The COVID outbreak has directly impacted the Restaurant Industry forcing many restaurants around the world to shut down . Those that have remained open, have had to limit their transactions to only Take-Away or Delivery models. As a result, revenue drops have been significant, decreasing turnovers to approximately 80% lower than the budgeted
Understanding the current angst of restaurant owners!
Restaurant owners are facing a severe cash crunch in the short-term and are unable to meet the day to day needs of daily operations- ranging from paying rents to wages. Even successful restaurant brands are not immune to the impact and with the pandemic reaching countries across the globe, it leaves restaurant owners everywhere vulnerable with such “extreme uncertainty”. When are things going to go back to normal? Should I shut down for good? To add to the woes, there is also the “moral dilemma”, whether to pay the employees during closure or if it is fair to negotiate a pay cut. Many restaurant staff salaries are marginally above the minimum wage barriers established by the Labor bureau and staff depends on this to run their simple and modest household expenses. Can the low paid waiters and cooks survive if they don’t receive a salary? These short-term concerns as well as more long-term concerns of a failing business that may never revive together with financial and emotional well-being of the restaurant owners themselves can be overwhelming to say the least.
So, what can we do to limit the collateral damage?
Let’s talk about the main issues and problems for a moment.
- – Significant drop in sales: Collections are so much lower than forecasts and the bank balances are dwindling fast.
- – Cost of Employees: these are not limited to cash salaries payable every month but includes social security contributions, individual income taxes, staff meals, uniform laundry and other basic benefits.
- – Cost of Premises: Rental-commitment to landlords for the restaurant and in some cases for company provided staff accommodation
- – Cost of Goods Sold: What’s the current status of Accounts Payable? Are any Vendorsthreatening to stop deliveries if payments are not made? What does this obligation amount to?
- – Cost of Operations: Utility Bills and other day-to-day operating supplies
Over the last 25 years, I have personally witnessed the restaurant business go through several ups and downs- Y2K in 2000, SARS in 2002, Tsunami in Asia 2004, Swine Flu in 2009, Civil Wars, Terrorist Attacks etc. These force majeure events arrive unexpectedly and are beyond our control putting us into a “PURE SURVIVAL” mode.
Can Restaurants recover or prepare? What can restaurant owners do? Is there hope?
Here’s are 5 TOP Tips that have proven to be effective in controlling costs during such situations
- Dare to Negotiate: Write an official note to the landlords- Please do not stop with phone calls and meetings. Send an official note and take a read receipt. Ask for the following in ascending order – As for a rent -free period if your business is shut-down; reduced rentals for the next six months and finally lean towards a revenue share arrangement wherein you can offer upto 15% of the turnover. Be persistent!Ask for deferred payment schedules and ensure you are on top of the game. Every day that you delay would make your case weaker.
- Review your Inventory– As business is very uncertain, it is important to ensure that the inventory levels are kept to bare minimum. I would recommend a 5 day thumb rule which means your stock in hand should be between 15-20% of your monthly purchases. This also means you carry stock that would be enough only last for 5 days. If you have non- moving stock, call your vendor and ask them to take it back in exchange for fresh deliveries. Remember inventory is directly linked to cash, it is imperative for you to be frugal with costs and don’t’ burden the cashflow
- Simplify the menu offering– Conduct a quick Menu Engineering exercise to pick out the top sellers. This is the best opportunity to shrink your menu to keep only the top 35% performers at the restaurant. Say goodbye to the rest of the dishes until revenue is back to normal and at that stage bring in a brand-new menu. By simplifying the menu, you can improve the efficiency of your employees, as well as control wastage.
- Turn your employees into key stakeholders– Do one on one interviews with your staff and explain your situation. Ask them if they are able to take a pay cut. Ensure that the management team takes a mandatory pay cut and sets the tone for junior employees. An employee who feels connected emotionally to the business will be more than willing to step up and come up with interesting ideas to save costs and find new avenues to improve revenues.
- Collaborate with your Vendors– Bring all your vendors to meet you in person and ask for a deferred payment schedule for the outstanding amounts. Help them move some of their slow-moving stock by making adjustments to your menu and promoting these dishes. Stick to your word and demonstrate the fact that you value your relationship with the vendors.
Are you going through a similar situation with your business? Have you tried any of the solutions above? Have you tried any other tricks that have worked for you at your restaurant? Share your experience. Let’s support the industry that has given each one of us so much