Tag: FRANCHISEGROWTHSOLUTIONS

THE IMPORTANCE OF STRONG RESTAURANT OPERATIONS AND ITS IMPACT ON SUCCESS

Posted on by Contributing Writer

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Restaurants must leverage operational strategies to thrive. As the industry evolves, those who invest in their operations will reap the benefits, ensuring long-term success. By focusing on operational elements, restaurant owners can ensure a successful and sustainable business model that meets the demands of today’s consumers

 

THE IMPORTANCE OF STRONG RESTAURANT OPERATIONS AND ITS IMPACT ON SUCCESS

 

By Fred Kirvan- Founder & CEO Kirvan Consulting

 

In the restaurant industry, the strength of operations can significantly influence a business’s overall success. From monitoring inventory to ensuring exceptional customer service, robust operational strategies form the backbone of any successful restaurant. This article covers the importance of solid restaurant operations and how they impact success across various levels, supported by statistics from reputable sources like Technomic and Nation’s Restaurant News.

 

  1. Operational Efficiency

Operational efficiency refers to a restaurant’s ability to deliver services and products while minimizing costs. Efficient operations lead to cost savings, higher profit margins, and improved customer satisfaction. According to a report by Technomic, restaurants that implement streamlined operations see a 15% reduction in operational costs. This reduction allows for better allocation of resources, including labor and inventory, ultimately enhancing profitability.

 

Key Operational Metrics

  • Food Cost Percentage: Monitoring food cost percentage is crucial for maintaining profitability. The National Restaurant Association recommends keeping this percentage between 28% and 35% of total sales.
  • Labor Cost Percentage: Effective labor management can significantly impact the bottom line. The ideal labor cost percentage should range from 20% to 30% of total sales.

 

  1. Customer Experience

Strong operations directly influence the customer experience. A well-trained staff, efficient service processes, and high-quality food all contribute to customer satisfaction. According to a Nation’s Restaurant News survey, 86% of diners are willing to pay more for a better experience. This statistic highlights the importance of investing in operational training and quality control.

 

Enhancing Customer Experience

  • Training Programs: Regular staff training programs can improve service quality, reduce order errors, and enhance customer interactions.
  • Feedback Mechanisms: Implementing feedback systems allows restaurants to gather insights directly from customers, enabling them to make necessary adjustments to improve service.

 

  1. Consistency in Quality

Consistency is key to building a loyal customer base. Strong operations ensure that every dish served meets the restaurant’s standards, regardless of who is preparing it. According to Technomic, 70% of consumers believe that food quality and flavor are essential when choosing a restaurant. Therefore, having standardized recipes and operational processes is critical for maintaining quality and consistency.

 

Quality Control Measures

  • Standard Operating Procedures (SOPs): Creating SOPs for food preparation and service helps maintain consistency across all levels of operation.
  • Regular Audits: Conducting regularly scheduled audits and assessments will help identify improvement areas and ensure that quality standards are consistently met.

 

  1. Financial Performance

The relationship between strong operations and financial performance cannot be overstated. Restaurants with efficient operational systems often report higher sales growth. According to a Nation’s Restaurant News study, restaurants that prioritize operational excellence experience a 7% higher annual sales growth than those that do not. This financial advantage underscores the need for restaurants to focus on optimizing their operations.

 

Key Financial Metrics

  • Sales Per Labor Hour: This metric indicates how efficiently a restaurant uses labor resources. Higher sales per labor hour indicate better operational efficiency.
  • Average Check Size: Increasing the restaurant guest average check size through upselling and better menu design can significantly boost revenue without increasing customer traffic.

 

  1. Employee Satisfaction and Retention

Strong operations benefit customers and positively impact employee satisfaction and retention. A well-organized environment with clear processes allows employees to perform their tasks effectively, reducing frustration. According to a study by the National Restaurant Association, restaurants with high employee satisfaction rates have a 25% lower turnover rate. This statistic underscores the importance of developing a supportive operational structure.

 

Enhancing Employee Satisfaction

  • Empowerment and Involvement: Involving employees in decision-making and encouraging feedback can enhance job satisfaction.
  • Career Development: Offering opportunities for career path advancement through training, financial incentives, and development can motivate employees to stay with the company.

 

 

Final Thoughts

Strong restaurant operations cannot be underestimated. They are vital to enhancing operational efficiency, customer experience, consistency in quality, financial performance, and employee satisfaction. By prioritizing operational excellence, restaurant owners can significantly impact their establishment’s success on all levels. Restaurants must leverage operational strategies to thrive. As the industry evolves, those who invest in their operations will reap the benefits, ensuring long-term success.

