Imagine your week ahead like the first day of school.  What will it be like?  Who will you hit it off with and what will those interactions be like?  What will you wear and what will you prepare ahead of time?  Before the first day of school, many of us daydreamed and visualized what it would be like. The same is true in business.  Some look just a day ahead or only visualize what it will be like after their lunch break or skip ahead to visualizing just what they’ll do after work.  On the other hand, many managers plan a full week out.  Some directors plan a month or a quarter out.  Often, entrepreneurs will visualize years out or over their entire career the same way many of us back in grade school thought about that first day of school.  They visualize not just what they will do, who they will meet, and what they will accomplish; they visualize their legacy and what they will contribute to their family, community, employees, and their industry.  After they visualize it, they break what it will take to get there into its pieces are parts and take actions each and every day – just like a kid planning out their wardrobe for the first day of school; it’s all ready neatly laid out the night before.

Restaurant Consultant Aaron Allen

Some people in your life will seek to beat you down, supress you, bully you, brow-beat you, and play the “devil’s advocate”.  Especially in the case of the latter, they think they are serving you by helping you be “more realistic”.

As it turns out, the devil’s advocate never coached anyone to success.  The devil’s advoate serves only to help you believe you can achieve less than you desire or deserve.

Whether you’re in the restaurant industry or not, you should surround  yourself with those who believe in you, encourage you and help you be more courageous than you thought you could be.  If you can’t find those people, it’s better to be alone for a while.  As Lincoln one said, “Surround yourself with men of good quality, for it’s better to be alone than in bad company”.

While just a short 60 second commercial for a mega-brand, the Nike Courage video reminds us of the power of the human spirit.  It can rise to any occassion.  It will surge or receed in proportion to your desire and determination.

As you seek out restaurant consultants, seek those who will not only be an asset in terms of technical ability, but also in terms of mindset and shared beliefs.  Don’t hire a devil’s advocate.  You can find plenty of those who will volunteer for free.  You don’t need or want eternal optimists who will kiss up to a client or idea blindly either though.  What you need and deserve is someone who will bleed, sweat, pray, sacrifice, and work relentlessly as you do yourself in pursuit of something special.

When you watch the video clip included, you will get the sense that greatness demands a serious commitment, determination, and a vision to do more than the ordinary.  Most likely, they either did it alone or with someone who was equally committed to the same. Be courageous and follow your dream with an unbendable deterimination surrounded by those who will work as tirelessly. Your success is in direct proportion to your willingness to pursue it.

Restaurant Consultant
Restaurant Speaker

 
1. Recruiting – According to the National Restaurant Association, one of the top 10 most pressing restaurant industry challenges for the last 20 years has been recruiting and retention of employees. However, each time there is a recession, the restaurant industry is one of the greatest benefactors. With unemployment currently hovering at 10%, the restaurant industry is finding job seekers that we would not have seen during periods of low unemployment. While many may see the restaurant industry as a short-term solution until something “better” comes along, often a large number of them end up staying in our industry and making a permanent career switch. During recessions the restaurant industry benefits with greater supply and quality workers and this is the very best time to bring in new talent.

2. Reduced Rent – As much as residential property valuations were over-inflated, in many areas the commercial rentals are now above what the market can support. We are finding clients across the USA and abroad successfully renegotiating leases right now. The ideal “occupancy cost” for a restaurant (rent, C.A.M., etc) is 8% – 10% of sales. If you have experienced a big reduction in revenue or are paying more than this optimum range, now is the time to negotiate a rent reduction.

3. Locations – In recessions, new locations come available that were out of reach or budget before the recession. One client had his eye on a location for almost 20 years and never could make a deal happen. Half way through the recession he not only got his ideal location, he got a better deal on the rent and lease terms than he could have in any other scenario. While many restaurant companies are forced to contract, some have cash surpluses and are putting them to use by expanding. For those with money, the best time to expand can often be at the tail end of a recession.

4. Innovation – There is a saying, “Necessity is the mother of invention”. When our backs are against a wall is when we must prove our mettle. In downturns, we look at the P&L more closely, we engineer processes to be more efficient, and we look for new ways to be successful in spite of tough times. Generally people are motivated by the desire to avoid pain and gain pleasure. When we feel pain, we move with a greater sense of urgency and purpose. When the pain of a recession bears down, successful restaurateurs innovate. They bend like the willow. As Darwin said, “it is not the strongest of the species that survive, but those best adapted to evolve”.

