Restaurant operators are caught in a whirlwind of issues in today’s marketplace. A great deal of time is being spent on solving many of the issues that are front and center, but quickly another opportunity surfaces. Consumers continue to adjust what they are looking for, and their personal cash flow is having an impact on that. Operators are dealing with fluctuating pricing on products and increased cost of labor. What direction should an operator take? The first answer to this question is to stay focused on what you do well. Your chances of success go up exponentially if you avoid moving into a lane that you are not comfortable with.
Six areas of concern and how to create balance to continue to grow
- 1. Driving and Maintaining Customer Traffic
- 2. Balancing Customer Value Focus & Managing Costs
- 3. Labor- Sourcing and Maintaining quality skilled people
- 4. Cost Inflation and Uncertainty on cost of goods sold
- 5. Declining Profitability and Margin Optimization
- 6. Maintaining and Improving Customer Loyalty
1. DRIVING and MAINTAINING CUSTOMER TRAFFIC
Traffic continues to be the No. 1 problem that most operators are dealing with. There are numerous approaches to driving more customers in and with greater frequency, but short-term fixes may lead to long-term problems. Discounting and offering up loss leaders can and will affect a brand’s short and long-term profitability. It also changes the behavior of the consumer as well as their expectations. If you run a special on a menu item that is usually $15 and the special price is $10, the consumer will struggle to go back to paying $15. There then is the issue of maintaining traffic. If the consumer is frequenting your restaurants, they want to be there, but if there is inconsistent product quality, service, and lack of hospitality, they have plenty of other choices. We understand the problem, but it is really about the steps being taken to solve the problem and create a consistent experience for the guests that will keep them coming back.
2. BALANCING CUSTOMER VALUE FOCUS and MANAGING COSTS
Surprisingly, the No. 1 value focus of consumers is food & beverage quality and not price. This does not mean that price is not crucial to the value proposition. The key takeaway is that giving things away at a price that does not provide for a profit, makes absolutely no sense. It may increase your customer count, but ultimately will do damage to your brand. Great innovation requires consistently great food and beverages at a cost structure that makes money and a sell price that reflects to the consumer that it was worth it and more. Consumers define value in different ways. The operator has to check a number of boxes before promoting a menu item or LTO. Most importantly, you need to exceed expectations when it comes to service, consistency, and overall experience to really make the value stand out.
3. LABOR SOURCING and MAINTAINING QUALITY SKILLED PEOPLE
It is a difficult task to hire good, hardworking people, but it is even more difficult to make these people great and to build a workplace model that quality people want to be part of. In order to have consistent execution, great guest service, and more, it requires a staff that is happy and enjoys where they work and what they do. Staff retention is crucial to getting those results. So, how do you retain quality skilled people? It starts with the basics. Having an environment where employees are recognized and appreciated. Providing a quality work-life balance. Having an excellent training program and giving team members the opportunity to make more money and get additional benefits by having station certification programs and career paths. It should not be about just coming to work and getting a paycheck. That is where turnover starts.
4. COST INFLATION and UNCERTAINTY ON COST OF GOODS SOLD
Operators are faced with a basic quandary, you can’t buy what you can’t afford, and the consumer will not pay any more for the menu item despite understanding that restaurant operator costs are up. So, what do you do? Cost inflation is not going away any time soon, but having the ability to lock-in cost for an extended period provides the operator with the information necessary to lock-in a sell price for a recipe that works. With the presidential election pending, unusually severe weather, and multiple wars in the world, uncertainty in the supply chain will continue for now. Decreasing quality and reducing portions is being implemented by some operators, but the consumer is too smart to pay the same price for products that are below their expectations. Operators must be diligent and forward-thinking. There is a great opportunity to seek out alternate ingredients that match quality and standards, are less expensive, and have stable supply. Operators and suppliers must collaborate.
5. DECLINING PROFITABILITY and MARGIN OPTIMIZATION
The assumption has always been that if an operator drives traffic, they will increase profitability. Food, packaging, and labor costs are higher than ever before, and other multiple line items also continue to rise. It has become more expensive to open locations due to the increased cost of materials, equipment, and labor. Now that the problem is clear, it is time to focus on the tactics to improve profitability. Dwelling on the negative will not solve the problem. Making smart, well thought out decisions is step one. Successful operators are bringing their teams together to evaluate opportunities rather than make emotional decisions. Using the right data and a clear strategy behind it are reaping benefits. Everyone knows their role when a group decision is made. Where LTOs used to be loss leaders, they now must be appealing to the guest and very profitable. Consumer engagement also is part of the winning formula. Offering what they are looking for is a much better strategy than offering what you think they want.
6. MAINTAINING AND IMPROVING CUSTOMER LOYALTY
Customer loyalty not only needs to be earned, but also must never be taken for granted. Consumers love it when the 10th hole is punched on a card. Free food, but does that make them loyal? For some, the potential for free meals or discounts creates loyalty, but for the most part, loyalty is much more complex. It really starts with everyone taking a look in the mirror and evaluating how they define loyalty. We are all consumers and know what makes us frequent certain establishments. Quality, consistent food and beverages, Great service, consistent execution, exceptional hospitality, and a great overall experience drive loyalty. Beyond these basic “must haves,” the consumer looks for different things to make them loyal including an engagement platform to provide their thoughts, getting recognized by name, knowing what their favorites are, getting perks such as upgraded seating, moving to the front of the line, and being recognized during birthdays and other special occasions.
Bruce Reinstein is a partner with Kinetic12 Consulting, a Chicago-based Foodservice and general management consulting firm. The firm works with leading Foodservice operators, suppliers, and organizations on customized strategic initiatives as well as guiding multiple collaborative forums and best practice projects. They also engage as keynote speakers at operator franchise conferences and supplier sales meetings. Their previous leadership roles in restaurant chain operations and at Foodservice manufacturers provide a balanced industry perspective. Kinetic12.com. [email protected]
