Cost Control is the Key to Survival

AbacusWhile there are some signs that we may be emerging from the recession, I think you’ll find that consumer behaviour has been changed, perhaps for many years to come.  Even your “well-off” customers are much more price conscious that they have ever been before.  Actually, they are more value conscious.  In order to “survive and thrive”, you have to continuously monitor your restaurant’s value proposition.
While there’s more to the value proposition than your menu and prices, these are the two aspects that can be adjusted fairly easily in the short-term.  These are also the two areas that most restaurateurs fiddle with first, when times get tough.  We could probably add labour into the mix, too.
Recessions always harm the restaurant industry.  People lose their jobs (or worry that they will lose them), cut back on meals outside the home, and spend less when they do go out.  Most restaurants experience a drop in both volume and check averages, often severely reducing (or eliminating) their profits.  To cover their fixed costs, restaurateurs will try everything to keep the customers they have and steal their competitors’ customers.  Most start with price reductions, either through coupons and discounts or with across the board price reductions.  It doesn’t take long to realize that quality or portion sizes have to be reduced to maintain profitable margins.  Easier said than done!

The Role of Cost Control
If your competitors are reducing their prices, you may have to do so too, just to keep the customers you have.  The restaurant with the best cost control is going to win this competition.  If your cost controls are superior, you will be better able to maintain quality and appropriate portion sizes, offering a better value proposition relative to your competitors.  They will have to serve smaller portions and use cheaper ingredients.
We all know (or at least you should know)  that the surest way to kill your business is to debase your quality standards in order to maintain margins.  Your “regular” customers will quickly realize the change and start to reevaluate your value proposition or they will sense a consistency problem.  Either way the burning desire to come back soon will be lost.  All of the past marketing efforts to brand your restaurant with a particular quality/value will be destroyed, too.  You need to do anything but lower the quality of your menu offerings.
KitchenYou do this by doubling your efforts at cost control – food, beverage, labour and operations – every dollar saved, that doesn’t reduce your value proposition, allows you to keep your customers, win new ones and still be profitable.  Minimize waste and spoilage – they have no impact on quality.  Make sure inventory follows the FIFO principle.  Request new quotes from major vendors (they’re hurting too).   Scrupulously monitor portion sizes for food and alcohol.  This will also help improve the consistency of your menu items.  Redo your staff schedules.  While you may be able to reduce your labour cost, at the very least, you should be able to transfer hours from slower periods to busy times, to improve the quality of service.
Restaurants that fail to heed this advice will find it increasingly difficult to pay their suppliers on time.  They’ll start to receive inferior quality ingredients, which will lessen their quality.  Their customers will reevaluate their value proposition and find better alternatives.  Their volume will drop.  They won’t be able to maintain staff levels and service or pay the rent on time.  They will be the ones going out of business, and in this business, it doesn’t take that long for bad decisions to bring an abrupt end.

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