5. Forces smarter buying – We all tend to shop differently in lean times. When cash is plentiful it can be underappreciated and misallocated. Scarcity compels a higher valuation on resources. During times of a recession, buyers can find better deals on products from suppliers that need to move inventory and service providers trying to keep their best employees fully utilized. Not only can you find better deals, a recession also serves as remedial training on remaining disciplined and diligent in purchasing decisions. This is the time to look at inventory par levels, menu yields and utilization, ways to introduce technology for greater efficiency, and much more. For a typical restaurant, 95% of the revenue coming in the front door goes out the back door to suppliers and vendors; leaving just 5% profit for the owner. Getting better at procurement and supply chain issues is necessity. Careful not to cut too much though (see 10 ways NOT to cut costs for your restaurant).

6. Pruning – As insensitive as this may sound to some, the fact is our industry needs recessions to keep us all on our toes and to prune out the underperformers. A rose bush must be pruned to be healthy; which means cutting away certain branches, blooms, and shoots. A forest must have forest fires to stay healthy. Forest fires seem devastating – and there is certainly collateral damage – but the greater good is served and this natural phenomenon is part of the necessary cycle. As an industry, we too need the cycles of recessions in much the same way a forest needs a brushfire. We as an industry get better. And as painful as it can be to see some not make it through, they too learn, grow, and often come back better than before. As my father always liked to say, Edison failed 20,000 times before he invented the light bulb.

There is a silver lining in ever cloud, even if it doesn’t feel like it at the time. You just have to look for it.

The good news is that all expectations are that 2011 will be the year we break out of the restaurant recession and the industry as a whole begins to prosper more fully.

Here are a few other blog posts I hope you may find interesting:

Never Give Up

Courage

Never Give Up

Perseverance is one of the most underrated virtues for entrepreneurs. No matter what business you’re in, no matter what the economy is doing, there are going to be hugely challenging times – many restaurateurs are going through this right now, with the way the recession has impacted our industry.

When things look bleak, you might be tempted to quit. You might even have people whom you love and trust who are telling you to quit. But I’ve found in my own career – and there are so many examples of this – that often, if you hold on just a little bit longer, or try to do something just a little bit different, you’ll see much better results.

Some of the biggest names in business struggled with the prospect of failure before achieving their greatest success:

• Richard Branson: When he was trying to get Virgin Atlantic Airways off the ground, he got into a price war with British Airways. They almost drove him out of business. His advisers were telling him, “You have to sell one of your companies; you can’t keep both.” So he decided to sell his crown jewel – Virgin Records, for 500 million pounds. (This was in 1992, when the music business still made money by selling albums.) Selling Virgin Records gave him the ability to pay down the debt to support Virgin Airlines – and even though this was a tough, risky decision, Branson was confident that it was the right thing to do. He was committed to offering something better in the airline industry. His advisors wanted him to give up on the airline, and they couldn’t believe that he chose the airline over the record business. Later he said this was the best decision he could have made – he got out of the music business at just the right moment.

• Steve Jobs: He has become a hero of the modern business world, but back in 1985, Steve Jobs suffered a very public failure. Years after he founded Apple Computers, Jobs was pushed out of his own company and resigned as CEO in 1985. Fortunately, he didn’t give up – he came back to Apple in 1997, and transformed the struggling computer maker into the most admired and envied personal electronics company in the world. Everyone who has ever worked with Steve Jobs testifies to his relentless, uncompromising, demanding expectations of himself, his company, and everyone around him. Steve Jobs rebounded from failure to create the iPod, iPhone, and iPad – monumentally breakthrough products that have changed the world.

• Southwest Airlines: Southwest is one of the most profitable U.S. airlines and has a great reputation for customer service. A few years ago I spoke at a conference where one of the other speakers was a former CEO of Southwest, and he told a story about how after 9/11, Southwest took a huge hit (like the rest of the airline industry) and was down to a dangerously low level in their operating accounts (he said just a few hundred dollars in their operating account – amazingly candid and powerful insight into what they were really going through at the time). Thousands of customers were asking for refunds, afraid to fly in the days after the terrorist attacks on America. Other airlines were refusing to issue refunds, afraid to lose money. Southwest took a different approach – they honored their customers’ requests for refunds, and sold hugely discounted tickets just to get people in the seats and get people flying again. It was a risky move, but it worked – Southwest was one of the first airlines to recover from the airline downturn after 9/11.

