As we look to 2023, one thing is certain. None of us have a crystal ball to predict every peak or decline in the economy and restaurant industry, but we can look at the current financial climate to prepare for today and protect ourselves financially as the inflation continues to set in.
This is the advice of Lawrence FernandezFounder and CEO of Full course, who has operated and sold 11 restaurants and built a distinguished career in the hospitality industry as a franchise operator, restaurant developer and executive. Fernandez notes that the main economic stressors affecting operators are:
- Rising labor costs due to ongoing staff shortages
- Rising cost of goods due to inflation and supply chain issues
- Consumer behavior during periods of inflation leading to a drop in leading sales
“Despite these challenges, restaurateurs can rely on their ‘superpowers’ of agility and constant adjustment to outsmart and outsmart what is happening in our current economic environment,” Fernandez says. “Those who can adapt to different circumstances, adjust restaurant practices and respond to new market needs will fight inflation and its impact better.”
To increase revenue, she encourages operators to deploy these smart strategies:
1. Spend time on regular inventory. With commodity prices soaring, operators need to manage inventory, otherwise they will manage it. They should invest time each week in an inventory check to get an accurate picture of the cost of goods sold. “Without that, they can’t develop proper menu pricing,” says Fernandez. If that’s too daunting, it might be time to invest in an inventory technology solution that provides real-time visibility into the cost of goods sold (COGS).
2. Adjust menu prices to reflect the market and margins. Menu prices are essentially a mathematical equation that depends on COGS, which includes commodity price issues and supply chain disruptions. Gone are the days when operators could change their menu once a season, or even once a year. “Operators need to take the time to print new menus or switch to a menu style like a QR Code this allows them to dynamically adjust prices,” says Fernandez.
3. Show the loyalty program some love. Customer loyalty is the name of the game, as operators are constantly strategizing to develop a loyalty program. “The restaurant team’s mission should be to love bombard these best customers, because people still eat out during recessions, but they fight for customer frequency,” she says. They should also consider creating incentives for staff, like a $25 gift card, for signing up X number of people to the loyalty program in a week.
4. Hire a great accountant. Every penny counts! Allocating money to a qualified accountant will pay dividends now and in the future. “Operators will make so much more money with a really good accountant and taking regular inventory,” says Fernandez. “They will likely catch theft and huge amounts of trash, and that can sometimes be up to two to three percent of the margins.” Reliable data, including COGS, starts with good data from accountants.
5. Bundle, don’t discount or coupon. Customers appreciate value, and when restaurants bundle free items, they can make the ordinary extraordinary by creating enticing offers. “Let’s say a restaurant sells a ton of an amazing breakfast sandwich, and it has a decent but not huge margin. Now is the time to pair it with that breakfast cocktail,” says Fernandez. The answer is not couponing or the discounted product, but rather creating perceived value with an offer that has a good mixed profit margin.
By recognizing the economic stressors affecting their businesses, restaurateurs who are prepared to adapt, adjust and meet new market needs will be able to increase their revenues and thrive in challenging markets.
Fernandez previously served as General Counsel and Head of Franchise Administration for FOCUS Brands, a multi-brand restaurant company with more than 4,000 restaurants (including Carvel, Cinnabon and Moe’s Southwest Grill) in more than 15 countries. She was also co-founder, president and operating partner of multi-unit franchise developer Origin Development Group, acting as a strategic growth partner for brands such as Chicken Salad Chick. Fernandez is a frequent speaker in the areas of licensing, organic business growth and franchise operations across the country.