Episode Transcript
[00:00:01] Speaker A: So even if we're not heading towards a full blown recession, I think we've all felt this slowdown. I originally recorded this episode months and months and months ago and a lot of it has come true, but all of it still holds. If we're going to a slowdown, if this slowdown is going to continue or worsen, there are three things we need to do. This episode is laser focused on teaching you what three things you need to do when you hit a slowdown. Don't go anywhere.
There's an old saying that goes something like this. You'll only find three kinds of people in the world. Those who see, those who will never see, and those who can see when shown. This is Restaurant Strategy, a podcast with answers for anyone who's looking.
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[00:01:01] Speaker B: My name is Chip Close and this
[00:01:02] Speaker A: is Restaurant Strategy Podcast dedicated to helping you build a more profitable restaurant. Each week I leverage my 25 years in the industry to help you build that more profitable and sustainable business. I also work with owners and operators all over the country through my P3 mastermind program. This is a group coaching format geared towards successful businesses, businesses that are driving a lot of revenue but struggle with profitability. So if you want to get consistent, predictable 20% profits, the way to get started is to set up a call with me or someone from my team. You go to restaurantstrategypodcast.com schedule, find some time on the calendar. We will chat about what's going on. You'll get to ask questions of me so you understand the program. I'm going to ask a lot of questions of you so I understand what's going on in your restaurant and we'll see if you are a good fit. There's absolutely no pressure calls absolutely free. It's 30 minutes for us to get to know each other better again. Restaurantstrategypodcast.com and yes, that link is in the show notes.
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[00:02:54] Speaker B: Now, today's episode is going to be short and sweet. I've been talking to a lot of people, clients, members of the mastermind that I run. I've been talking to a lot of people at the events that I've spoken at over the last couple of months. And there's some debate about whether we're heading into a recession. Right? It's certainly other countries around the world. If you're, if you're out beyond the United States, it may have already hit you.
I was in New Zealand in June and July and it is definitely hitting them there. So anybody from New Zealand listening, I know you guys are feeling it and we are sort of teetering on the edge. All of our government officials are trying to, you know, drop us in for a safe soft landing. And the jury's still out on whether that's going to happen or not. Here's the bottom line, though. Whether we have a complete slowdown and a, and hit a recession in the next couple of weeks or months, or whether it will happen in a couple of years, the, the reality is it will eventually hit us. It is, it is inevitable that this, the, the way the world economies work is that it's cyclical. So I think there are three things you need to do to prepare yourself for any slowdown. Here's the interesting thing, as you'll hear as we go along in this episode, it's the exact same things you need to do to create a profitable business in all climates. It's just especially acutely important during a slowdown. So three things we're going to walk you through. We're going to be again, short, sweet episode. Let's get right to it. The number one thing you need to do is manage your expenses. You need to be very aware of keeping key expenses like labor and cogs. You need to keep those expenses tethered to revenue. And it's going to be especially important because as revenue goes down, everything else, specifically your fixed expenses, right, your rent, your utilities, your insurance, all of those will feel larger, they will loom larger because they will take on a greater percentage of your expenses of your budget. So it becomes even more crucial that you understand the levers available to you to manage the other key expenses. Right? They say control the controllables. The controllables, for the most part, are cogs and labor. You can affect what products you buy how much you pay for them and how much you charge for the items on your menu. That is a controllable cost. Just like labor. You can control how much you pay people, how many people you staff.
You can control that. Now there are certain things that make that challenging. Certainly in this climate right now those factors are easing. But still, when we say control the controllables, those are our controllables. Cogs plus label or labor equals prime cost. So you'll hear people talk about that used to be 50% and we, we say 55%. Now the number is really 60%. You need your prime cost, meaning COGS plus labor at or below 60% in order to have a fighting chance at having a profitable, sustainable, long running restaurant. That's the number these days. I always talk about my 30, 30, 20 rule. 30% COGS, 30% labor, 20% for everything else. It absolutely works. It's a rule of thumb. It's not going to be that for every restaurant, certainly not for every concept in every market. But a good rule of thumb is 30, 30, 20, 30 plus 30 plus 20 equals 80, 100 minus 80 equals 20. If you can do that, if you can keep your expenses at 80% of revenue, you will generate 20% profit, 20% of the bottom line. If you do that in a slowdown, it becomes even more crucial to put really good restrictions guardrails to provide oversight for those key areas. If you don't already have a program like Margin Edge, you need to program like Margin Edge to manage your cogs. If you don't already have a top in class scheduling software like seven shifts, you need to get yourself a program like seven Shifts. Something to manage your inventory and your cost of goods, right? Especially with daily price fluctuations. And then something to manage to keep track of your labor.
