Ray Camillo – Founder & CEO, Blue Orbit Restaurant Consulting
By January 2020 the restaurant business was getting crowded and hyper-competitive. Since about 2009, on the heels of the worst recession in most people’s memory, restaurants around the country struggled and failed. Panera Bread, Chili’s, Cheesecake Factory, Seasons 52, and Red Lobster were suspiciously still standing while higher quality mom-n-pop concepts were crushed to dust by the downturn. The sub-prime mortgage business disgusted the public. Distrust was in the air and greed became unfashionable. People became obsessed with authenticity and honesty… on supporting local startups and craftsmen who dared to challenge large incumbents. In the food business, commissary production, trans fat, corn syrup, feed lots, and GMOs were exposed as the tactics of competitive advantage that enabled big companies to suffocate the small ones. Chefs and proprietors came to the front as daring dreamers who worked harder than the soulless, CFO driven, big-box operators. They connected with their communities and began creating unique, local dining experiences in cool industrial spaces that brought new life to long-neglected neighborhoods. Independent operators stretched themselves thin and gambled on unproven locations and ideas, while satisfying demand for clean, locally sourced food prepared with skill by real people in full view of their customers through open kitchens and not in some far away commissary or laboratory. The gamble paid off and independent restaurants exploded. Mom-and-pop was back, and the big chains were the devil.
By 2014, chains were still scrambling to respond, steadily losing market share and confounded by their inability to draw customers back to them. A fox can’t hide its tail and consumers ignored their wooing. Meanwhile, proprietor-driven restaurant groups had raised the bar on quality up and down the value chain and competition among them started to heat up…but the enemy to beat was still chain restaurants. It was still David vs. Goliath. Food Halls cropped up in major and minor cities, and chains were largely boxed out of the fray. However, by 2020, principle-oriented upstarts were crowding the market in response to demand. Diners had so many GOOD choices that they were demanding – and rewarding – perfection. Expectations grew exponentially for design, day-1 execution, menu quality and perceived value. Chain-level efficiency needed to marry mom-n-pop level market agility…where, for decades, these two things were mutually exclusive. This created a new, formidable barrier for new upstarts as the restaurant markets in every city were starting to become critically saturated. It wasn’t 2009 anymore.
Although the pandemic is hurting independent and corporate restaurants alike, the companies with deeper strategic capabilities – whether offensive or defensive – will likely emerge as winners in the short run…but consumer tastes for honest, authentic, scratch-cooked food from independents seems to be here to stay. Fast food and big box chains have been in battle posture for years, sharpening their spears and analyzing weaknesses to hopes of exploiting a soft spot to strike. It can be seen in their swift response to the COVID-19 pandemic (closures, financial restructuring, curbside pickup adaptation, marketing campaigns, etc.) that leaves most independents flat footed.
In a stable economy, competition rules and no restaurant can rely, for long, on timing the peaks and valleys. Newcomers may break into an under-served market with something attractive, but consumer tastes are fickle and fleeting, and the upstart’s trial-and-error operating systems or inexperience will eventually catch up to them if they are unprepared. Below are several specific examples of why it is wise to augment strategic capabilities through hiring a consultant versus attempting to add value through spending nothing.
- Profit Modeling: There are many weak links along the chain of events that lead to launching a restaurant, but none is weaker than under-funding. When we are asked to fix a broken restaurant, we find that the majority of problems can be traced back to the beginning when the concept was conceived. The owner underestimated pre-opening costs and complexity, resulting in (often) insurmountable flaws that sink the business. Slow down to speed up. Plan smartly. Better to spend $5k to $20k on the front end to get your aim right than to lose $1M to $3M in a launch-to-failure journey.
- Ops Planning: Forecasting is one of those things that differentiates successful restaurants from failing ones. The ability to adapt operations to sales forecasts is vital as it replaces wishful thinking with methodical structure. Developing a capability to accurately forecast sales and plan expenditures feeds labor discipline, open-to-buy purchasing, and production setting. A $15k to $60k investment in customizing proven operating systems (budgeting, inventory control, production, goal setting, culture alignment, quality assurance, etc.) is an investment in perpetual, long-term profit. It also positions you to fend off rivals and cushion the impact of down-turns.
- Menu Engineering: While dining out is not always about sustenance, we can all likely agree that no one wants bad or inconsistent food and drinks. A well-crafted menu that will win in the open market against other restaurants is a minimum requirement. I’m amazed at how many restaurant owners think their hired chef or bartender (read: affordable) is qualified to engineer menus that will deliver throughput and profit. Spending $10k to $60k on developing a product offering pays permanent dividends in reduced labor and reduced food cost that eclipse the initial cash outlay. Spending $650k on design and build, then leaving menu development to your staff, is insane.
- Rescue and Repositioning: When something is wrong, it needs to be fixed fast. Customers have little tolerance for restaurants that don’t get it right. So often, restaurant owners and operators turn to their friends, family members, partners or staff for ideas on how to fix the issues. When the first effort doesn’t work, they go back to the same pool for more new ideas. Misdiagnosis of the problem inevitably leads to mistreatment of the problem. Spending $6k to $10k on a professional operations assessment to identify the problems and craft a strategic plan to methodically address them isn’t usually at the top of the options list. But how much does it cost to try and fail, then try and fail again – not just in money lost to the initiative but in new profits not captured?
Existing restaurants and startups that do not possess experience and capabilities advantages over competitors will burn capital trying to compete with those that have those capabilities internally or who outsource them. To over-estimate one’s own capabilities in order to save $6k to $200k in consulting fees is to risk losing $500k to $5M and more, especially when considering the trail of personal losses (divorce, bankruptcy, lost time, college funds, etc.) that always seems to follow restaurant failures. NOT hiring a consultant to help you structure your business is playing with fire.