Bo Davis is CEO and Co-Founder of MarginEdge, the industry-leading restaurant software platform.
What’s a rarely revealed restaurant industry secret? Even highly successful establishments and celebrity restaurateurs stress over margins, costs, staff and profitable operations. While post-pandemic diners have enthusiastically returned to the table, it’s still a roller coaster ride. The National Restaurant Association forecasts $997 billion in 2023 sales and the addition of 500,000 new food service jobs. Cold as a proper gazpacho soup, however, is the fact that it remains a challenging industry, with first-year failure rates between 20%-30% and ongoing viability buffeted by a buffet of factors.
In any industry, success tends to follow proven metrics. For decades it used to be that spending 70% of your time running the public-facing restaurant side and the other 30% spent focused on the back-of-the-house business side meant profitability. Today that has leveled out to nearly an even 50/50 split. One thing that hasn’t changed, though, is the application of labor, technology and financial wisdom from this industry to many others.
After more than three decades of opening and running a number of eateries, here are four lessons from successful restaurants for better business practices:
Know Your Way Around Every Position
Up to closing time, you won’t find many restaurant operators relaxing at the bar. They’re hyper-focused on every aspect of the operation, and they know how every person’s job fits into the big picture. With 80% of restaurant owners starting their careers in entry-level positions, from cooks to waiters to dishwashers, the empathy is real.
The parallel applies to virtually any business. From white-collar offices to blue-collar facilities, it’s critical that executives and managers understand what each employee does, what they need to be efficient, and how they function together. Knowing the core competencies of each person helps you assemble the best possible project teams. It provides advanced insight should an absence require a qualified replacement. And no less important, it communicates to staff that you understand their daily experience and appreciate their contributions, a powerful force in boosting both employee morale and retention.
Fill Your Business With Leaders Possessing People Skills
Like other slices of the hospitality sector, restaurants are a “people business” defined by great service. From the host to the waiter to the busboy, everyone is on the same team creating a memorable experience for guests. Look at two comparable restaurants where one of them is fully staffed and the other struggles to keep qualified employees. Why? The first one places a priority on hiring and nurturing leaders.
In every business, this is an indispensable process. Of course, you need employees to follow protocol (for the sake of laws and compliance) and to follow directions (to complete tasks). But there doesn’t need to be a bright-line dichotomy between following and leading. Empowering staff begins with giving them the knowledge and tools to do their jobs well, while making them feel trusted, respected and valued. Some employees come into your business from day one as natural leaders, some need that potential nurtured. Creating a genuine sense of ownership in turn creates a strong team of leaders who believe in your brand and what they bring to it.
Embrace The Efficiencies Of Digital Tech
Today, even the most throwback Old World restaurant needs the newest digital tools to thrive. From tracking erratic food costs to estimating inventory to managing employee schedules, the restaurant industry is steadily replacing time-intensive manual tasks and old analog systems with efficient digital technology. Better data intelligence and fewer hours wasted on paperwork lead to more time focused on the guest experience and, ultimately, bigger profit margins.
Digital transformation benefits a breadth of industries. Automated systems are bringing more customer satisfaction and profit to the retail sector, and robotic tools are becoming prevalent from warehouse operations to manufacturing facilities. The ever-evolving potential of artificial intelligence and machine learning continues to reshape marketing, education and healthcare. Some prime advantages of these technologies include production efficiencies, increased productivity and better allocation of labor resources. Investments in modernizing outdated and obsolete systems pay off in the enhanced health of a business.
Stow Cash For Inevitable Rainy Days
Cash flow is the persistent hobgoblin of the restaurant business. With wholesale food prices up close to 13% and nearly 92% of restaurant operators calling food costs a significant issue, having a cash cushion is more important than ever. Seasonal upturns and downturns are always expected—dine-out celebrations such as Valentine’s Day, and austerity periods like January when Christmas bills come due—but no matter the time of year, it’s best to have a little something in reserve.
Whether you’re running a corporate startup or a mom-and-pop shop, preparing for the storm before it hits means having a contingency plan and (more importantly) funds. You should aim to have enough cash to cover about six months of operations. Nothing destroys a business faster than missing even one payday and having your best employees jump ship. Anticipating the downs even while you’re celebrating the ups is the most prudent business strategy. Because knowing that rainy days will inevitably come is always the brightest business strategy.
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