Those two pieces. A program like Margin Edge and seven Shifts. They're sponsors on this show because I love what they do. They are sponsors because I approach them. I said, said I love these programs. I recommend them all the time anyway, would you come sponsor, be a part, show some support for the work that we do on this show. And they both said yes. And they've been sponsors now for years. I love their products, I love the software, I love what they do for restaurant owners. So you need Margin Edge and seven Shifts. You need programs that can help you control your controllables. That's the number one thing you need
[00:07:45] Speaker A: to do in a slowdown.
[00:07:47] Speaker B: Guess what? Like I said at the top, it's something you need to do anyway. But in a Slowdown, it becomes even more crucial. Again, think of that 30, 30, 20 rule. You need cogs and labor to be no more than 60. That's prime cost. You need to be no more than 60 in order to have a fighting chance of being profitable.
Then the second thing you need to do is think about creating a differentiated product.
Your experience. A meal at your restaurant is the product you're selling. And that product needs to be something so different, so unique, that people can't get it anywhere else. Now, I'm going to stop you right there because I know you're going, well, my. I run a pizza place. Fine.
But don't get into this commodity game. Pizza is pizza is pizza is pizza is pizza. You need to be able to have something that no one else has, because otherwise why would someone come to you if you play the commodity game? I've said this on past episodes, right? Commodity product, right? The definition of it says that all things being equal, consumer will base their decision on one of three criteria. Convenience, familiarity, or price. Right? You are never going to be able to compete on price. It's a race to the bottom.
You are never going to be able to compete on convenience. We are not Subway, we are not McDonald's. And you can't. You can't necessarily compete on familiarity because there are other more famous brands out there. If you run a pizza place, you're up against a bunch of other famous national chains, not to mention all the other famous local brands that you compete against. It is a race to the bottom.
If you have to compete on familiarity, convenience, or price, you will never win that game. You don't have the purchasing power, you don't have the marketing dollars to win that game.
So how do you win that game? You win that game by creating a differentiated product, by having something that nobody else has, by providing an experience that is different than anything else out there.
So when people think of you, they think of something different they can't get anywhere else. No, we gotta go there. Because they're the only place that has that dish or has that vibe or has the kind of personality at the table or whatever it is. However you fill in the blank, different people make decisions based on different criteria. You have to understand why people make decisions, and you have to separate yourself from everybody else out there. If you got a pizza place, you're in a category with 30 other pizza places. If you run just a sushi shop, right? You got spicy tuna, you got rainbow rolls, you got tuna, you got salmon. You understand what I'm saying? If you Run one of those places. How do you stand out on Uber Eats or Doordash? You don't. People are looking at the delivery time, people are looking at the price, people are looking at the ratings. Right? You can never win that game. You want to be the thing that people go seeking out rather than going, I want sushi, let's figure out what's out there. You won't win. You won't capture enough dollars to do it. And in a slowdown, it becomes incredibly crucial. See, here's the thing. In a slowdown, in a recession, people think, oh, everyone's tightening their belt. They're not spending as much money.
It's not exactly true. What happens is they're tightening their belts, but they're not looking for cheap deals. They're just going out less. But what happens is when you go out less, you want the times that you do go out to be meaningful, to be worth it. Well, if I'm going to spend the money to go out, I want it to be worth it.
So people aren't going to just get a deal. They're not going for the cheapest option out there.
This is again, a common misconception. When we talk about sort of huge economic focus fluctuations. When we talk about things like a recession during a slowdown, it means that people are going out less, but they want more from the experiences they get now, it's not necessarily like they're going to. Every time they go out, it's fine dining. It might just be the burger place, burger and a beer. They just want to know that it's worth it, that it's worth them going out. That's the second thing you need to do. You need to double down and create a differentiated product. If you can be gotten anywhere else, people will go elsewhere because those other places are probably more convenient. Those other places may be cheaper. Those other places shouldn't be in competition with you. You should be in a category all your own. Or if you're in a category, you should stand out really clearly. So it's not even a competition. People are like, oh, yeah, that's where we're going to go. We're going to go to that place.
So, number one, you got to manage your expenses, you got to forecast, and you got to build budgets and keep even tighter control on your budget. That's the number one thing. We do it anyway. You got to do it more. Then number two, you have to create a differentiated product. Again, this is rules for branding your. Your company. It's even more important in a slowdown in a recession.
Now, Sterling Douglas is the co founder and CEO of a company called Chowley. Chowley does so much for this industry. And I want you to hear a little bit from Sterling.
