Restaurant sector
challenges of negative same store sales comparables, consumer unease, rising
food commodity costs and some magnitude of increased heath care costs emanating
from Obama Care appeared in 2012. The same issues will be present in 2013.
But all is not lost.
There are initiatives that can offset the negatives. Here are thoughts of what
restaurants, both chain operators and independents, of all stripes, simply have
to fix in 2013 operationally to meet these challenges. None of these
opportunities are new news.
Restaurants have been
working on reducing food and labor costs since the 1970s. It’s time now to look
at other areas of the P&L as well as revenue maximization beyond price
increases.
Revenue enhancement related:
Unique
Store level pricing:
US national. zone, region or even DMA level pricing is a relic of the
past, representative of a 1960s-1970s more suburban, homogenous US
restaurant mindset. With development everywhere and a vastly stratified
and diverse US society, why does the price in suburban Philly Bucks County
PA need to be the same as in south Philly? It doesn’t. The rub comes in
with massive television driven campaign single price points. YUM/Taco Bell
has just rolled out its $1.49 grillers on television. Is that really the
only price point that will work? Rarely does the promoted item mix exceed
20%, so 80% of the mix remains to be influenced by store level pricing.
This route provides for revenue management upside and I’ll have a
whitepaper on this topic out soon.
New
beverage and dessert options needed: the rise in water only customers and the
falloff of soda sales s is epidemic. This is very noticeable at your local
Chipotle (CMG), go in and check out how many customers just get water. But
the industry is to blame, as there has been little to no change in
carbonated sodas for years other than the new Coca Cola mix machines. What
about: flavored waters and drinks around $1? Could a carbonated cranberry,
cherry or vanilla fizzy drink be prepared with existing soda/drink/bar
equipment? Yes. Could it be sold profitably for $1? Yes, especially that
is aimed at water customers who now carry zero gross profit. Smaller desserts: Jack in
the Box (JACK) has recently figured that out with its $1.00 brownie bites,
for example. This might not work at a Cheesecake Factory (CAKE), with a $7
flagship dessert that is split anyway, but it could work in other
concepts.
Suggestive
sell/upsell: in almost every restaurant
type, but especially in chain operations, the order taker generally ends
the transaction by asking “would you like anything else? This happens in
QSR, fast casual and casual dining operations. Ban the phrase “anything
else”, and replace it with….”apple pie?” (for QSRs) or “glass of wine?”
(for casual dining operators). Bar
operators have it covered with…”would you like another”, and is often used.
The trick is to get new customers.
Cost Containment related:
Obama
Care Health Care impact: adapt, stop whining. It’s here. The estimates from
McDonalds, Wendy’s, Dominos, CKE restaurants and the like are in the
$15,000 to $20,000 additional expense per store zone. Papa John’s was the
high outlier, up to $100K per store.
Perhaps John was on a carbo high when he mentioned that. Of course,
small pizzerias and huge casual dining restaurants will have different
costs per unit. The effect will vary based on many other factors. Test something. We wonder if a two
track wage scale might work: one higher base wage for no benefits due, or
a lower wage for where payable. To
foil the invariable Fair Labor Standards Act (FLSA, 1938) challenge (The
FLSA does allow for differential wages for medical so long as it isn’t
workers comp medical expense involved), sweeten the pot for the lower wage
tier employees that they get first dibs to higher hours and overtime since
they are covered and won’t affect the 30 hours/week calculation. Or
what about a registry to share employees to keep employees engaged and
working but under the hours threshold? I’ve have an additional
whitepaper on this later.
We’ve
mentioned before restaurant utility costs,
especially electricity (too few HVAC thermostats and overly cooled dining
rooms (since kitchens are hot all day) Could not a second rooftop AC unit
and thermostat be added for the front of house that would be amortized
quickly? Utility company experts say the payback could be less than two
years.
Stop
discrimination and avoid legal costs: it’s amazing the number of chain
restaurant operators, franchisees and independent restaurants that get
caught in EEOC/Title 7 discrimination situations. Two multi-unit
franchises (BKW, PNRA) in December 2012 alone. Big settlements, big legal
costs, diversion of management time and attention. The federal
anti-discrimination laws have been on the books since 1965, and the Fair
Labor Standards Act has been on the books since 1938. Management must
enforce fair and equal treatment of all customers and employees. For every
dollar in legal costs, twice as many restaurant sales dollars must be
generated just to offset the direct cost.
Contact: John A. Gordon
Principal, Pacific Management Consulting Group
Email: JGordon@pacificmanagementconsultinggroup.com
Steven
Johnson is Grocerant Guru at Tacoma, WA based Foodservice Solutions, with
extensive experience as a multi-unit restaurant operator, consultant, brand /
product positioning expert and public speaking. Facebook.com/Steven Johnson, Linkedin.com/in/grocerant or
twitter.com/grocerant