Contributed by: Amy Gerber, Director of Customer Experience & Success and Jennifer Harden, Training & Implementation Consultant at Compeat (now Restaurant365(
A recession can be loosely defined as a period of time in which the gross domestic product growth rate (which is the amount of stuff we produce and sell) is negative for two or more consecutive quarters.
During a recession, there is a decline in consumer spending. For our industry, this means:
- Fine dining sales typically decline
- Casual dining sales typically decline
- And fast food sales can either decline, remain neutral, or increase
Recessions can be caused by a financial crisis, the bursting of a real estate or stock market bubble, or some black swan event that rattles the economy. The reality is that recessions are an ordinary part of the business cycle. Nothing goes up forever nor does the economy drop indefinitely.
According to Bloomberg, the chance of a U.S. recession within the next year is at 26%. Nobody can predict the future, but recession or not, these 5 tips will create a more fluid space for your restaurant to operate today, tomorrow, and into the next decade.
Strategy 1- Understand Your Restaurants Break-Even Point
Before creating a game plan, you must first understand what numbers you absolutely must hit to keep your restaurant afloat. This is called your break-even point. It is calculated like this:
Break-Even Point (Units) = Fixed Costs ÷ (Revenue per Unit – Variable Cost per Unit)
Your fixed costs will include rent, mortgage, salaries, loan payments, license fees, and insurance premiums. These costs are easier to budget for when operating a restaurant because they don’t fluctuate much each month.
Your variable costs include food, hourly wages, and utilities. These is harder to plan for, but you should already have a general idea of your variable expenses per period.
Now that you understand your break-even costs, you know exactly what you need to sell to keep your business going. Which brings us to strategy two.
Strategy 2- Pay Down Your Debts & Increase Your Savings
It is a good idea to pay off high interest or high-risk debt as soon as you can. Debts increase your monthly costs. During a recession you’ll want all of your cash going toward your business, not interest and past purchases.
It is also important to increase your savings. The tried and true statement of an “emergency fund” is no different for individuals than it is for restaurants. In order to be fully prepared, build up your cash reserves to cover your costs, if traffic happens to slow down. Ideally, you should be able cover a “slow period” for at least six months.
Most recessions have lasted anywhere from 1 year to 18 months. So, the more money you have saved, the better your chances are of getting through a slowdown.
Strategy 3- Invest in BOH Technology
Now, this may seem counter intuitive… spending money when there is a possibility of a recession?
The fact is though, you simply can’t reduce or optimize your spending unless you understand your operations; because you can’t fix won’t you don’t see. Your team needs to have management software in place that can help you identify and remediate issues BEFORE they get a hold of your revenue.
Strategy 4- Build Brand Loyalty
Even when times are tough, people will still go out to eat. You want to be top of mind when they do! Now is the time to have a dialogue with employees about creating memorable experiences for your guests. Listen to their needs to create truly remarkable experiences. Creating an experience that stands out and shows you value their business is the differentiator that will edge out your competition.
Strategy 5- Maximize Inexpensive Advertising
Social media is hugely important for restaurants. Below are a few strategies that can help you either get started with social or up your game.
- Be sure to include an about section that links to your website.
- Make sure you have correct business hours.
- Make sure your address and phone number are up to date.
- Include calls to action (CTA) on your social profiles so guests can easily table online, order food online, or contact your business.
- Engage with consumers regularly by posting specials, sharing good reviews, and offering discounts.
- Finally, include a variety of pictures or short video snippets from your smartphone such as beautifully plated food, staff serving customers, customers having a great time, or events and parties.
Forecasting just when a recession will begin is nearly impossible, but preparing for a downturn “just in case” is a feasible goal when you implement these five strategies.