Cost cutting is never the answer to long-term successful restaurant

In the f&b world, things don’t always go as planned. Depending on the moment shop owners realize this,

the consequences can prove to be COSTLY

It takes more responsibility than owning or running a restaurant to be called a successful restaurateur.  Sustaining a smooth operating restaurant requires different skills set you never knew you had and tons of patience and understanding when dealing with a spectrum of people with different characters. As the below true stories will demonstrate, things as small as having a silent investor can result in devastating mistakes.

THE CASE OF THE QUICK FIX

Gloria manages a chain of food franchises. For three years running, her business enjoyed stable sustainable growth. But as the fifth year kicked in, she suddenly found her business profitability in the decline. To put an end to the drop, she applied different marketing techniques like monthly promotions, which focused on discounting prices, introducing new products to market, and generating value-added initiatives. These efforts worked initially, but then her efforts started to lose traction over time and in her sixth year, the establishments proved to be performing poorly compared to their glorious start.

She hired the help of a professional and discovered that in the middle of her fourth year, her average check spending had risen by 15 percent due to a new brand new menu change and adjustment of prices. And in the second year, she had three months when performance spiked because there were events taking place near her establishment that brought in customers who would normally not be in those locations. These were found using a trend analysis.

Digging deeper revealed that the sharp rise in menu price had scared her target market and this was not noticed until the mid-section of the fifth year. Guests did not disappear immediately, but after a 10-month period, it became more evident that the change had caused a drop in covers. Her promotions technique did improve the figures for four months, however they had no impact on the trend curve as four good months could not cover for eight bad ones.

Cost cutting is never the answer to long-term success. It is a reaction to drastic market forces that are out of your control, which happen once in 10 to 20 years.

Lessons takeback :

1. Do not employ traditional analysis methods. Expand the research out to other industries and learn how they analyze their business, as some of these methods do work in the restaurant field as well.

2. There is no short-term fix to a problem. A short-term fix is adamant to using paint and hide the cracks in your wall. It works initially, but eventually, it will bring about even greater headaches.

3. Changes to product, price, and strategies need to be made in a calculated and educated manner. You can never overanalyze your business and figures because the numbers do not lie, however employing a wrong analysis can make them distorted.

4. Cost-cutting is never the answer to long-term success. It is more of a reaction to drastic market forces that are out of your control, which only happen once in 10 to 20 years.

5. When it comes to analysis, it must all be measurable. Even customer feedback needs to have a standardized system in place that allows measuring of the feedback in numeric forms since this will give you facts rather than hearsay.

CASE OF THE THREE DISILLUSIONED RESTAURATEURS

Business is never and should never be personal. Passion for your job is personal but in the end, running a foodservice establishment is about being profitable and trying to translate a product that the market responds to.

Restaurant Owner A:

John was a chef who had been in the industry for over 15 years. He eventually became tired of being a salaried employee, therefore he followed what most chefs do today and started his own restaurant. John had some capital to open his dream and is experienced in creating, preforming costing analysis, and developing menus. He started his establishment, hired a team, and was ready to begin operation. But in the process of setting up shop, he realized that only good food alone would not make him successful. Six months into the operation, he ran out of capital and faced a dilemma to find more money or cut his losses.

John lacked front-of-house knowledge and the required skills in marketing, presentation, and managing all the business aspects of a restaurant. He opened a restaurant targeted at the B and C market in a predominantly A market area. He did not allocate enough working expenses to last the first year and absolutely clueless on how to promote and market his establishment. Consequently, the overhead killed his business.

Restaurant Owner B:

Paul was not making any profit for his restaurant. He would always boast to all his friends and family about how profitable his restaurant was doing, but in reality, it was a constant bleed of money. He had been signing off over $2,500 per week for entertainment purposes, which equated to roughly  $130,000 per year. On top it off, he wanted his establishment to be fancy and contemporary however his food was simply not up to the mark. Each dish had close to 15 different ingredients and most of them tried to be modern but ended up being superficial. Third problem was that his food and beverage were about everything that he preferred and not what the market was actually looking for.

Deeper investigation revealed that he was not objective about his product and was usually not involved in the day-to-day operations of his establishment. When something failed, he would conveniently put all blame on his team. He was constantly firing people and hired even faster, thinking that this would solve just about any problem.

Restaurant Owner C:

Sam had a silent partner investing in his restaurant business. He maintained 50 percent ownership. One day, this investor required money to resolve his personal financial problems. Therefore he took money out of the business without going through the proper procedure and documentation. So as not to lose out, Sam begins taking money out of the business as well. For every dollar taken out of the business by the investor, Sam would also take out the equivalent amount, fearing otherwise would cause him to lose the lot. This eventually created animosity between the two. In the end, both lost the lot and the business saw its ugly demise.

Lessons takeback :
  1. Know your strengths and establish the aim of why you’re going into the restaurant business.
  2. Just because you are a good cook doesn’t equate to you being a good restaurateur.
  3. If you do not have the skills to manage all aspects of the business, have people around you who can cover for your weaknesses.
  4. Establish clear rules, regulations, and contracts before getting into partnerships or getting silent investors.
  5. A business should never be personal. Passion for your job is personal but in the end, running a food service establishment is about being profitable and trying to translate a product that the market responds to. It is not about what you like and preferences (that may be the groundwork but it cannot and should not be the be-all and end-all) Instead it should be about what the market likes and adjusting your vision to find the right balance for success.
  6. Be honest with yourself and your partners. The most efficient work gets done when all parties are allowed speak freely without taking things on a personal basis.
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