3 Action Items to Help You Survive the Restaurant Recession

By: John Nicolopoulos

7 Minute Read

May 07, 2018

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restaurant recession

You hear the word recession and it stops you dead in your tracks. It invokes that muscle memory shiver, perhaps due to experiencing the Great Recession with its financial challenges and occasionally devastating outcomes.

Currently, the purported restaurant recession is causing similar anxiety among many restaurant operators and investors. Much has been written about this so-called industry recession with statistics about declining foot traffic and falling revenues to back up analysts’ foreboding contentions, but are these assumptions telling the whole story?

But First - A Quick Background on the "Restaurant Recession"

Just the Facts

It’s true same-store sales have shown some slowdown — a 1.7 percent median drop in sales from the first to second quarters last year, according to Nation’s Restaurant NewsHowever, many of the earnings reports are pointing to declines in megabrand restaurants and not capturing the picture of what’s occurring in growing middle market, independent, and regional restaurants.

In addition, the eating-out demand has actually risen, according to a recent Bureau of Labor Statistics survey, indicating a 2.8 percent increase last year in food-away-from-home venues like

  • Restaurants (yes, restaurants!)
  • Delivery outlets
  • Takeout places of various types
  • Cafeterias
  • And more

So while it is clear demand for food outside of the home is not declining and opportunities are not receding across the restaurant space, competition is fierce - probably more so than any other time.

Yet despite a crowded marketplace, there are restaurant concepts across all sectors of the industry that are making strides.

What’s their secret?

A Look Inward

In many cases, these restaurants have stopped worrying about all the talk of recession and have chosen to focus on things they can control in their business. It’s something most should have been doing all along to boost performance and impact long-term business growth.

This so-called "restaurant recession" has simply made it imperative.

So enough of the hand wringing about the recession. Let’s get to work.

Here are three major areas to look at in your restaurant to counter slump and promote progress. Start by assessing your own current systems and practices, identifying those areas that need improvement, and then make the changes that matter most for your operation.

1. Labor - Woes and Wins

Your workforce is the foundation of your organization. Your employees’ knowledge of the business' brand and their delivery of hospitality and service to customers is essential to the success of your restaurant.

However, there are a few external forces jeapordizing the traditional restaurant workforce strategies, like:

With labor costs on the rise, it may be time to reevaluate your current staffing strategies to meet future needs. Traditional staffing models need to be challenged to better align labor costs with customer traffic. Here are some options

Switch Up Your Shifts

Add short shifts to peak hours of the day to increase service when you need it and thinning headcount during slower hours of the day, or explore the idea of a split shift. Alternatively, you could also reassess roles and responsibilities across the operation — using hourly employees at lower rates to perform functions that had historically been performed by management-level people, but do not require manager-level skills to be performed effectively.CTA

Invest in Top Talent 

Remember, it’s not solely about reducing headcount and cutting cost. It’s about the value received from your labor dollar. For instance, your assessment may reveal your need to bring in more experienced and expensive talent to drive the overall profitability of the operation.

More experienced managers may cost more, but if they manage costs more effectively and drive customer traffic through better training and community outreach, it may be worth the higher price tag.

Count on Your Numbers

Look at managing labor similar to how restaurant inventory is managed through technology platforms that can measure high-need events and lags. Use that data to help make improvements around staffing or to streamline processes around kitchen layout or expediting efforts. You may uncover ways to address labor challenges through other technologies as well, such as using a table-side mobile ordering platform. These back-end changes can offset labor costs but also deliver efficiencies for your operation. It’s important to keep in mind, however, that efforts to drive down labor costs should not result in diminished service or the sacrifice of an exceptional experience for customers.

2. Costs - Negotiate, Negotiate, Negotiate!

Given rising food costs and increasing rents, cost containment is a never-ending challenge, but there are some things you can do improve cost efficiencies.CTA

In terms of food costs, having solid relationships with vendors (and not just one go-to vendor) is key to negotiating the best and most competitive pricing on food and beverage inventory and other restaurant provisions.

In addition, assessing food costs frequently is necessary to track fluctuations and seasonality, and that’s where a restaurant technology platform can be helpful. A system that tracks use, costs, shelf life, and more over time can give you a clearer picture than gut instinct. Likewise, close tracking creates metrics for you to understand how much to order and to avoid costly over ordering.

Regarding real estate costs, lease negotiation is at the heart of controlling costs. An expansive space might be tempting to rent, sparking lofty dreams that every seat will be filled in the restaurant and business will always be booming. In reality, a smaller footprint may deliver a bigger impact for your operation. Remove your emotion from the real estate decision and examine the space critically. Then, bring that savviness to the negotiation table to land the right rent price for your business.

3. Brand - It’s the Boss

Brand is huge for most businesses, but for restaurants, brand is the boss.

It’s the X-Factor in market differentiation. It establishes who you are and carves a space for your business in the marketplace. It’s your food quality, your service level, your unique history, vibe, and future promise to your guests.

Brand concept and image can be enhanced by a variety of efforts, but it starts with maintaining a connectivity with your customer base. Successful restaurant operators understand what their guests want, know their taste preferences and lifestyle needs, and deliver it in a meaningful and entertaining way, and most important, they deliver it consistently. CTA

To help in establishing this connection, technology and data gathering can serve as important tools. For instance, loyalty programs and customer data can help you connect with customers for special discounts, birthday wishes, or anniversaries.

Likewise, personalized services and special dining experiences, like wine dinners or painting parties, can be an effective way to maintain connection while also promoting your brand.

Regular customers bring in new customers and (hopefully) new customers become repeat customers. Leveraging these loyalty programs and an effective gift card program can drive traffic to your restaurant during slower times, like during the first calendar quarter when sales are typically softest for many operators.

Brand can also be re-energized by restaurant renovations, menu enhancements and staff re-training. Look for creative ways to refresh and promote your brand story, and share it through email, social media, marketing efforts, and your staff — they need to be brand ambassadors and promote your brand in every guest interaction.

Overcoming the Recession: In Summary

Despite the strong headwinds, increasing competition and chatter about a restaurant recession, the industry is not dying. Difficult times create opportunities and there are ways to enhance your growth efforts in your organization. Look inward at your business operations and systems, assess your strengths, determine your challenges, and identify your opportunities, particularly in the areas of labor management, overall cost containment and brand differentiation. Yes, restaurant recession may continue to be the topic of analysis in some circles, but positive action and growth in your organization can quiet those anxious discussions as well.

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