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Foodservice in a Recession

“So how’s business these days?” you ask foodservice operators.

“We are screwed.” says a multi-cuisine caterer. “We aren’t affected at all” says a high-end restobar operator. “We are only experiencing a 25% reduction in sales.” says a mid-level Indian cuisine restaurateur. “We have actually seen an increase in sales over the past six months.” says a multi-national pizza chain operator.

Everyone’s reality is based on their own experience, depending on which kind of foodservice business they operate, and at which point in the life cycle their business is at. Couple this with varying degrees of candidness or social correctness and you have the diversity of answers we hear these days.

What everyone is clearly working on with focus however, is improving – operational efficiency, cost effectiveness, and most importantly, customer-centricity.

Operational Efficiency

Many entrepreneurs and managers are doing “step-down” jobs – essentially what their subordinates were supposed to do these days; partly because they are stressed about the possibility of losing their business or their jobs, and partly because they may have already let a few of their team members go and are short-staffed. While ordinarily this is considered to be inefficient management, the fact remains that extraordinary times call for extraordinary actions.

As the execution of tasks and the value of time become increasingly crucial, so does the prioritization of tasks in order of their importance.

Going back to basics, very simply it is the important and urgent tasks like meeting customer demands that come first (if you don’t have a customer, you don’t have a business), followed by meeting shareholder demands (if this is not being met, the intent of the promoters will dissolve and the business will no longer exist).

All initiatives of a business inevitably stem from these macro objectives, not just normally but particularly in present conditions.

Cost Effectiveness

In a situation where demand and sales are random and uncertain, slashing costs ruthlessly is the greatest temptation. However, beyond a point a business cannot reduce its costs without compromising on the delivery of its promise. So what do we do?

Considering each cost component of our business one at a time and seeing which of them can be rationalized and how, would be the best way forward. Let’s look at a few....

Rent is inevitably still the highest fixed cost. While property owners will rarely if almost never reduce the rates agreed upon, a restaurateur loses little by attempting to re-negotiate with his landlord... particularly businesses that have started recently at peak rentals. A revised minimum guarantee rent or percentage of sales (whichever is higher) may work better now more than ever before as it offers respite for the foodservice operator as well as guaranteed (though lower) returns for the owner. Appealing to the humane side of a landlord with a view to convince him to encourage a long term relationship while contemplating the present scenario, though logical and worth trying, rarely evokes a positive outcome. Many believe that now is a good time for new businesses to enter a viable rent agreement. The reality is that apart from malls which appear to be more willing to negotiate better rentals, few property owners really offer substantial reductions per square foot. Further, it is believed that entering business at this point of the economy is likely to mean breaking even at approximately the same time as coming out of the recession. While there is a good likelihood of this happening, it is also true that alongside lower rents today, there are currently also lower footfalls, thus delaying the breakeven point of the business.

Manpower usually comes next and axing people is often an apparent and obvious choice financially though considering that we are The People industry, it is also an apparent and obvious concern. Let’s go back to basics on this issue for a moment. The underlying reason for the existence of a human resource within a business is the need for a skill set group that can execute the business vision. As the need for an employee stems from the need of the business, it is the need of the business which will always remain primary. The phrase Human Resources comprises of two parts: Human – which to my mind represents the emotional and Resource – which to my mind represents the economic part. In a booming economy, talent has several employment options so it is the need of the business to retain talent by taking initiatives that support retention. The “human” part thus takes precedence and employees are pampered... sometimes to ridiculous extents. In a receding economy, the need of the business is to conserve resources, so often the “resource” / economic part takes precedence over humaneness. While this includes letting people go, the most unfortunate part is the pathetic and insensitive manner in which this is often done. In such a situation (when even those retained know that it could be them next), motivational talks are of little consequence and the business has effectively dug its first step into the ground.

Some circumstances do warrant the amputation of a business division / alteration of a business model, but what eventually matters is the way in which it is done. When Delta Airlines, USA for instance filed for Chapter 11, it was no longer viable for them to fly to India the way they were, so they continued to fly to India but... differently! They offered a good VRS to all Indian employees while sensitively orienting them towards all possible career alternatives and meticulously preparing them for what lay ahead. They used their existing American crew to cover the new 15 hour (non-stop) flights and outsourced their Indian maintenance team. They were able to thus successfully prioritize their business agenda without the need for unions to fight them on this... a win-win situation for all concerned.

In today’s scenario for instance, a business promoter / CEO / CFO inevitably deems which costs are considered to be necessary, desirable and luxury based on his actual inflow of cash today and his likely inflow of cash in future. If the business just can’t afford a certain resource however competent or loyal, from where will it get the cash to pay even its desirable resources... when its own survival is threatened?

Likewise other costs must be duly and fairly accessed for potential in reductions.

Customer-Centricity

Value is something that even the wealthiest look for in an offer. Of course value means different things to different people and depends on the nature of the proposition as well. In a mid-level proposition, toys for kids given free with special meals for instance may be considered value; while in a high-end place it could be personalised chopsticks with the names of loyal patrons engraved for use when they visit.

The customer is always measuring your offer in terms of quantity and quality in relation to the price he pays. He quickly accesses his expectations based on the type of format (kiosk, sit-down etc.), the level (casual dining, fine dining etc.) and compares it with other similar propositions in the market place. Propositions that keep evolving their offer to meet customer needs and wants, survive; while those that exceed customer expectations, thrive.

Brands that engage their guests by providing an all-round sensory experience, make memories for them that result in a greater emotional connect. This is what generates loyalty to the brand.

Delivery of guest satisfaction these days would involve a more conscious listening to of guest feedback in terms of needs and wants, and adapting your proposition accordingly. So bundling products to offer value combo meals at a mid-level brand for instance is likely to be well received.

A focus on these areas is most likely to give rewards to the overall development or evolution of the business through this phase of the economy. Either way, the new economy has forever changed not just the way we view the economics of our business, but also the way we view its dynamics.

 


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