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The fundamentals of a restaurant turnaround

Tips to identify the best leader to fix declining sales

With a background in operations reengineering, strategic planning and brand positioning, James Greco specializes in turning around fledgling or struggling brands in the food industry. This article does not necessarily reflect the opinions of the editors or management of Nation’s Restaurant News.

In the past year, our industry has seen a significant increase in the number of troubled restaurant concepts, including many bankruptcy claims. Overall, more than two-thirds of chains have reported negative same store sales. Many have speculated about the reasons, but whatever the cause, it is clear the restaurant industry is suffering a secular downturn.

Yet, as with troubled times in the past, a minority of concepts are bucking the trend of declining sales.

During the last downturn, Bruegger’s Bagels was a trend-bucker. I was fortunate to be CEO at the time and led a turnaround that put the concept on stable ground to weather many negative forces, in addition to the recession. So what can a chain do now to overcome the gales of today’s industry downturn?

First, chains must ask for help. The biggest mistake a chain in trouble can make is waiting too long to get help. As the strategist Gary Hamel puts it in The Future of Management, a turnaround "is transformation tragically delayed." Further delay only makes the task harder.

But it has to be good help. In times of trouble, a leader should be chosen based on turnaround experience. While it may seem a good move to hire an executive out of a large, publicly traded concept, if he or she doesn’t have experience pulling a concept back from the brink, it’s best to keep looking. Turnarounds are difficult and require direct experience and specialized skills.

The right leader will also be hands-on. Companies experiencing either negative growth or rapid growth require hands-on management. Being hands-on shouldn’t be confused with micromanaging. The difference is that hands-on management involves repetitive communication of the vision so that the team is working together toward a common goal, and every decision gets them closer. Micromanagers make the decisions without ever bringing the team up to speed.

Now it’s time to ask questions. Once a leader and shared vision are in place, it is imperative to fully understand the situation. A leader should interview each member of the management team, visit restaurants to observe execution, and talk with team members and guests. Even if hundreds of thousands of dollars have been spent on formal research, a strong turnaround plan hinges on the leaders’ direct understanding of the situation. After these initial observations, formal research can be reviewed and checked for correlations or corroborations of leadership’s assessment. 

Start short-term. Though a full turnaround can take years, start with a 90-day plan. Just because it’s short-term doesn’t mean it’s shortsighted. An aggressive 90-day plan can do a lot to change the momentum of a concept. Management teams that have been losing sales, traffic and market share for some time can become defeated and believe that the company is a lost cause. The team needs to feel there is a plan for success and progress is being made toward the vision. A short-term plan will also yield financial results. Even if the company currently has enough cash, a continued deterioration in business will erode profitability and can soon lead to cash flow issues. Lenders or major shareholders may grow impatient without signs of activity. Finally, some early successes – communicated well – build confidence in the turnaround leader.

Fashion a long-term solution. Restaurants are the sum of four elements: people, place, product and positioning. Finding a successful approach for managing these elements is the key to success in any economic climate. But when concepts are struggling, the basics can be overlooked.

Even with these guiding principles in place, a great deal of courage is required of leaders during a turnaround. As Michael Eisner said, “Fear of failure is a far worse condition than failure itself, because it kills off possibilities.” During a turnaround, leaders don’t need every idea to succeed, they just need more successes than failures. Therefore, try lots of things. If some things fail, so be it; that’s just one less possibility to try.

Probably the most important principle to consider is this: Turnarounds are not sprints, but marathons that require time, patience and investment. The turnaround at Bruegger’s Bagels ultimately earned ownership 13 times its investment, but it took three years to hit full stride. The same is the case for the turnarounds of Arby’s and Popeye’s. By studying these successes – and many others — leaders can regain the faith that, with skillful execution and perseverance, a concept can change direction and even sail against the headwinds of any industry downturn.

James Greco has overseen the turnaround of Fieldbrook Farms and Bruegger’s Bagels, and, most recently as Chief Operating Officer of Newk’s Eatery, he helped build the chain into one of the nation’s fastest growing.  

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