So, You Think You Know How to Run a Restaurant?

Although the din of Auld Lang Syne has faded, we can still hear ZuZu saying, “Teacher says, every time a bell rings another restaurant closes” … something like that. As we have recently learned (and continue to see), pandemics are hell on restaurants. When a business sells a product that depends on social gathering through an on-site experience, and then can no longer provide an on-site experience, it’s difficult to simply sell something else in a new way. If one just wants the food and the drink, they can pay a lot less for some ingredients and a YouTube video (made a killer Chicago-style deep dish pizza this way just the other day). The experience is what matters. Converting to takeout or curbside while asking consumers to pay the same, or near-same, dine-in prices is not a good value proposition for even the most cultish following. Pandemics are no picnic, but neither are recessions, salmonella outbreaks, labor shortages, or trend jukes. The sad truth is that the first restaurants to fail during a catastrophe are the ones that operate hand to mouth when times are good.

The best weapon for staying in business during an unexpected catastrophe can be summed up in two words: cash reserves. It’s not about knowing what to do so much as having enough time to figure out what to do. Business owners need a moment to assess capabilities, to evaluate the future, to seek advice, to identify the approach, to calculate the budget, then to put their plan in motion. Cash reserves insulate restaurants from knee-jerk reactions. It doesn’t mean that they should react slowly but navigating the problem requires rational thinking and analysis – the kind only found past the limbic system (where all the knee-jerking happens), in the frontal lobe, where rational thought and logic happen. An absence of cash reserves leaves the restaurateur vulnerable to emotional, reactionary decision making. “I gotta do something fast!” …and if that first move is wrong, it can burn through whatever reserves exist. Sitcoms teach us that trying to swim in quicksand is the worst thing you can do.

If the name of the game is having cash reserves, how do you get it? Successful restaurants that have learned to control these five areas during good times are significantly more capable of surviving – and adapting to – the bad times:

  1. Labor Discipline

    Labor and ingredient costs make up 60% – 65% of all costs in a profitable restaurant. Effectively managing these costs will create value faster than any other possible initiative. In fact, if you are not managing these effectively, why invest in marketing of any kind if you’re only going to wee it away? Establish a labor template for your sales volume, write schedules that reflect that template, then enforce management of those schedules. Sounds simple but it requires discipline and routine to make it work.

  2. Menu Development

    This other half of the prime-cost monster is impacted as much by the way your offering is conceived as it is through mismanagement of the product. If you don’t know precisely how much it costs to put that burger on the plate, how could you possibly know how much to charge for it? Furthermore, what is the relationship between the popularity of your menu (product mix) and the cost of each item to your overall food cost? Do you know your dogs, stars, workhorses, and challenges? If you don’t adjust your menu to deliver a reasonable food cost, and then control the levers that impact spoilage, theft (overwhelmingly internal), portion control, and commodity price increases, then making a profit is simply a matter of dumb luck…the kind that runs out when sales take an unexpected dive.

  3. Purchasing and Receiving Discipline

    To achieve an acceptable cost of goods, you must control how much you spend. To do that you must know the budget for that spending (also called “open-to-buy” …as in, how much money is available for me to spend?). To know your open-to-buy, you must forecast your sales so you can set your budget…then you need to make sure you don’t spend more than your budget, just like you would with your personal checking account. Then, once the product arrives you need to be sure the product delivered is what you ordered (a “purchase order” function) and to your specifications (don’t pay for plum tomatoes if you ordered beefsteaks). Also make sure those ingredients are cared for and secured.

  4. Areas of Responsibility

    Areas of the restaurant that cost money or build sales can be carved into pieces for your management / supervisory team to control. If your General Manager is trying to manage all of them, they will be overwhelmed with no ability to affect change. If, however, your GM can divide the work by categories and proficiencies, their job switches from managing tasks to managing the people who manage the tasks. A junior sous chef, for instance, may be put in charge of light bulbs, small-wares, and the dishwashing crew, in addition to their other shift responsibilities. When plates are not coming clean, lightbulbs are being stolen, and no one can seem to find a spatula, the GMs bi-weekly one-on-one with that sous chef turns into a coaching session to teach them how to get control of their areas.

  5. Production Management

    As with labor, restaurants often “wing it” when it comes to production setting. If you sell 5 to 7 racks of lamb every Tuesday night but 18 to 22 racks of lamb every Friday night, why do you have 20 racks of lamb prepped and ready to go on Tuesday? Over producing creates waste while under-producing leaves money on the table. Getting your production right not only ensures that your product will be the best it can be, but it also drives appropriate labor and ingredient par levels. When inventory quantities and production labor are predictable, they are “under control” …which drives efficiency.

It’s very difficult to predict a catastrophe, let alone recover from one when it blind-sides you. Nothing in this world is certain and unpredictable events are easier to navigate when there are cash reserves. There is no excuse for sloppy operations, no matter what the sales. Mastering control over these five areas is the minimum threshold for survival, but it also accelerates recovery time, getting you in the black faster. Willie Pep is considered by many to have been the greatest featherweight boxer of all time…because his preparation and discipline allowed him to dodge punches and take a punch when they landed. The best restaurants are prepared to take a punch and disciplined enough to stay standing. Let us teach you how to take a punch and to be among the ones standing when the bell rings.

Ray Camillo – Founder & CEO, Blue Orbit Restaurant Consulting

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