate and speed of transactions and the automation of the gaming process. More often than not, Food and Beverage has excel spreadsheets at best. This is not about software. In these cases, software is mostly purchased as a solution to a problem when the problem is actually that very person formulating the solution. You cannot purchase food cost control, only people can. Software just cuts the man hours down and translates the data into more readable fashion for cross analysis.

Only in the last few years have many properties recognized the ability and indeed necessity for strong F&B presence to provide a significant new revenue stream not only from existing players but also the new customers who come purely for the F&B options. This therefore means there is also a new marketing benefit realized, however the value of strong F&B is not the purpose of this article. This article is focused on how the value of inventory got lost ‘somewhere’.  All too often we walk into mega million dollar sites who use MBWA (management by walking around), P&L and some spreadsheets to analyze their F&B when the converse should apply. The person running the F&B needs the analysis to run that department efficiently.

Our first message to management in these cases is to rethink how this valuable asset is handled and fast. Inventory is currency just like cash and should be treated as such. It should not be laying around in various storerooms, it should not be accessible to ‘just anybody’ and it certainly should have tracking. Unfortunately this is one of the biggest challenges we face in an F&B context: Getting someone to take a can of peas seriously, especially when they go through a palette a week. We genuinely don’t see the difference between a walk-in freezer and a safe. This overall shift in mindset is the largest hurdle to overcome but one that pays constant dividends when applied. Getting people to see it our way and recognize the weaknesses in the procedures in place is one of our key tasks in these situations.

We expect to swing the costs of goods downwards by about 7-12% of total gross program sales. So when our prospective customers ask us how we are so confident in our ability to make change without interrogating the numbers further, it usually comes back to us to see if F&B is controlled by MBWA. Generally, however, a problem in F&B is an indicator of a wider problem within the company as someone should have addressed this issue, fixed the issue or at least understood that at times, there is value in preferring $500 in guaranteed beef sales than $500 in cash.

Let’s not forget, however, the always tightly controlled liquor cage with keys, cameras and par systems for an inventory of $6,500 behind a bar. Managers often do what is at best common practice and at worst, easy …. and ignore the rest. Liquor being the more stolen commodity is a myth because no one knows about the food being stolen either through waste, bad portions or theft. How could they with no accountability or stock management in place?

The good news is that the solution is a simple one. Yes the department needs to be stripped and rebuilt, yes new controls and procedures need to be put in place. But there is one department already on site specializing in this for our cash currency. Accounting of course. Who better to protect our inventory currency?

There are many solutions that casinos should undertake but it all starts with Accounting taking control of inventory the second it arrives on the property. Wherever it may be stored it is owned by accounting and its movement into the supply chain should be through the standard purchase orders and audit logs. Two slips of paper and a controllable inventory has been started. From this one can then branch out into the other issues that require close inspection such as whether the site is holding too much inventory, cost analysis, vendor analysis, plate management and so forth …. but you must start at the root of the problem and move from there.

With inventory sitting in storage and now ultimately accountable to or controlled by an accounting department the process is clear, inventory and par maintenance. By using perpetual inventory as opposed to static, the par can be determined quickly as each unit has a “days on shelf” associated to it. More importantly, the property can now drill down on its costs and its uses to the individual purchased unit which is a key indicator of profitability and efficiency.

With these changes made, you now have an F&B department which need only focus on the cost of goods for the product they have transferred out of storage allowing for a much more isolated process and facilitating the all important checks and balances. This is a real cost system which gives your chef the chance to make an impact and be able to complete his job. The minute it leaves storage, accounting relinquishes responsibility for stock and the chef or section head is responsible.

You have now successfully changed the entire structure of your F&B department. Purchasing is now taking orders on product demand from accounting, receiving is now an accounting function, the chef is focused on food and managing the food offering in the kitchen rather than in the storage and each department has a more focused responsibility in an area they are most skilled.

One small tip – limit access to storage!!

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

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