When you look at all of these stories, there were probably lots of times where these people and their companies hit roadblocks that could have been deal-killers – where people around them were saying, “It can’t be done, it’s impossible.” The mark of a successful entrepreneur is that they hear that feedback, and then they say, “Okay, so it’s impossible. But if it were possible, how would we do it?”

Times right now have been tough for the restaurant industry – with the Great Recession and the slow recovery, there are lots of people in our business who are feeling beaten up and tattered. But let’s not give up. Let’s keep looking for ways to innovate and do things better.

The “Never Give Up” cartoon attached to this post was once hanging on my dad’s office wall at his restaurant in Panama City, Florida – I remember seeing this cartoon over the years while I was growing up. My dad was one of the most important voices that encouraged me to stick with my consulting business back when I was just getting off the ground.

I could have given up, but I didn’t – and I’m glad that I held out a little bit longer. I’m living proof that sometimes, even at your bleakest moments, things get better.

There are no successful entrepreneurs that are also successful nay-sayers. If you want to cultivate a spirit of perseverance as an entrepreneur, you need to surround yourself with people who believe in you, but the most important voice to listen to is ultimately your own. Pay attention to your own intuition, hunches, your internal compass. This will guide you in the right direction.

For Entrepreneurs, Impatience is a Virtue

People often tell me that I walk too fast. I’ll be out walking somewhere with friends, and I’ll find myself five paces ahead of them – and my friends have to tell me, “Hey, wait up!”

In this sense, I’m not a very patient person – it’s just the way I’m wired.

I can’t help it. I have an internal sense of urgency. The way I approach anything entrepreneurially is to have impatience with the situation. Once I know where I want to go, I want to start getting there as soon as possible.

To be a successful entrepreneur, you need to have a sense of impatience. Impatience is synonymous with ambition, with motivation, with a drive for results. There’s an old saying in sales, “You eat what you kill” – if you have a goal, if you want to succeed, you have to go out there and get it. You can’t wait for success to come to you.

Steve Jobs is famously impatient – everyone who’s ever worked with him testifies to his impatience with product development time, his constantly pushing the envelope on designs, always demanding more, better, faster – and this sense of impatience is what helped Apple transform a slow-moving telecom industry that previously hadn’t had a lot of innovation since the wireless phone.

Was President Kennedy patient about putting a man on the moon? (People said “it can’t be done, we have to wait, the science is too complex…”)

Was President Obama patient about getting health care reform passed? (People said “slow down, it’s too much to do at once, the politics is too complex…”)

There are certain times when you should be VERY patient – with people, employees, family, and people’s feelings – there are many situations where you need to be patient and understanding.

And being impatient doesn’t mean you should get angry about the weather or the flight delay or other things that are beyond your control.

Even when making business decisions, you shouldn’t be impatient all the time; there are occasions where you need to think things through, do your due diligence and avoid leaping too quickly into uncertain situations. Being impatient doesn’t mean being reckless; you need to take smart, calculated risks.

But when it comes to going out and getting what you need – you have to be impatient. Don’t be patient when it comes to pursuing your dream. Don’t put off until tomorrow what you can do today. Be impatient. Be restless. Be hungry. Be determined to create your own luck, not wait for good fortune to land in your lap.

Entrepreneurs frequently walk faster than everyone else – I swear I’m not the only one. We tend to have an internal sense of urgency in all that we do.

I’ve consulted with hundreds of restaurant companies, big and small – and most of the time, the entrepreneur who built the company is in the room with me. From my experience, you can definitely see patterns in the type of people who have achieved a great deal of success. One of the common traits is impatience.

There’s an old story about how you can boil a frog to death just by slowly heating up the water – it happens so gradually that the frog doesn’t notice until it’s too late. An “impatient” frog wouldn’t sit there and take it – an impatient frog would have already hopped out of the pot to go find something else.

One other caveat – impatient entrepreneurs need to have a clear objective. Aimless impatience is counterproductive; you need to focus your impatience on a goal, and then once you have settled on a goal, you can take clear and immediate steps toward its attainment.

