Restaurant Turnaround. How to Save a Failing Restaurant
April 2, 2020 • 11 minutes
After the coronavirus crisis, we’ll see an unprecedented number of troubled restaurants. Even previously successful brands might find it difficult to reopen and get their customers back. It’s the moment of truth for every restaurant owner. Under the pressure of the crisis, people don’t have time anymore to procrastinate and have to make hard choices. Whether you’ve been looking for a way out for quite some time or you are determined to save your restaurant, you should take action because it's now or never.
Despite all the challenges, you might feel like it’s not yet time for you to build an exit strategy and your restaurant deserves a chance. How should your restaurant management team use the current pause in operations? It’s your chance to build a stronger business with proper systems in place. Three food service professionals have shared their views on restaurant crisis management and turning around struggling restaurants. Read on about things you should do during the next one or two months of quarantine to revive your restaurant.
Choose between shifting to takeout or closing for quarantine
Even typical delivery-model businesses, like pizzerias and quick service restaurants, experience a decline in sales. Most of the independent restaurants that hadn’t dealt with delivery before have already faced formidable hurdles with launching it. For the majority, offering a takeaway is rather about keeping in touch with customers than about earning money. It’s worth the effort only if you have a lot of loyal patrons and know how to reach them. The crisis revealed how many restaurant owners hadn’t used CRM systems properly and undervalued the importance of maintaining their customer bases and email lists.
Patrick Wimble, Managing Director of Lightbulb Consulting, emphasizes that if you decide to continue operating under the COVID-19 restrictions, your focus should be on building loyalty with your customers. If you don’t have a strong following in social media it would be quite challenging to build it fast. In any case, you should use every available communication channel to let people know you still have something to offer them.
‘Review your menu. Only the items that have the highest profit and popularity AND would still look and taste great after sitting in a takeaway container for 30 minutes should appear on your takeaway menu. Load the reduced menu on your website, Facebook page, etc., and communicate the specials. Lastly, include a printed «thanks for your order, we truly appreciate it!» message that sits on top of the delivery. It reminds customers we are all in this together and they have helped by placing their order with you.’ — Patrick Wimble
Unfortunately, the experience of restaurants that have already tried operating under the COVID-19 restrictions shows that you can count on getting just 15% to 30% of your business. That’s why if you decide to stay open, strive to operate in the most cost-effective manner possible.
‘Once identified, pricing remains key. Price sensitivity will be different for all restaurants dependent on location, type of food, etc. You should not assume that you can charge the same price for a dish as you would always do. Adjust your prices. Probably the best way to give value to your customers is to bundle products together i.e. include a low-cost side dish in the price.’ — Patrick Wimble
In the matter of launching an own restaurant website for online ordering, you can count on quick solutions offered by marketing agencies or restaurant software vendors. For example, businesses that use our restaurant POS system now have access to the Poster Shop app and can launch their own online showcases in one day. The app integrates with Poster POS, allows importing takeaway menu items from the system, and includes ready-to-use restaurant website templates.
Take this time to turn your restaurant around
When business is operating normally, owners and managers are caught up in the thousands of daily details. With the unexpected always around the next corner, planning ahead becomes a challenge. Although every business owner wants to create systems that will make their business more productive, more accountable, and more profitable, most of them never find the time to do it. Today's crisis motivates restaurateurs to finally stop procrastinating and figure out how to save their failing restaurants.
Roger Beaudoin, Personal Coach and Host of the Restaurant RockStars Podcast, suggests that, if you are determined to retain your restaurant team and customers, you should use this pause in operation to introduce proper systems in your restaurant. Roger’s advice is to spend the next two months working on your: cost control and profitability, menu engineering, staff training, and marketing firepower and affinity.
‘Far too many restaurant managers do not take inventory properly. By doing it ‘properly’ I mean calculating the total value of food and beverages in stock weekly, calculating the food and beverage cost percentages, determining your restaurant’s sweet spot. ’ — Roger Beaudoin
Your turnaround strategy should be centered around evaluating your current practices, reducing your overall expenditure, and improving your cash flow. You can start with your inventory taking procedures because it’s a common problem for many restaurants: they don’t do it effectively. You should establish a fast and accurate procedure for taking your inventory weekly and checking key performance metrics to reach consistency in the product usage and optimize it until you are comfortable with your cost percentage. After you see your actual product use and cost, you’ll adjust prices on your menu.
‘Quite often restaurants have items in each menu category that contribute varying profits. If low-profit items become bestsellers, restaurants start losing their money. It happens because the lower-profit items take sales away from higher-profit ones. Spend some time analyzing your menu and figure out what items bring you the most profit and how they sell. Then, re-design your menu to make all items in the same category contribute a similar profit.’ — Roger Beaudoin
After getting your operations in order, you should focus energy on training your staff to eliminate their knowledge gaps, draw out their strengths and fix their weaknesses. Staff introducing themselves by name, having a strong knowledge of product and restaurant, and suggesting ‘favorites’ at each stage of the meal will pay dividends in happier customers and increased sales.
