Since mid-March, restaurant operators have been asked to survive on diminished capacities, and they've have had to reduce their menus down to only items that can be transported.
Despite being closed due to the stay-at-home mandates, operators were subsequently directed to use their PPP funds to immediately rehire staff, many of whom found it safer and in some cases more profitable to remain on unemployment.
With PPP Round 2 still at bay and mandates rolling back yet again there is unbridled anxiety all around. The only experience that any operation has to a pandemic is when that restaurant was opening their business for the first time.
It's the last time where an operator had no sales and cost history, no brand awareness, no consumer base and limited cash.
It's essential that, now, an operator must draw from that experience and use the same tools in order to navigate through the pandemic.
Here are the top three tools for an operator to turn a profit in the restaurant industry's current state:
1. Break-even analysis
Often overlooked, the Break-even analysis enables an operator to determine the minimum sales and cost structure for staying afloat. Unlike a budget or a pro forma, a BEA combines both the operational sales and cost targets as well as the balance sheet (specifically, debt servicing) obligations to demonstrate the bare minimum necessary to achieve profitability. It shines a bright light on the existing opportunities based on actual performance and enables you to model them in order to achieve profitability.
Pro tip: Traditionally determining revenue targets has been based on revenue generated per square foot (RPSQFT). This has enabled restaurants to determine how much money the operation can deliver based on its physical structure.
This traditional approach will not work as long as the restaurants have limited dining capacities. They wind up overstating the potential revenue and lead to poor decision making. When the model is changed to revenue generated per seat (RGPS) we can accurately determine both sales and cost targets with far greater accuracy.
This also allows the operator to consider the necessary reductions that the operation needs to make to its Labor dollars and COGS related purchases.
Most importantly however, is that the RGPS enables the operator to clearly see how much revenue the operation needs to make up due to the exact number of lost seats, which in turn enables them the ability to determine whether closing the in-house dining and focusing on delivery only provides the business with the greatest chance of survival.
2. Budget pivoting
A brand requires a budget; it's the Michael Jordan of restaurant operations survival tools. In fact, operators who utilize budgets consistently yield 6%-9% higher net profits than those without them. They simply aren't optional. Restaurants may have gotten away without a budget in place when they first opened but don't think twice about going without it during these uncertain times. A budget will allow quick changes and avoid spending any unnecessary money on ideas that aren't working.
3. Staff training
Just like when a restaurant first opens, training is about instilling confidence in their team. Higher staff confidence instills the needed trust from guests that their dining experience is safe. Wearing a mask, adding plexiglass and closing sections all have an irrefutable psychological impact, so training for the new normal enables a team to adjust to the myriad necessary changes that will help to pivot a restaurant's brand.
Restaurant owners and operators must believe that the pandemic will end and that their businesses will survive. The tools mentioned above are not new but just like everyone's businesses, they have all been adapted to provide a path for operators to achieve success.
• Matt Vannini is CEO of Restaurant Solutions Inc.