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Managing next year’s biggest operational challenges

Managing next year’s biggest operational challenges

Jim Sullivan looks at the major obstacles operators will face in 2013. This article ran in the Dec. 17, 2012, issue of NRN. Subscribe today. 

If you thought the last three years were tougher than a $2 steak, wait until you get a load of 2013. Here are some challenges we’ll face and suggestions on how to come out on top:

Patient Protection and Affordable Care Act. Popularly known as Obamacare, this U.S. law will begin to affect the foodservice industry in 2013, fully vesting in 2014. The additional cost burden of mandatory health care coverage for all full-time employees will be significant for most multiunit operators. Costs will be mitigated by either menu price increases or organizational realignment of full-time employees to part-time employees.

“Thirty is the new 40,” one chief executive told me at a recent conference, referring to the cutback in hours that may be necessary. But if you reduce crew hours, you must either raise the productivity of the remaining crew or recruit more people from an already anemic talent pool to make up the slack. What to do? See next point.

The tablet, pad or ordering kiosk. The sales-to-investment ratio for fast-casual and quick-service restaurants is greater than it is for full service. Real estate and labor costs are two big reasons why there’s robust growth in the former, and it’s flatter in the latter. Since necessity is the mother of invention, what better way for the full-service segment to flatten its spiking labor costs than by leveraging technology to minimize it? This process has already been applied to the back of the house with great success; in 2013 those same efficiencies will be applied to the front.

What if you could eliminate 50 percent of your labor costs, 70 percent of your turnover and 90 percent of your tip reporting, while raising incremental sales? Having customers use tablets, pads or kiosks to place orders will do that. These technologies will eventually become the new waiters in most family-style and casual restaurants, with a “service assistant” assigned to deliver food, drinks, refills, etc., to a six- to eight-table section. The revolution has already begun in many hotels and foodservice chains, particularly fast-casual concepts. Think of 2013 as Year One of the gradual extinction of waiters and waitresses.

Rising commodity costs. Adding even more pressure to profit margins than government regulation is the perennial wild card of rising beef, dairy, poultry, feed, drayage and energy costs. Recent research shows that cost of goods sold has risen 5.6 percent as a percentage of revenue since 2001.

You can’t control those prices, but you can increase:

Incremental sales. While operators are naturally reluctant to raise menu prices in this economy, they’re still leaving low-hanging fruit unpicked. The most common order entry in full-service U.S. restaurants’ POS systems is not “hamburger,” “pizza,” “steak” or “salad.” The No. 1 entry is “no drink.” If you could raise your beverage sales incidence just 30 percent above current levels, you would raise your gross profit nearly 3 percent. That’s drink for profits, not merely food for thought. And don’t forget starters and desserts, too.

Technology integration

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When system metrics aren’t aligned, executives sometimes issue mandates to improve processes systemwide that may be problematic in some stores but not in others. This is expensive, frustrating and preventable.

In 2013 we’ll finally see effective integrated technology in the form of cross-platform and linked POS systems. They will align and manage back-office functions; labor scheduling; and tip, time and attendance reporting and link it all to your smartphone. Goodbye to the data smog of unlinked reports and older patchwork systems that don’t play nicely with newer ones.

Oh, and since customers will be increasingly paying with — and looking for information and coupons on — their smartphones, this is the year to make certain your website is mobile friendly.

Manager development. When they’re overworked and underled by uninspired or distracted area directors, our unit managers become technicians, not leaders. They execute processes, procedures and throughput to varying degrees, but fail to consistently engage, develop and inspire the crew. This leads to higher turnover in both management and rank and file. Use 2013 as the year to compete first for talent, then for customers. And put a priority on teaching everyone something new every day. No train, no gain.

Remodels. It’s no secret that remodeling a restaurant generates same-store-sales increases. Customers respond to fresh changes with patronage. From digital signage to energy-saving equipment to smaller footprints and revenue-boosting designs, remodels attract more diners, investors and team members. Put it on your list for 2013.

Dining out and disposable income. For the last 40 years, a steady and heady statistic has characterized U.S. consumers: 5 percent of their annual disposable income has been spent on food away from home.  So when disposable income drops, as it did in 2008-2011 — and may possibly do again in 2013 — so will foodservice sales. Keep an eye on that statistic when economists issue their quarterly reports. When disposable income dips, do two things: Keep the customers you have, and take your new business from someone else.

Menu trends. The pages of Nation’s Restaurant News and offer a wealth of insight on 2013 menu trends. Seek them out. My advice is singular: You can have the best and newest and coolest food and beverage items in the business, but if you can’t sell them, you’ve still got them. Don’t just create an exciting menu; teach your teams how to energetically merchandise it. And remember that while product expertise can be replicated, customer expertise is a defendable strategy, allowing you to maintain profit even in the midst of economic hardship. So wrap your menu in better service, too.

Discipline. When unit managers or franchisees lack discipline, they compensate by overpromoting, cutting back on quality or blaming others for their lack of success. Don’t compromise brand standards, processes or procedures just because you can’t focus. Set expectations high and hold teams accountable. Create an environment where low performance is simply not an option. Give a lot, expect a lot, and if you don’t get it, prune.

Despite all the doom-and-gloom predictions, 2013 forecasts indicate that we’ll still grow nearly 2 percent. That’s cause for optimism and hope. But since hope is not a strategy, exert constant, gentle pressure every day to improve. Don’t wake up a year from now 365 days behind. 

Jim Sullivan is a keynote speaker at management conferences worldwide. His new book, “Fundamentals,” is available on Amazon, and his training catalog, apps and DVDs are at

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