News for the Hospitality Executive |
By Michael
Lukianoff February 2010 While a clear economic outlook for 2010 is still highly uncertain, one thing is for sure – restaurateurs aren’t out of the woods yet. Even economists who believe that the overall economy is on track for solid recovery in 2010 agree that businesses that depend on healthy consumer spending still have a tough row to hoe in 2010. Just
like politics, the restaurant business
is local. Whether you believe
forecasts for continued industry
contraction in 2010 or foresee a rosier
outlook, the
fact is that your economic outlook
depends on your local area
economics.
And in a zero growth
environment,
your gain is your
competitor’s loss.
That means that you need to do everything
you can to improve your
situation
versus the competition. The long-term health of your business
depends on your ability to
manage your
costs while
simultaneously improving the total
guest experience. When your competition manages the difficult times by cutting too deeply in areas that are important to your customers it creates an opportunity for you
to
capture more market share. The
Challenge: Unemployment
Fewer
people making money means fewer
people spending.
If unemployment in 2010 backs
off from the
current double-digit
levels, it will
still remain at historically high levels.
What’s more, the duration of
unemployment (the length of time people remain unemployed) hit
29 weeks
in December 2009, which is the
longest unemployment
duration the nation has
seen since the government began tracking it in 1948. This means that
for the
jobless, unemployment insurance
is quickly
running out and peoples’ emergency funds are dwindling or
non-existent.
This will continue to put
pressure on restaurant
sales as many consumers are
forced to further tighten their
belts. Many people are
taking part-time
and full-time jobs they wouldn’t
consider during boom times. The
Despite
how the 24-hour news cycle
makes it feel, most people actually still have jobs, and even those
who don't have jobs still require food. In
fact, even the gloomiest
unemployment estimates incorporating people who have given up looking or are
working part-time, indicate that
more than 80% of Americans are
gainfully employed. That's not a good number, but it's also not
Armageddon. For restaurants
planning to be around
for
more prosperous times, high
unemployment means a
broader labor pool and an
opportunity to improve service standards.
While the competition is cutting back on service, take market share from them
by upgrading your service standards
with more effective, professional and attentive staff. As consumers cut back on their restaurant
visits, you'll need a compelling
reason for
them to choose you over your competition — a poor service
experience is the surest way to
push them away. The
Challenge: Troubled
Commercial
Real Estate As
commercial real estate markets continue to be challenged by high vacancy rates and lower lease
prices, many analysts are still
predicting
another leg down when the government programs
that have been propping
them up begin
to wind down. The
Lease
prices are down 40% from their
2007 peak and predicted to
fall further in 2010. Many over-priced
leases were signed during
the boom times, and with vacancy
rates continuing to rise, many
landlords
are more willing than ever
to renegotiate to ensure they
keep the vacancies under control. Before you enter the negotiation, make sure you
do your homework and be
prepared with comparable leases
that have
been signed recently. In
many cases,
it's well worth the investment to hire a professional to handle
the
renegotiating for you. The
Challenge: Price/Cost
Instability The
saving grace of 2009 for many
restaurateurs was the decrease
they saw in many commodity
costs. After several years
of rapidly escalating food and energy
costs, decreasing costs were a welcome reprieve that made sales declines easier to accept. 2010 is
less likely to
be so kind to us on the cost side, and consumer weakness will
make it
very difficult to pass on cost increases. The
Discounting
Most restaurants engage in price discounting without even calculating their breakeven on the discount. When you lower prices to attract more customers, you also need to know how much money you're risking if the discount fails to generate sufficient incremental traffic to cover the discount that was extended to customers who would have paid full price anyway, or who trade out of profitable purchases. Discounting is an investment and should be quantified in the same way that you quantify other marketing expenditures. In the current economic environment consumers are responding strongly to discounts, but if the discount is too low or on the wrong items it could result in less money in your pocket, even if you are bringing more people in the door. Price
Increases
Many restaurateurs will try to pass on every dollar of cost increases to the customer through across the board price increases. Others will keep prices where they are or lower them in fear of consumer backlash. Neither is a winning strategy. Price changes which target menu items least likely to result in any negative guest reaction will help you manage increased costs. Traditional menu engineering techniques are a great place to start to improve profit with better menu layout and is often well worth the investment in expert advice in this area. Start by making sure you know the plate cost of every item on your menu. Next, review your vendor statements and identify the items with the highest price volatility, then make sure your recipe costs are not designed around optimistically low costs. Isolate the least profitable items and either re-work the recipe to yield more profit, or if they are low sellers eliminate them altogether. The Challenge: Mega-Chain Competitor Advertising Chain restaurants with the largest advertising budgets have been pounding the airwaves with discounted food messages in an effort to drum up business. Smaller operators don’t have the financial wherewithal to either compete with large media budgets, or to go head to head on price discounting. The
There
has been plenty of buzz about the power
of social
media, and while I tend to be
skeptical of
anything that has been as hyped as Facebook and Twitter, the truth is that social
media is the most important development in product marketing
since the
advent of television
advertising. Social media
can have the strength and sincerity
of word-of-mouth advertising, but
with the
ability to amplify an
authentic sentiment
as loudly as television advertising.
It
allows businesses to talk with
their customers (and potential
customers), not just at them.
Smart businesses are not only
learning how to get
their messages out to potential
customers, but are learning to
listen to and act on feedback
they receive.
Engaging in an ongoing dialogue with customers in an industry
that is inherently social is
powerful, and smaller
businesses can deliver
this with a much deeper level of
sincerity than the big chains. Effective use of this medium has the potential to level
the playing field with the big budgets of the large chains.
Reprinted with permission from Cayuga Hospitality Review. All rights reserved. |
Contact:
Cayuga Hospitality Advisors |
Also See: | Make
Sure the Right Contingency Plans Are in Place; Secrets of a Hotel Asset
Manager / Jim Burr / October 2009 |
Update
on Adoption of International Financial Reporting Standards (IFRS) for
the U.S. Hospitality Industry / October 2009 |
|
Do
You Think Like a Leader or a Manager? / William P. Fisher. Ph.D. /
October 2009 |
|
A
Wake Up Call, The Shadow of 9/11: Terrorism and Premises Liability for
Hotels / Carroll Dubuc / September 2009 |
|
You
Need to Reset Your Exit Strategy / Jim Burr / September 2009 |
|
The Electronic Guestroom / Jules A. Sieburgh / September 2009 | |
LEADERSHIP: The Basis for Management / William P. Fisher Ph.D. / September 2009 |