 

By focusing on these operational elements, restaurant owners can ensure a successful and sustainable business model that meets the demands of today’s consumers. This article incorporates verified statistics and provides actionable insights for restaurant success.

 

References

  1. Technomic. (n.d.). Restaurant Industry Data & Insights. Retrieved from Technomic
  2. Nation’s Restaurant News. (n.d.). Restaurant Industry Research and Trends. Retrieved from Nation’s Restaurant News

 

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Gary Occhiogrosso holds the worldwide copyright.

TIP TO INCREASE FRANCHISE RECRUITMENT

Posted on by Franchise Strategist

It has been my experience that the franchisee territory does not receive enough analysis by some franchisors. While the type of territory, whether open, protected, or exclusive, is an important consideration for a prospective franchisee, the market potential is equally important.

A Strategy to Enhance Franchisee Recruitment
By Ed Teixeira
Franchise Consultant, Author, Franchise Executive and Former Franchisee with 40 years of Franchise Industry Experience.

To grow a franchise system a franchisor must have qualified franchise leads that can turn into viable franchise candidates. Whether a franchisor generates their own leads, uses Lead Gen portals, or receives franchisee prospects from other sources, acquiring franchise leads is only the start of the franchise development process. The franchisee prospect needs to be motivated by a franchise opportunity before proceeding to the next step in the process.
To achieve this objective the strategy employed by most franchisors is to cite the demand for the franchise’s products or services, in addition to franchisor training, support and a financial performance representation. However, these benefits exclude one of the most critical requirements of any franchise, the quality of the territory the franchisee will acquire as part of their franchise investment.

Not enough emerging and mid-sized franchisors emphasize in detail, how it analyzes, identifies, and determines the territory a franchisee will be granted. Although this subject is typically covered at the early stages of discussions between the franchisor and a franchisee prospect, it has been my experience that the franchisee territory does not receive enough analysis by some franchisors. While the type of territory whether open, protected, or exclusive is an important consideration for a prospective franchisee the market potential is equally important.

1. Franchisors should devote more resources and place more attention on how they identify and define a franchisee market and present this information at the earliest stages of the franchise process. This strategy may require a franchisor to invest additional resources into identifying and defining franchisee territories.

2. Franchisors should avoid utilizing surface metrics to define a market. For example, a home care franchisor may use the number of residents over 65 to define a market, yet that alone won’t indicate how many in this market segment can afford to pay for home care services? The same rationale relates to home restoration services. In addition to identifying the number of single family homes in a territory, the age, size and proximity of homes to potential environmental threats should be considered.

3. Invest in using an experienced market research firm to identify an ideal market profile to serve as the basis for identifying and defining franchisee territories. This approach will benefit the franchisor and its franchisees by maximizing opportunities for brand growth.

4. Some franchisees will request a territory based upon proximity to their residence and certain demographics. Franchisors should avoid accepting a franchisees choice of territory out of hand, without a detailed analysis of the territory. Otherwise, a franchisee that experiences poor sales may attribute the problem to their territory and place the responsibility on the franchisor.

In order to attract qualified franchise candidates franchisors should devote the necessary resources to defining franchisee territories and its market potential and present the franchisee territory as a major feature of the franchise opportunity. This feature of the franchise opportunity should be introduced at the beginning of the franchise presentation process.
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About the author:

Ed Teixeira has 40 years experience in the franchise industry as a franchise executive and franchisee. He is the co-author of the new textbook; Franchising Strategies The Entrepreneurs Guide to Success published by Rutledge. Ed’s franchise experience includes the retail, manufacturing, home health care, medical staffing and technology industries. Mr.Teixeira has franchised brands in Asia, Europe, and South America. He have lectures at Stony Brook University Business School on the subject of Franchising and been interviewed by the Wall Street Journal, Forbes, Bloomberg, Franchise Times, Franchise Update, New York Newsday and Long Island Business Review. Am available for Expert Witness testimony.

He has written and published The Franchise Buyers Manual a comprehensive guide for people considering buying a franchise. Ed is an Industry Partner of Stony Brook University and member of the Advisory Board Pace University Lubin School of Business and was qualified by the International Center for Dispute Resolution and The Business Broker Press as a franchise expert.