‘When sales are slow and the future is uncertain, your restaurant needs to take every possible sales opportunity. Allowing «Order Takers» on your floor or over the telephone leaves lots of money on the table instead of in your bank account.’ — Roger Beaudoin
During the turnaround, you’ll have to look at your labor expenses. Most probably, you’ll have to let go those who don’t bring much to the table. However, the most important is to lead your restaurant through culture and talent transformation. Reconsider employee responsibilities, shifts, protocols, incentives, etc. to improve your team’s motivation and discipline. Analyze the data for several past pay periods to find and eliminate the causes of inconsistencies in your labor expenses.
‘Determine the labor cost percentage by dividing the total cost of your payroll (including wages, taxes, and fees) by total sales. Calculate front-of-house labor cost percentage and back-of-house labor cost percentage separately and compare those numbers for different periods. Dig deeper into the variance to determine the reason why it happens and take measures to eliminate it in the future.’ — Roger Beaudoin
After reopening it would be quite difficult to bring your business back into good shape. You’ll have to figure out how your key sales drivers have changed. Your usual approach to marketing and advertising may lose its relevance and most probably won’t help you save your restaurant.
‘When you mention marketing to most restaurant owners or managers, their first thought is advertising. I’ve always believed that traditional advertising is a shotgun approach. Casting a broad net and hoping the more people that see the ad, the more people will come to the restaurant. This is a very expensive approach. Restaurants can spend tens of thousands of dollars per year on radio commercials not knowing if the campaign works.’ — Roger Beaudoin
Having problems with cash, you can’t count on starting a scale marketing campaign two weeks before the reopening and getting your business back. It means you should continue communicating with your customers even while your restaurant is closed. These times your customers are online and they are missing the good times they had in your location.
‘The more effective approach is to build «Affinity» with customers, defined as a powerful sense of loyalty or belonging. Now with some idle time, while you’re waiting to re-open as normal, you can brainstorm some of the following proven «Affinity» programs: mug clubs, newsletters, birthday promotions, etc.’ — Roger Beaudoin
Think about trying unusual approaches to communication with your customers: live streaming, inviting your loyal customers to online parties, Q&A sessions with your chef and bartender, online culinary master classes, etc. This way you’ll stay in touch with your patrons and establish even a stronger emotional connection with them.
Take every opportunity to receive financial aid
One of the biggest mistakes an owner of a failing restaurant can make is waiting too long to get help. Most probably you don’t have a liquidity cushion big enough to weather this unprecedented restaurant industry downturn. You should identify and prioritize your opportunities to fund your restaurant’s reopening: selling the assets that your business can do without, getting loans, etc.
Fred Stampone, Senior Restaurant Consultant at AccessPoint Group, emphasizes that surviving the post-coronavirus times may depend as much on restaurant owners’ perseverance and temperament as it does on their financial acumen, hospitality and culinary skills. In the situation when everybody is facing the undeniable urge to panic, he advises to stay coolheaded, find out and use every financial support provided by the government and private sector to revive restaurant businesses.
‘The Keeping American Workers Paid and Employed Act through its Paycheck Protection Program, provides immediate cash injections for restaurants and other small businesses that have less than 500 employees. This Act was included in the $2 trillion Coronavirus Aid, Relief and Economic Security Act (CARES), the largest economic stimulus package in American history.’ — Fred Stampone
Fred Stampone explains that under the Act, businesses can secure a non-recourse, uncollateralized loan. Much or all of the loan will be forgiven depending on how much you borrow. That can be used for payroll costs, continuation of group healthcare benefits, interest on mortgage obligations, rent, utilities and interest on any other debt obligations.
You are eligible to borrow if you’ve been in business since at least February 15, 2020, and have had employees for which you’ve been paying salaries or payroll taxes, or paid independent contractors. The covered loan period begins on February 15, 2020, ends on June 30, 2020 and the application must be submitted during this period. Lenders decide eligibility, not the SBA, and lenders must waive borrower and lender fees. Use this cash and the opportunity afforded by it to renew a commitment to run your restaurant like the business it must be. Follow the advice given in the famous song with lyrics by Dorothy Fields: ‘Pick yourself up, brush yourself off and start all over again! ’ — Fred Stampone
Restaurant turnarounds are difficult, however, they are the deep transformation that almost every business will go through these days. In times of trouble, your team needs to feel there is a plan for success. The restaurant industry will never be the same. If you want to stay in business, you have no other choice than build a strong restaurant turnaround plan and adapt to the new reality.