At almost every consulting project that my firm works on, we start with a planning session – helping the client and their company identify what their biggest goals and deepest motivations really are. These aren’t necessarily financial goals – it’s a process to marry emotion to these corporate objectives, build a “backwards road map” to get to the top of the mountain – we work with these executives, and we ask them, working backwards from your dream, what is the first step that you need to take to get there?

I’ve noticed that with the people who are really successful, once we identify their ultimate goal, they want to take that first step forward RIGHT AWAY. Their attitude is, “Now that I know what I want, I’m going to go get it!”

Successful people are eager and impatient to take that first step. Others get paralyzed contemplating it: soon the momentum and excitement wears off, and then they’re back to their old patterns and old results.

Business is about more than quantifiable objectives, tactics and numbers – there’s also an element of passion and commitment. Part of getting entrepreneurs to focus on their ultimate goal is dredging up some serious emotional commitments. You have to facilitate a conversation and help people realize the answers – and really commit to taking that first step.

I’ve come to realize that my role as a consultant is often about helping people find their “cause,” not just their business goals.

But the most successful entrepreneurs, once they find their cause, are impatient to take the first steps toward fulfilling it. In the best sense, that’s what “impatience” means to me – it’s about maximizing your life, exercising your influence on what you can control and change, following your passion, and making the biggest possible difference in the world.

It was so amazing that I had to take a photo. Look at the signs: “Bathroom for customers only,” “Cash Only,” “No checks…cash only.”

These signs are the first things people see when they walk up to this restaurant. This restaurateur is not making a good first impression – it’s almost like he’s trying to drive people away; he might as well have a sign saying “Keep Out!”

When you’re running a restaurant, it’s like being the ruler of your own little country. You have your own laws for your country’s “Constitution,” depending on what your “citizens” (customers and employees) are willing to put up with.

So this restaurant is the restaurateur’s own country; in his little 40 foot area, he can do what he wants. But the customs authorities and border guards of this “country” are not doing a very good job of welcoming visitors – it actually looks like they’re at war.

I know how these things happen. The restaurant manager gets tired of people stopping by to use the bathroom – and this is a big tourist area, so there are probably a lot of beachgoers who wanted to use the restroom but weren’t buying anything. So the manager gets tired of cleaning up after non-customers and says, “Let’s put up a sign!”

Then he gets frustrated from too many bounced checks – and gets tired of paying credit card fees. So now it’s a cash only establishment – and again he says, “Let’s put up a sign!”

The problem is, before you know it, you’ve got a front door covered with signs that are going to drive people away. In the process of trying to get customers to follow your rules and obey the “laws of your country,” you’re going to wind up with no customers at all.

Instead of worrying about people using the restroom without paying, turn it into an opportunity! If you’ve got a great food product and a great atmosphere, you should welcome people who are looking for a public restroom – it’s more foot traffic in your door. It’s more people who potentially might spread the word about your place to their friends outside – “Yeah, that place let me use the restroom, and the food smells great! Who’s hungry?”

Instead of trying to convert every rule into signage, instead of trying to head off every possible problem in advance, use this as an opportunity to engage with your customers.

If someone comes in and asks to use the restroom, use it as a chance to convert them into a customer: “Sure – customers are welcome to use the restroom; what can I get for you? How about a drink?”

Another moral of the story: if you’re a franchisor, this is another reminder to make sure that your franchisees are in compliance with your brand identity, signage rules, and general customer policies.

From a marketing standpoint, you want the entrance to your restaurant to be clear, uncluttered and inviting. There are too many restrictive signs right alongside the promotional signs – instead, create an uncluttered view. Customers will get confused if they see that your restaurant signage is sending mixed messages: “Welcome/We’re open/Come in and eat with us” right next to “Cash Only/Don’t Ask to Use the Restroom/Stay Out.”

You want to make sure that franchisees are representing your company and interacting with customers in a way that upholds your standards and supports your brand. If this was your restaurant chain, you would need to talk with your manager – because in this case, the manager is doing more harm than good by putting up all these signs.

Ultimately, it comes down to this: if you have managers or franchisees that can’t be bothered with dealing with customers, then they really shouldn’t be bothered with being in the restaurant industry. Every restaurant has rules, but there are always situations that arise where customers don’t know the rules, or unknowingly break the rules. So enforce your rules, but do it in a way that’s inviting.