FULL SERVICE CASUAL DINING – WE GO TO SCHOOL WITH GENE LEE, CEO OF DARDEN (DRI)

Posted on by Franchise Strategist

Darden’s most recent reporting period was their fourth quarter, ending at the end of May. Their two largest chains are Olive Garden and Longhorn Steakhouse. Important, but less material, are Cheddar’s Scratch Kitchen, Yard House, The Capital Grille, Season’s 52, Bahama Breeze and Eddie V’s.

FULL SERVICE CASUAL DINING – WE GO TO SCHOOL WITH GENE LEE, CEO OF DARDEN (DRI)

roger lipton
BY Roger Lipton

Gene Lee, and his management team at Darden (DRI), provide about the most candid description of current fundamentals among the publicly held full service casual dining companies. Not only are their reported results about the best in the industry, but they describe, on their quarterly conference call, how and why. Our summary below is of “best practices”, as produced by Darden, and the outlook as presented within their conference call on June 24th.

Darden’s most recent reporting period was their fourth quarter, ending at the end of May. Their two largest chains are Olive Garden and Longhorn Steakhouse. Important, but less material, are Cheddar’s Scratch Kitchen, Yard House, The Capital Grille, Season’s 52, Bahama Breeze and Eddie V’s.

GENE LEE’S SCRIPTED COMMENTARY

Gene Lee, CEO, commented that they have begun to see demand come back strongly. They are relying on Technomic for industry data, which quantifies the casual dining industry at $189B in 2020, down from $222B in 2019. Though the industry has shrunk by 10% in units during the pandemic, Darden believes the industry will at least regain the 2019 level, implying that AUVs could be higher than before. Not mentioned was “price”, but that would obviously contribute to higher nominal sales.

Lee considers that the Darden business model has improved over the last year. “We’ve invested in food quality and portion size….made investments in our team members to ensure our employment proposition…..and we invest in technology, particularly within our to-go capabilities, to meet our guests growing need for …the off premise experience.”

RICARDO CARDENAS’ (COO) SCRIPTED COMMENTARY

Ricardo Cardenas, President and COO, described the operational simplification effort, which has improved execution and strengthened margins. Even as dining rooms have reopened, off-premise sales have remained strong, proving to be “stickier” than expected. During Q4 off-premise was 33% of sales at Olive Garden, 16% at Cheddar’s and 19% at Longhorn. Technology within online ordering has improved to-go capacity management and curbside delivery. During the quarter 64% of Olive Garden’s to-go orders were placed online and 14% of Darden’s total sales were digital transactions. Nearly half of all guest checks were settled digitally, either online or on tabletop tablets or via mobile pay. Cardenas described the effort to recruit and retain operational talent, claiming no systemic issues. Supply chain issues have also been largely avoided.

RAJESH VENNAM’ (CFO) SCRIPTED COMMENTARY

Rajesh Vennam, CFO, described how SSS compared to pre-Covid (2019), improved from negative 4.1% in March to positive 2.4% in May and positive 2.5% in the first three weeks of June. Though to-go sales have seen a gradual decline, this has been more than offset by in-store dining. In the fourth quarter, CGS was 90bp higher (investments in food quality and pricing below inflation), labor was 190bp lower (320 bp of simplification efforts, partially offset by wage pressures). Marketing was 200 bp lower. Restaurant EBITDA margin was at a record EBITDA of 22.6%, 310bp higher than pre-Covid. CGS inflation is expected to be about 2.5% and hourly labor inflation at about 6%.

QUESTION AND ANSWER DISCUSSION

Gene Lee talked further about the “employment proposition”. The store level margin allows for adequate wages, along with promotion of a thousand team members per year into management. When questioned about store level margin expectation, CFO Vennam indicated that store level EBITDA in the short term is expected to be 200-250 bp better than in 2019, with pricing of 1-2%, lower than CPI inflation of about 3%, but full year margin (ending 5/22) has yet to play out. Commodity inflation of 2.5% for the year will be 3.5-4.0% in the first half, expected to tail off to roughly flat by Q4. Chicken and seafood are elevated, also cooking oil and packaging, a little bit in dairy.

Lee feels that the throughput improvements, including menu simplification, allow for more sales capacity from this level. Mother’s Day sales were a record and mid-week capacity is not fully utilized. Consumer behavior is not yet normalized, so the mix between dine-in and off-premise is still uncertain.

