As we look toward 2023, there is one thing for certain. None of us have a crystal ball to predict every spike or decline in the economy and restaurant industry, but we can examine the current financial climate to prepare today and protect ourselves financially as inflation continues to creep in.
That’s the advice from Lauren Fernandez, Founder and CEO of Full Course, who has operated and sold 11 restaurants and created a successful career in the hospitality industry as a franchise operator, restaurant developer and executive. Fernandez notes that the top economic stressors affecting operators are:
- Rising costs of labor due to ongoing staffing shortages
- Rising cost of goods as a function of inflation and supply chain issues
- Consumer behavior during inflationary periods resulting in less top-line sales
“Despite these challenges, restaurant operators can rely upon their ‘superpowers’ of nimbleness and constant tweaking to outwork and outsmart what is happening in our current economic environment,” says Fernandez. “Those who can adapt to different circumstances, adjust restaurant practices and meet new market needs will better combat inflation and its impact.”
To increase revenue, she encourages operators to deploy these smart strategies:
1. Commit the time for regular inventory. With product prices skyrocketing, operators have to manage inventory, or it will manage them. They should invest time each week in an inventory check to get an accurate picture of the costs of goods sold. “Without this, they can’t develop appropriate menu pricing,” says Fernandez. If this is too daunting, it may be time to invest in an inventory technology solution that provides real-time visibility to cost of goods sold (COGS).
2. Adjust menu pricing to reflect market and margins. Menu prices are basically a math equation that are dependent on the COGS, which includes issues in commodity pricing and supply chain disruptions. Long gone are the days when operators can change their menu once a season, or even once a year. “Operators should take the time to print new menus or move to a menu style like a QR code that allows them to dynamically adjust pricing,” says Fernandez.
3. Show some love to the Loyalty Program. Customer retention is the name of the game as operators continuously strategize to grow a loyalty program. “The restaurant team’s mission needs to be love-bombing on those top customers, because people still eat out during recessions, but they are fighting for customers’ frequency,” she says. They also should consider creating staff incentives, like a $25 gift card, for signing up X number of people for the loyalty program in a week.
4. Hire a great accountant. Every penny counts! Allocating money toward a skilled accountant will pay dividends now, and well into the future. “Operators will catch so many more pennies with a really good accountant and doing regular inventory,” says Fernandez. “They’ll probably catch some theft and huge amounts of waste, and that can sometimes be up to two to three percent of margins.” Reliable data, including COGS, start with good data from accountants.
5. Bundle, don’t discount or coupon. Customers appreciate value, and when restaurants bundle complimentary items, they can make the ordinary extraordinary by creating appealing deals. “Let’s say a restaurant sells a ton of an amazing breakfast sandwich, and it has a decent but not great margin. Now’s the time to bundle it with that breakfast cocktail,” says Fernandez. The answer is not couponing or discounting product, but rather, creating perceived value with an offer than has a good blended profit margin.
By recognizing the economic stressors affecting their businesses, restaurant operators who are willing to adapt, adjust and meet new market needs will be able to increase revenues and thrive in difficult 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 over 15 countries. She also was Co-Founder, President and Operating Partner for 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.