Even if you do have a policy that non-customers can’t use the restroom, turn it into a positive: “Customers are welcome to use the restroom – what can I get for you?” Instead of using a sign to prominently remind everyone that your restaurant is “Cash Only,” gently direct people to your convenient on-site ATM.

We should not be at war with customers. We should embrace them – they are our guests. We don’t need to beat them over the head with all of our rules. Instead of trying to train your customers and filter out potential hassles before people ever come in the door, adopt an attitude of flexibility, welcoming and service. It’s better to have a busy restaurant with a few hassles each day, rather than an empty restaurant where everyone knows the rules.

Especially in this economy, every restaurateur is looking for ways to cut costs. But there’s a right way and a wrong way to go about the cost cutting – if you do the wrong things to reduce costs, you can create problems and even incur hidden costs in the long run. Sometimes when you’re trying to solve a problem, it helps to consider what not to do.

So here are 10 things you shouldn’t do when looking for restaurant cost-cutting ideas.

Top 10 ways NOT to cut costs at your restaurant:

1. Lower Quality – Whatever you do, don’t trade your reputation for a short-term and incremental decrease in your costs. Customers can tell when a restaurant lowers quality. One restaurant I used to love stopped putting pancetta and fresh parmesan on their Caesar Salad. The Caesar used to be the best I’d had in the U.S., but it wasn’t the same without the original ingredients. They may have saved a few pennies, but the end result was a lower quality option. I used to spend $200 a week or more at that restaurant – I’ll bet that the money they saved on that ingredient switch didn’t make up for losing even one customer who visited as frequently as I did.

2. Skimp – Another trick we see implemented in hard times is to skimp on ingredients. Let’s say you have a pizza restaurant and the manager gets a bonus for maintaining a 32% food cost. What happens next week if he misses his bonus because he ran a 34% food cost? Yep, you guessed it, the next week he comes in at 30%. Now, the owner may be happy at first because the food cost balanced out, and the manager is happy because he got the bonus, but the reality is there were customers last week that got fewer mushrooms and less cheese on their pizza. They notice the skimping and go to a competitor. When customers defect, you lose more in lifetime customer value than you ever gained by cheating them with skimping.

3. Overstock – When the recession hit, manufacturing took a dive as businesses began depleting existing inventory rather than ordering new inventory. Par levels were reduced to get more in line with reduced demand. When you get your inventory levels in check with demand, you perform at a healthier level in terms of cash flow and liquidity. Of course, this is a balancing act: if you run inventory down too low, you run the risk of running out. Your inventory levels are important to keep an eye on when you’re cutting costs – be mindful, but don’t cut back too far.

4. Close Too Early – When you close early, it can become a self-fulfilling prophecy. No matter what, your last hour will be slower than your peak hour. When you close earlier and earlier, you will start to notice a shorter peak period. You may think that you’re saving a few hundred dollars by closing early, but you will probably come out worse-off in the long run. As I write this I am in Seaside, Florida (www.seasidefl.com). A local restaurant keeps closing before 9 p.m. Last night the kitchen closed at 8:25 and earlier this week the restaurant closed by 7:30 (they don’t even open for dinner until 5:30 p.m.). The overhead of having a sprawling restaurant on the Gulf of Mexico is fixed – you already are paying rent, utilities, taxes and a bunch of other costs just to plant your flag in the sand each day, and those costs are not diminished by closing a few hours early. The other problem with closing early is that you start to train your customers to expect you to be closed, and so they decide to avoid your place altogether the next time they go out. A lot of these customers will end up converting to your competitors and, for the few hundred dollars you “saved” by closing early, you lose untold thousands in real “lifetime value” from the customers who defected to your competitors that were open while you were closed.

5. Destroy Morale – It is impossible for you alone to cut your costs – every restaurant is connected to a network of people, from vendors to employees, and you need their support if you’re going to make meaningful cost reductions. If you beat up on your vendors too hard, if you push your staff too far, you may get your short-term results – but at the cost of your long-term partners. No one wants to work for a tyrant, and your vendors and staff are even less likely to go out of their way to save you money if they feel stepped on or disrespected for the sake of corporate profit.

