There is a debate as to whether we’re currently in a recession, but less so as to whether or not we’ll be in one at some point in 2023. Most signs are pointing in that direction, though it won’t likely be as deep as the 2008-09 downturn.
Still, recessions present obvious challenges for business owners who have to contend with more discerning customers. The restaurant industry is already starting to see this with traffic declines across the board. For Andrew K. Smith, managing director of Savory Restaurant Fund, less foot traffic is the biggest indicator that a recession is upon us, “if not looming.”
“Also, the cost versus value versus margin equation is all coming in a line. Usually there is less cost, better value and higher price points, so there are better margins. When that starts to get compressed, it’s either going to pop, which is a recession, or we’re going to start letting air out of it one way or another,” Smith said during the Emerging Restaurateur Live Learning Series webcast this week titled “Recession-Proofing Your Business.”
Smith was joined by David Cantu, CEO of Black Box Intelligence, Chris Simms, founder and CEO of Lazy Dog Restaurants, Christine Specht, CEO of Cousins Subs and Scott Lawton, CEO and co-founder of bartaco. Sam Oches, editor-in-chief at Nation’s Restaurant News, moderated the panel. Each speaker echoed Smith’s sentiments that a recession is unavoidable. But they’re optimistic, nonetheless. They led their teams through the Great Recession and the pandemic, so their optimism is worth understanding.
For Cantu, it’s all about the workforce. Currently, just 5% of companies measured by Black Box Intelligence are fully staffed in the front of house, while just 10% are in the back of house. This presents a major opportunity, he said.
“More concerning, 15% are fully staffed in management. Full-time employees have a greater impact on overall sales, so the data we’re seeing for brands that are finding ways to have full-time employees is a 7% increase in sales,” Cantu said.
The “money ball metric,” or the top metric brands should focus on, is general manager retention. When a GM is in place for longer periods of time, brands have higher year-over-year sales and traffic numbers.
“It creates stability. When that stability is in place and the staff knows and likes their leadership, they’re going to stick around longer,” Cantu said. Beyond wages and promotion opportunities, GMs also want a strong work/life balance. Targeting GM retention is a key factor to weather a downturn, Cantu adds, and companies that offer bonuses of 35% or more for that position are yielding double-digit sales and traffic increases.
Because of these trends, Cousins Subs is prioritizing incentives and employee development. The chain recently added tipping, for instance, and is currently investing in leadership development training that focuses on soft skills.
Taking care of employees typically translates to them taking care of guests, which is another critical factor in weathering a recession. Bartaco, for example, looks at guest sentiment metrics more than it does its balance sheet, according to Lawton.
“We’re going to really lean into what we learned from the last recession and that is make people happy. They’re going to bet on places that are consistent and not be as loose about going to a random restaurant they’ve never tried. It’s old school, but in times like this, we lean in on making people happy,” Lawton said.
Technology is a big piece in creating better guest and employee experiences and operators are full speed ahead on digital investments accordingly, despite lingering uncertainties. Cousins Subs is rolling out kiosks, for instance, while bartaco added purchasing software and Lazy Dog is leaning into data to get real-time information into the hands of managers to improve the guest experience.
“We’re not talking about robots, but figuring out ways to leverage technology to make it easier,” Lawton said. “It’s about efficiency so we’re not spending money on stupid things and the rest is spent knowing our customer and why they like us.”
One thing consumers shouldn’t expect this economic cycle? Deep discounting. Operators are wise to focus on value opportunities without giving away the farm, the panelists agreed. Lazy Dog, for example, promotes happy hour, lunch specials and road trip bowls.
“You have to make sure you’ve got some value-conscious items for guests because chances are they’re going to start thinking twice about the dollars they’re spending. Get them to come back by giving them the most options that make sense to them,” Simms said.
“That’s what’s different this time – it’s not a mad race to the bottom where brands would (discount) as low as they could and before you know it, franchisees are not making any money. Guests are different today. We know them better. They want to feel a personal outreach and there are more opportunities to get more focused and specific on how to deliver value to them directly,” Specht added. Cousins does this mostly through its loyalty program.
It’s also important to be nimble and these restaurateurs have plenty of experience doing just that during the pandemic – shifting to drive-thru-only if a store is understaffed, selling grocery goods out of restaurants, launching virtual brands, introducing curbside and so forth. Being nimble, however, takes commitment in knowing what is needed and when.
“As you go into something like this, you really need to listen to your guests and your teammates so you’re prepared to make split decisions and can cater to (them),” Simms said.
So, should we find ourselves knee-deep in a recession, it’s important to strengthen your workforce, maximize efficiencies, focus on value without deep discounting and prioritize your customers. Smith adds that it’s also important to make sure your balance sheet is healthy, your debt is reduced and your “small leaks,” such as wasteful subscriptions, are plugged. Scenario planning is also critical to make sure you’re prepared for anything.
“Nobody knows what to expect,” Smith said. “Be prepared so when it happens, you’re not surprised.”
A replay of this Emerging Restaurateur Live Learning Series is available online. Register here.
Contact Alicia Kelso at [email protected]