When questioned about the sales improvement “flattening” in May and June, CFO Vennam pointed out that promotional levels are not as heavy now as in ’19, obviously helping the operating margins even with sales just modestly higher. Gene Lee commented later that the current advertising is generic, removing all incentives and discounts, with record operating margins, so marketing decisions going forward will obviously be carefully considered. Later in the call, Gene Lee talked about the Fine Dining segment also improving (a little later than Olive Garden and Longhorn) from down 12 in March to down 6 in May.

COO Cardenas described how technology is reducing “friction” in the guest experience, as well as for team members, making ordering and pickup easier. To further improve the process within the restaurant, a revamp of the point of sales system is planned.

Gene Lee talked about the potential to improve direct marketing to new digital customers, especially with the newly acquired ordering preferences. Lee emphasized the effort to improve the craveability of the menu, at the same time simplifying and improving the core items.

Relative to the addition of additional brands, Lee expressed great satisfaction with the improved returns within the existing portfolio. While not ruling anything out, he seemed to feel that there is substantial opportunity to profitably invest internally.

GENE LEE OPENS UP A LITTLE FURTHER

When pushed about why the sales recovery within Darden is not as fast as elsewhere, Gene Lee’s response was telling. “Because we’re not participating giving away food to third-party channels…not discounting heavily….not discounting cash through selling gift cards….we put up 25% fourth quarter restaurant margins….that’s what we’re focused on. A lot has changed…..virtual brands….guys, you got to get off this……this (Darden’s portfolio of brands) is the best business in casual dining, not even by a little bit anymore…..our guests are loving the experience ….they love the changes that we made….but we’re not chasing an index and we’re not chasing where we were in the past. We love our position today.”

Lastly, when questioned about what the new normal will look like, Gene Lee summarized by saying: “I think we’ve still got another six to nine months to understand (if we don’t have any more problems with Covid) what are going to be the normal behaviors….and then you start developing your market plans and you get tactical on how to get these folks into your restaurant or use you as an off-premise occasion.”
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ABOUT THE AUTHOR:
ROGER LIPTON is an investment professional with over 4 decades of experience specializing in chain restaurants and retailers, as well as macro-economic and monetary developments. After earning a BSME from R.P.I. and MBA from Harvard, and working as an auditor with Price, Waterhouse, he began following the restaurant industry as well as the gold mining industry. While he originally followed companies such as Church’s Fried Chicken, Morrison’s Cafeterias and others, over the years he invested in companies such as Panera Bread and shorted companies such as Boston Chicken (as described in Chain Leader Magazine to the left) .

He also invested in gold mining stocks and studied the work of Harry Browne, the world famous author and economist, who predicted the 2000% move in the price of gold in the 1970s. In this regard, Roger has republished the world famous first book of Harry Browne, and offers it free with each subscription to this website.

In the late 1970s, Roger left Wall Street to build and operate a chain of 15 Arthur Treacher’s Fish & Chips stores in Canada. In 1980 he returned to New York, and for the next 13 years worked at Ladenburg, Thalmann & Co., Inc. where he managed the Lipton Research Division, specializing (naturally) in the restaurant industry. While at Ladenburg he sponsored an annual Restaurant Conference for investment professionals, featuring as keynote speakers friends such as Norman Brinker (the “Babe Ruth” of casual dining) , Dave Thomas (Wendy’s) , Jim Collins (Sizzler & KFC), Jim Patterson (Long John Silver’s), Allan Karp (KarpReilly) and Ted Levitt (legendary Harvard Business School marketing professor, and author). Roger formed his own firm, Lipton Financial Services, Inc. in 1993, to invest in restaurant and retail companies, as well as provide investment banking services. Within the restaurant industry he currently serves on the Board(s) of Directors of both publicly held, as well as a private equity backed casual dining chains. He also serves on the Board of a charitable foundation affiliated with Israel’s Technion Institute.

The Bottom Line: Roger Lipton is uniquely equipped as an investor, investment banker, board member and advisor, especially related to the restaurant, franchising, and retail industries. He has advised institutional investors, underwritten public offerings, counseled on merger transactions, served on Board(s) of Directors, public and private, been retained as an expert witness, conducted valuation studies and personally managed a successful investment partnership, all specializing in restaurants/retail. He has studied great success stories over the last 40 years, from McDonalds to Shake Shack. Even more important he has watched scores of companies stumble and sometimes fail. It is this insight that Roger brings to this website. His post, dated 9/30/15, called “VISIT THE GRAVEYARD…..” lists a long list (though only a sample) of companies that have come and gone over the length of Roger’s investment career. This platform is his way of maintaining a dialogue with other professionals in the field, improving his own investment results, and remaining well informed on industry issues.
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