6. Cut Maintenance – Maintenance seems to be another of those areas that gets cut when times are lean. Don’t do it. Even if it means borrowing money, you can’t cut maintenance. When maintenance gets cut, lights start to get burned out without being replaced, bathrooms fall into disrepair, hood systems get clogged, fryer oil is replaced less often, and ultimately you run the risk of causing long-term and expensive damage to your equipment, your staff and your customer perceptions. There’s nothing more depressing than a dim, poorly maintained restaurant.

7. Carry Dead Weight – Cull through your ranks. Make a clear-headed, unsentimental evaluation of who is with you based on tenure, seniority or nepotism and who is there because they are actually loyal, committed and high-performance contributors. Turnover of staff is costly, but keeping bad employees and dead weight can be even more costly.

8. Fragment or Splinter – You can find a cheaper price on nearly any individual item you stock or service you hire…but there are hidden costs to being cheap. When you start fragmenting your purchasing across several vendors, you lose leverage and often get hit with costs you weren’t expecting (such as delivery costs, accounting work, unredeemed rebates, etc). Long-standing deep relationships with vendors are often more valuable when you need to cut costs, rather than fly-by-night vendors who you only work with to save a buck.

9. Be Penny-Wise and Pound-Foolish – This goes hand in hand with many of the other suggestions above, but keep in mind the negative impact that can happen in terms of reduced focus or decreased morale with penny-wise approaches. For instance, getting rid of free coffee for staff may save a bit of money each week, but it can have a demoralizing effect on the staff – especially in a recession, people don’t like to feel nickel-and-dimed in the workplace all the time. Some small things like free coffee are highly valued by your staff – more than you may realize. Don’t let the pressure to cut costs lead you astray from your core values and the moral principles your brand stands on.

10. Spend more time in the back office than the front of house – A downturn can cause stress, depression, anxiety and frustration for everyone involved, especially restaurant owners. These emotions can wear you down and sap your happiness and passion. If you feel this starting to happen, take a break. When you worry and get run down, it will invariably impact staff morale and the levels of hospitality your restaurant delivers, which will only make matters worse. Remember, you’re in the hospitality business – you’re in the business of delivering a joyful and pleasant and relaxing customer experience. Yes, it’s a business and that means tending to the numbers, but it can’t be done at the cost of the customer experience and levels of passion, professionalism and hospitality you deliver.

I hope you have found this article helpful. Please share your comments and suggestions on other ideas you have for restaurant cost cutting using the reply form below. We’d love to hear from you and share your insights with other readers.

The recession of 2009 continues to siphon spirits from the beleaguered restaurant industry in 2010.  After decades of positive consecutive sales growth, the restaurant industry has had two back-to-back years of overall sales declines.  It’s clear that to survive, restaurateurs must implement both restaurant cost cutting and revenue-building programs.

Here are ten things you should do (followed by ten things you shouldn’t do in a follow-up article) to reduce costs for your restaurant:

Top 10 ways to cut costs at your restaurant:

1. Sell, Sell, Sell – Okay, technically this isn’t a “cost-cutting” tip, but bear with me.  You can’t operate yourself to a profit.  The top line cures all that ails you – a 2% increase in sales is equivalent to a 10% reduction in food costs.  The surest way to quickly boost profit is to build the top line revenue.  Even though the industry is down, it is only down by a few percentage points overall – meanwhile, some restaurant companies are down by double-digit percentages.  What this says is that even in a bad recession, some restaurant companies are way up.  There are still sales to be had, but in this market it won’t happen on its own.  As the saying goes, “you eat what you kill,” so this is the time to get out there on the offense.  Can you refresh the sales skills of your front of the house staff? Can you get your servers to sell more beverages? Can you put together some creative specials or fixed price options that will get people in the door? Before you start cost cutting, make sure you’re doing everything you can to creatively and energetically sell your restaurant’s offerings.

