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

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

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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