[00:13:13] Speaker C: We talk a lot to our restaurants about this idea of return on time. Everybody talks about roi, like return on investment. And a lot of restaurants do that when you're a smaller operator, when you're one, two, three stores. And as the owner or kind of the lead operator, your time is actually your biggest resource.
And making sure that you're spending time on the things that are getting maximum impact is critical.
And so when I think about operators and I think about optimizing for Google and making sure that that's done, it's less about the money, it's more about the time that it takes. Because not only the one time, kind of like set up and fill out all the fields, there's constant upkeep. And Google changes it so often there's a bajillion different metadata fields that you can put on there. And the way that Google tends to rank whether your restaurant shows up is how much information you have given them, because they believe that the more information you give them, the more the customer wants to see it. Right? And typically, the more data you have in Google, the more likely you're going to be to answer that question and give the information that consumer is looking for. And that's what Google loves.
[00:14:21] Speaker B: If you want to learn more about Shali, go find the link in the show notes.
Finally today, then, the third thing, and I can't stress this enough, I feel like I was saying this on the very early episodes of the show, and then the pandemic hit and I was sort of proven right.
You need multiple revenue streams. You need to be able to serve your people in whatever way they wish to be served. So if there's something that we learned through the pandemic, it's that if we made our money one way, right? If a restaurant out there only offered in person dining, meaning people came in, they ate, they paid for what they consumed, and they left, we obviously got screwed during the pandemic because we couldn't go out, consumers couldn't go out anymore. So we had no business left and we had to. There's the P word. We had to pivot.
The problem, though, is that our people need a lot of different things in their lives and we're actually probably uniquely qualified to provide a whole bunch of things to them. We just didn't realize that until the pandemic. Again, I was talking about this pre pandemic. I was talking about it straight through the pandemic and I want to remind you about it now.
It may not be as dire as it was in March 2020, but it's still important and you'll feel it as we go along. I've got clients now in cities that are sort of suffering again with crime and homelessness. And guess what, it's impacting their business because they're in neighborhoods that aren't well policed, that there's drug deals going on outside, there's homeless people sleeping in the park right next to them. People don't feel safe. So people, the revenue is going down.
And one of the things we talked about are, have we exhausted all the revenue streams they're catering for? This one property is way up. A lot of their other satellite businesses that revolve around the main business are way up, but in person, sales are down.
This will happen in the natural life of a restaurant. What I want you to do is be prepared, have a lot of different ways to serve people. Because in a slowdown, let's say in a recession, people might not be going out for dinner. It may be too hard. Maybe they're working a second job. Maybe they just don't have the time to go out.
That doesn't mean they're going to cook at home all the time. There's plenty of nights that they don't want to cook at home, they don't have enough food at home, et cetera.
What they might do is just order in.
So could you serve them in that way?
Could you serve them retail products, merchandise, cooking classes, kids classes? I don't know. But think of different ways that you can serve them right? So the best part about the pandemic is that this, this pivot, right, we pivoted. A pivot simply means you looked at your audience and thought, what do they need?
The thing that they used to come to me for, they no longer need because we were all trapped in our houses and diners couldn't leave their houses. They didn't need an in person dining experience. They weren't allowed.
They still didn't want to cook for themselves seven days a week. That's why takeout and delivery surged, because they just thought, I can't, I just, I'm bored.
I'm just too tired because I'm now working at home and taking care of my kids and all of that stuff. I just want to be taken care of. Which is the same reason they came to us before.
It's just the product is different.
So the same thing applies here. You need to look at your people and say, what do they need that I'm uniquely qualified to provide?
If you can ask that question and really think about the answers to that question, you will come up with all kinds of different ways to serve them, right?
Retail merchandise, takeout and delivery, off site catering, private dining, in person dining, cooking classes, kids cooking classes.
I don't know.
My gut tells me you're smart and you can figure out different ways. And I would come up with a series of different, series of different products that you can offer them.
So that's it. That's all I wanted to talk about today. If we've got a slowdown coming, if the recession is looming and it is going to hit, if that's the case, and I don't know, nobody can predict the future.
But the three things I think you need to do, that's those are it. Number one, manage your expenses even more deliberately than you're doing now. Number two, make sure you've got a differentiated product, that somebody knows why they would come out to you.
Be the clear choice across categories.
And then finally, finally, number three, you need to identify multiple revenue streams because people still need stuff, they still need stuff from you. You're uniquely qualified to provide something.
It just might be different than the thing that you served, that you did them, provided for them before.
That's it. If the slowdown is coming, those are the three things you really need to focus on and double.
