Preparing for the perfect storm

Preparing for the perfect storm

Jim Sullivan is a keynote speaker at foodservice leadership conferences worldwide. His newest book Fundamentals is available at Amazon or Sullivision.com. Check out his leadership video series at NRN.com. This article does not necessarily reflect the opinions of the editors or management of Nation’s Restaurant News.

Sullivision.com chief executive Jim Sullivan

As regular readers of this column know, I am a tireless champion of the foodservice industry, and both the people we employ and serve. I am routinely bullish on our prospects, forgiving of our shortcomings and optimistic about our future. 

But looking around the restaurant business these days, I find my confidence shakier than a wet dog. Outlier economic pundits and business writers have been predicting a recession since January, and now they’re suddenly using the restaurant industry as a harbinger of that forecast.  

If you’re a traditionalist, that belief is particularly odd, given the current U.S. economic indicators that customarily drive strong spending across consumer categories. We’re enjoying lower gas prices, a rising stock market, higher GDP and sustained job growth, all of which normally boost consumer spending and jumpstart foodservice sales. But it seems to be tremor-filled stutter-step growth tied to worry, not unbridled growth coupled with confidence. 

Our industry is still on track to generate 5-percent higher overall sales than 2015, but not all segments are growing. As Buffalo Springfield put it in in their 1960s hit For What It’s Worth: “There’s something happening here and what it is ain’t exactly clear.” 

Signs of a coming storm

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A perfect economic storm is coming to the restaurant industry. Photo: Thinkstock

Are you seeing the same storm clouds on the horizon that I am? Here’s a short list I’d be worried about if I were you:

Chain fatigue. In many mature U.S. markets, our industry is witnessing a resurgence of independent restaurants and bars while chains shutter underperforming units at accelerated rates unheard of a decade back. This is the result of shareholder demand for better margins, a dining public tired of similar tasting menus and an… 

Overbuilt industry. The proliferation of fortune-seeking franchisors and franchisees that conjoined in the 1970s peaked in the last decade and created a Franchise Food Nation. But are there enough diners willing to leave their kitchens to ensure all these new locations and brands a profitable share-of-stomach? The short answer is no. The fact is that our industry is overbuilt with indistinct brands and our diners are miffed with mediocrity. Which means that…

Average is over. The sea of sameness that has affected the foodservice industry in terms of middling menus, average service and unengaged employees has reached epidemic proportions in the U.S. If skittish consumers are spending less in restaurants, then the key is to make your food, people and service special enough to warrant the lion’s share of your target audience’s discretionary dollar. People first, bricks and mortar second. But wait. What about the new…

Franchise regulations. The NLRB’s recent joint-employer standard, which, among other things, makes franchisors liable for the employment practices of franchisees, is shaking and transforming the foodservice industry. The additional costs and uncertainty do not engender deeper investment and confidence among present and potential franchisees. I’ve said it before and I’ll say it again. The government? Worst. Business. Partner. Ever. And then there’s…

Consumer confidence. When real income and GDP rises, consumers have traditionally spent a good deal of that discretionary income in restaurants. But it isn’t happening in 2016. And some media outlets, like U.S. News & World Report, pointedly note that the last time this happened was late in 2000 and early in 2007, two periods that preceded recessions. And so the Suze Ormans of the world are now thumping their newest books and cajoling viewers to “Stop eating out and put your money into 401Ks instead.” Sheesh. Wait. Is that Tim Cook? What’s that in his pocket?…

iPhone 7. Whenever Apple introduces the latest iteration of its classic cash cow, spending simultaneously dips in the foodservice industry. After all, if you just dropped $600 on a phone, you think more about disposable income. Sept. 16 is the slated release day. Just saying.

Election year. The less said about the quality of presidential candidates the Republicans and Democrats can proffer in this day and age, maybe the better. But it makes an entire nation even more skittish relative to optimism and spending. The only people bullish on the 2016 election year own television stations. And, speaking of government…

ACA and minimum wage increase. There is no arguing that Obamacare and the Fight for $15 are seriously affecting people, performance and profitability in the restaurant industry. Old plan: “Find good people.” New plan: If you don’t leverage technology to replace servers, you’ll have to raise prices. Employee retention is now a prime marketing strategy since it is more cost-effective to develop current employees than it is to source and hire new ones.

What to do

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Here's how to keep the storm at bay and people in your restaurant. Photo: Thinkstock

So what can you do before these dark-cloud issues potentially coalesce into a perfect storm? First, don’t panic. Keep a steady hand on the rudder. Put a premium on doing the things that attract great employees and build loyal customers. Second, focus on ways to reduce costs without sacrificing quality. Third, constantly build leadership capacity at the unit level and home office, too. 

Industry-wide, the original franchisees of legacy foodservice brands are ceding control of their operations to sons, daughters and grandchildren. This is the silver lining to our potential economic bumper-car pileup: young eyes, fresh minds and fierce resolve. They embrace technology and perceive a brighter future unconstrained from the limitations of the past. Our industry will weather the next storm and grow to new levels the way it always has: through innovation, creativity and pioneering leadership. In the meantime, consider the advice of Thomas Edison, who warned: “Run your business in good times like it’s bad times, because eventually bad times will come.”

Jim Sullivan is a popular speaker at foodservice conferences worldwide. His latest book, Fundamentals, is used in over 230,000 restaurants. Get his training catalog, blog, apps and more at Sullivision.com. You can follow him on Twitter, YouTube and LinkedIn.

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