2. Re-engineer – The tectonic plates of the restaurant industry have shifted irrevocably – and even after the downturn ends, things are not going to go “back to normal.”  There are still many billion dollar restaurant chains sitting on the fault lines thinking that their woes are just temporary and due to the downturn.  The fact is, the restaurant industry has changed – due to economic, cultural and demographic factors – and the pace of change is only speeding up.  The Fast Casual category is growing much faster than the rate of the industry overall, which means that there is going to be cannibalization of someone else’s existing sales.  Home Meal Replacement, which is at $70 billion annually, is the new battle ground between restaurants and grocery stores.  Grocery stores steadily lost market share to the restaurant industry every year for decades and now they’ve had enough.  They are fighting back and operating more like restaurants – you can see it at any well-run grocery store; they’re offering pre-packaged meals, take and bake pizzas, a wide variety of culturally diverse menu options and meals for all sorts of dietary needs.  The restaurant industry has begun to fragment and splinter and the winners are the ones who are specializing.  Meanwhile, restaurant groups like Chili’s and TGIFriday’s continue to operate on the systems and approaches of the restaurant industry of the 1980’s and 1990’s – trying to be all things to all people.  We saw how that worked for Bennigans (they went bankrupt).  Many restaurant companies are holding on (for now) with sophisticated financing schemes, but their focus should be on re-engineering for the future of the industry, not trying to force yesterday’s approaches to continue working.  When you re-engineer, you naturally cut costs as you find more efficient methods and approaches to doing business. Re-engineering means asking, “What is our unique niche? What are the right things for our business to be doing?” You need to be willing to take a clear-eyed look at the reality of the industry, and re-engineer with the approach that “there are no sacred cows.”

3. Invent – There’s nothing like a recession to get the industry dusting off tired old promotions.  The happy hour and all sorts of other state-of-the-art-in-1989 programs are being re-introduced and, to the dismay of those pushing them, the results just aren’t there.  Times have changed.  Consider the media that restaurants use to market themselves. When radio was first introduced as a new form of media, it took 38 years to reach a market audience of 50 million people.  It took television 13 years to reach 50 million.  Facebook reached 50 million in just 2 years.  Meanwhile, tired restaurant chains are pushing happy hour promotions via mass media advertising and taking a “wait and see” approach with social media.  News flash: social media is not a fad, it’s not something that is going to just blow over; this is a cultural phenomenon that is shaping our lives for years to come. Social media isn’t just for Millenials.  (But even if it were, there are now more Millenials in America than Baby Boomers – and Millenials eat out more often and spend more on restaurants than the Boomers do.)  The fact is, the rest of the world and other businesses/industries are having to speed up their rate of change and reduce cycle times.  The real winners – companies like Apple – are winning through invention.  We just experienced the worst financial crisis since the Great Depression, yet Apple’s iPhone is the fastest selling product in history and sales only continued to climb in the recession.  How did they do that without discounts?  Invention.  The more you innovate and invent, the less you have to discount. The more you can do to create a one-of-a-kind customer experience, the more you can afford to charge – and the more customers you can expect to see in your dining room.

4. Furlough – Make sure you keep your top people.  Before you terminate any of the good ones, ask them to consider a furlough or reduced hours.  The National Restaurant Association estimated that for each average hourly employee you hire, you spend $1,500 training them.  Meanwhile, many restaurants have a 100% or higher turnover rate of employees.  If you have a staff of 100, that means $150,000 per year in training new employees!  Since this “training” cost is often just rolled into payroll and not accounted for separately, many restaurant executives don’t know the true cost of their training programs.  Retention is key (and so is a modern day approach to training systems, but that’s another article for another day).

5. Inventory Utilization – When I took over operations for a $4 million Caribbean-themed restaurant, I focused in on the bar.  We generated nearly 30% of revenues from the bar and were running bar costs in the high 20’s (cost as a percentage of sales).  When I studied our purchasing and inventory, I saw that we had stacked up cases and cases of a product that wasn’t moving.  Canadian Club had been running a promotion for their new Canadian Club Citrus and so they were giving bottles of it away with purchases of other faster-moving product.  Our competitors up and down the beach had amassed mountains of this product too.  They started trying to unload it with $2 shots.  Then $1.  Then 50 cents.  No one bought it.  People had never heard of Canadian Club Citrus and they figured that if it was selling for  50 cents it couldn’t be good.  So, I took a different approach.  I invented a drink called the “Cayman Curse” and said we couldn’t tell you what goes in it or you will get the curse of the Cayman’s.  We sold them for $8 and built appeal by putting dry ice in (which makes the drink appear to “smoke”) and supporting it with a suggestive selling program.  Results?  This “mystery drink” made from a previously un-moveable liquor became our top seller.  We started trading a bottle of Crown Royal with other restaurants for a case at a time of the product they weren’t moving.  Our cost in mixing the drink was so low that – coupled with the huge volume – it brought our overall bar costs down to 16% of revenue.  That’s half of what it was!  Just one innovative idea and new approach to inventory utilization made a big impact on the bottom line.  You don’t have to have a bar though – similar approaches can be taken with different varieties of fish, for example, and you’re not only reducing costs but also taking pressure off other fish species.

