Since mid-March, restaurant operators have been asked to survive on 50 percent of their capacities or 50 guests; whichever is fewer. Restaurants have had to reduce their menus down to only items that can be transported and sell their souls to the likes of DoorDash and Grubhub, which for a mere 25 percent service fee will gladly provide a lifeline to homebound guests.
Despite being closed due to the stay at home mandates, operators were subsequently directed to use their PPP funds to immediately rehire staff, many of whom found it safer and in some cases more profitable, to remain on unemployment. Adding to the chaos, operators were told they couldn’t sell booze to go, then they could, then they could but only until 10 p.m. Finally, several states threw their chips in the middle and allowed restaurants to reopen their dining rooms—well, kind of anyway. The plexiglass barriers, socially distanced tables, server masks, hand sanitizers, and cleaning so much that the Clorox smell fused to restaurateurs’ bodies has made for an unforgettable dining experience, and not in the good way. One thing is for sure; no one’s primary concern is about misquoting a wait time anymore.
There is uncertainty regarding how long the restrictions will last which creates anxiety for both the operators and their team members. The only experience that any operation has to a pandemic is when that restaurant was opening their business for the first time. It’s the last time where an operator had no sales and cost history, no brand awareness, no consumer base, and limited cash. It’s essential that, now, an operator must draw from that experience and use the same tools in order to navigate through the pandemic.
Here are three top three tools for an operator to turn a profit in the restaurant industry’s current state:
Break Even Analysis
Often overlooked, the Break-Even Analysis (BEA) Enables an operator to determine the minimum sales and cost structure for staying afloat. Unlike a budget or a proforma, a BEA combines both the operational sales and cost targets as well as the balance sheet (specifically, debt servicing) obligations to demonstrate the bare minimum necessary to achieve profitability. It shines a bright light on the existing opportunities based on actual performance and enables you to model them in order to achieve profitability.
Traditionally determining revenue targets has been based on Revenue Generated Per Square Foot (RPSQFT). This has enabled restaurants to determine how much money the operation can deliver based on its physical structure. This traditional approach will not work as long as the restaurants have limited dining capacities. They wind up overstating the potential revenue and lead to making some really bad decisions. We found that when we changed the model to Revenue Generated per SEAT (RGPS) we were able to accurately determine both sales and cost targets with far greater accuracy. This also allows the operator to consider the necessary reductions that the operation needs to make to its Labor dollars and COGS related purchases. Most importantly however, is that the RGPS enables the operator to clearly see how much revenue the operation needs to make up due to the exact number of lost seats. This allows the operator the ability to determine whether closing the in-house dining and focusing on delivery only provides the business with the greatest chance of survival.
Pivoting a brand requires a budget; it’s the Michael Jordan of restaurant operations survival tools. In fact, operators who utilize budgets consistently yield 6-9 percent higher net profits than those without them. They simply aren’t optional. Restaurants may have gotten away without a budget in place when they first opened (x) years ago, but don’t think twice about going without it during these uncertain times. A budget will enable an operator to make changes quickly and avoid spending any unnecessary money on ideas that aren’t working. Furthermore, a branding pivot is necessary right now, and it requires a budget as well as the same unshakable tenacity and optimism with some hard-earned treasure in order to regain guests’ trust.
Just like when a restaurant first opens, training is about instilling confidence in their team. Higher staff confidence instills the needed trust from guests that their dining experience is safe. Wearing a mask, adding plexiglass, and closing sections all have an irrefutable psychological impact, so training for the new normal enables a team to adjust to the myriad of necessary changes that will help to pivot a restaurant’s brand.
Restaurant owners and operators must believe that the pandemic will end and that their businesses will survive. The tools mentioned above are not new, but just like everyone’s businesses, they have all been adapted to provide a path for operators to achieve success. Used properly, the break even and budgeting will provide facts vs fiction, and the staff training ensures everyone executes properly.
As a fourth-generation restaurateur, Matt Vannini is well versed in the ins-and-outs of the restaurant industry. At age 23, Matt opened his first of three restaurants. After successfully running and eventually selling his operations, Matt went on to work for Corporate Group Red Robin, training and educating and educating on-site general managers on effective restaurant management and operations. Matt has also worked for Aloha point of sale systems as a Program Manager, increasing his knowledge of back-of-house software and how to effectively integrate such systems into everyday operations. Today, Matt holds the position of both President and CEO for RSI. He is responsible for establishing the direction for and ensuring the success of, RSI and its related companies. He subscribes to a service first leadership style. Additionally, Matt still provides guidance and input for client facing development items. Lastly, Matt also has integrated RSI into the Hospitality Program of University of South Carolina at Trident Technical College.