10 Ways to Prepare Your Restaurant for a Potential Recession

Kerry CarneyWritten by Kerry Carney, CFO of Compeat for Fast Casual

Economic times are good right now. According to Trading Economics, consumer spending reached an all-time high this fall, which makes sense based on CNN’s report that unemployment fell to 3.7 percent in the same quarter; the lowest level since December 1969.  This healthy economy translates to the restaurant industry having a good 2018 due to consumers feeling better about their finances and using their discretionary finances to eat out more often.

While these trends paint a positive light on our industry right now, some economist point to signs of an impending recession on the horizon.  Many believe the growth can be sustained for perhaps another year, but they point to indicators that predict by 2020 the US economy will begin to lose steam, triggering a global recession.

There is no need to act like Chicken Little at this point, because there is no hard evidence that the sky is falling. If these predictions hold any shred of truth, however, there are a few things we can learn from the recession that occurred in the last decade. Following these proactive tips can help prepare your business for the worst case.  And in the case that we may be crying wolf regarding an economic downturn, taking the precautions will only make your business leaner, stronger and more financially stable in the long-term. Win-Win.

1. Reduce your debt. Entering a recession with less overhead puts you ahead of the game.  When sales are lean you need your money to pay for current expenses, not past debts.  Take advantage of the good economy that we are currently enjoying and use those profits to alleviate any large debts that you have incurred.  Even if a recession does not happen, you will not regret paying off looming debts.
2. Build a cash reserve. Cash is king, especially during a recession. Plus, you will never regret reducing the cost of running your restaurant. Examine your expenses and decide what you can let go of without diminishing the customer experience.  Squirreling away a little savings each month will help you build a healthy cash reserve that may be needed during times of slow sales.
3. Invest in innovative technology. Now is the time to invest in technologies that will save you money down the road.  Business Intelligence software will provide you key insights into where your money is coming from and where you are spending it.  Without this vital information, it will be nearly impossible to make informed choices on how to run a lean business in a down economy.
4. Re-evaluate your vendors. Start negotiating now while you have the power to be sure you have the lowest prices before vendors start to feel the squeeze.  Build strong relationships with several suppliers so you are not left in limbo should go out of business.  Also, consider local vendors as many of the large national firms may impose higher shipping fees as gas prices rise.
5. Diversify your customer base. During a recession, consumers become nervous and begin to cut back on non-essential expenses.  If many of your regular diners experienced the last recession, they may begin to wind down spending at the early signs of an economic downturn.  Now,  may be the time to begin drawing in a new generation. Data from LendEDU, which surveyed 1,000 Americans Millennials ages 22 to 37, found that 49 percent spend more money on dining out than they are saving.  That will be a hard habit to break even when money is a little tighter, now is the time to draw them in as loyal guests.
6. Boost employee productivity. Learn to operate lean and mean now. Review your productivity reports and see who your superstars are.  Invest in your top talent now and get them focused on sales as well as cross-trained to help in other areas. Laying off several employees at one time will affect your staff’s morale, and all restaurants are only as good as the staff who supports them, so try testing the waters of operating with fewer staff members gradually.
7. Adapt your menu. You can generate more profit from your menu by analyzing customer demand, sales, margins, and theoretical vs. actual food costs.  Re-engineering recipes so that you use lower cost ingredients without compromising the taste can increase your bottom line. For example, if you use goat cheese in a recipe, experiment with swapping this pricey ingredient with a mix of cream cheese and plain yogurt or sour cream for an inexpensive substitute that does not greatly change the flavor profile.
8. Become a social media advertising guru. Even during a recession, the world does not come to a complete halt. People will still go out for special occasions, so be sure to be top of mind when they do.  Social media advertising is typically free and easy to do.  Don’t wait until business slows to learn the ins and outs of advertising on social media.  Now is the time to become an expert so you have a healthy following to share specials and promos with to get them in your door now and in the future.
9. Give a pep talk to your staff. Set expectations with your staff in advance so that they are aware that if a recession should happen, sales will dip in every restaurant.  You don’t want a temporary situation to put a dent in your moral or drive out your key players.  Be honest.  Be patient.  And most of all, be encouraging and let them know that it will not last.
10. Remember that it’s temporary. Our economy is in a constant cycle of ebbs and flows.  Some are just bigger than others.  Plenty of businesses made it through the recession last decade and have flourished since.  We sincerely wish that for all of our fellow restauranteurs.

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