6. Marketing – The average restaurant in the U.S. spends 3% of revenues on advertising and marketing.  This is a variable and controllable cost that many restaurants cut from their budgets when the going gets tough. To some extent, that’s fair – after all, with the downturn, this is a good time to stop spending on mass media advertising.  Don’t throw money away on billboards, radio, television, bench, Yellow Pages or other antiquated approaches to connecting to your customers.  However, it’s never a good time to stop marketing.  Especially in a recession.  It might sound counter-intuitive, but now is the time to invest in marketing.  You will find that some of the biggest swings in market share happen in a recession as some businesses stop marketing and others turn up the heat.  The goal isn’t just to spend though, it’s to invest.  Now is the time to invest in innovative new marketing programs like social media, mobile marketing and a host of other new approaches advocated throughout many of my other blog posts and articles found at www.aaronallen.com. A lot of these new media marketing techniques offer you a level of flexibility and the ability to measure results in a  way that was never possible before. Take advantage of the downturn – when your competitors are dialing back their marketing efforts – to explore some of the new options to connect with your customers. It’s an investment that will pay off – now and in the future.

7. Ask your vendors for help – Even if times are tough, you can often turn to your vendors for support. Landlords will give grace, broad-line distributors will give extended payment terms, and in general, your vendors want you to succeed.  Your destinies are intertwined in that regard – the better you do, the better they do.  It is short-sighted to price shop vendors in such a way that you bounce from deal-to-deal with no loyalty to a vendor.  When you are loyal and ask for help, generally you get it.  Often, those vendors that steal you away with a lower price are lacking on the service side and sometimes, the service you lose is worth more than the discount you gained.

8. Focus on Majors – The 80/20 rule should be applied to cutting costs.  Many operators attempt to improve 100 areas at once – and as a result, they never get deep enough into any one problem to be able to make a real difference.  The key is to find your critical leverage points.  One of my clients has food costs that have run as high as 47%.  Every percentage point reduction in food costs is equivalent to $100,000 in net profit improvement.  Our approach isn’t to tackle every one of the 350+ inventory SKU’s they have.  Our approach is to focus on the top 5 SKU’s.  Focus on the big stuff first.  Work your way down your profit and loss statement or inventory, working on no more than 5 items at a time.

9. Purchasing Cooperatives – We have introduced many of our clients to purchasing cooperatives.  A cooperative is a buying group that gives independent operators and regional chains buying power like the mega chains.  Whether you’re buying food, kitchen equipment or marketing services, when you buy in bulk you always get a better deal and better service.  If you don’t have the buying muscle you need, join or start a cooperative.  We have seen one operation go from paying $48 for a bag-in-the-box of soda to paying $42 and less.  That’s a 13% savings just for purchasing in a group.  It adds up quickly when you’re pouring 100,000 gallons per year as they were.

10. Set a Good Example – You can’t show up to work in a brand new Mercedes and expect your employees to believe that cash is tight.  You’ll notice many CEOs these days setting examples for their other employees by tightening their own belts too.  The CEO of General Motors worked for $1 per year.  The CEO of Land O’ Lakes (a $12 billion company) flies coach like his employees.  The CEO of Wal-Mart stays in 3 star hotels and often shares a room with another executive.  When the head of the company demonstrates a willingness to put the company above his own comfort, it trickles down to the rest of the company and inspires them to do the same.

The recession has forced every business to look at their spending more closely.  Even the world’s largest governments are facing shortfalls and having to make hard choices.  Use this time as an opportunity for innovative new approaches – not just penny-pinching.  As the saying goes, “Necessity is the mother of all invention.”  Be thankful for the downturn – if you use it correctly, it will help motivate you to adopt newer and better ways of doing things.

I hope you have found this article helpful.  Please share your comments and suggestions on other ideas you have for restaurant cost cutting using the reply form below.  We’d love to hear from you and share your insights with other readers.

Next: be sure to check out part 2 of this series, “Top 10 ways NOT to cut costs at your restaurant.”