Cooking up trouble

The restaurant industry is still feeling the sting of the recession, and the general consensus is that consumers are very pessimistic about 2010.

“People are still very cautious about their spending,” says Michael L. Minotti, CPA, the president of Skoda Minotti. “Consumers are eating out less often than before, and those who are going out are spending less money.”

Therefore, restaurants have had to adapt to survive as their longtime patrons trim their dining-out budgets.

Smart Business spoke with Minotti about how the restaurant industry is handling its challenges, and what other industries can learn from its struggles.

How have today’s challenges affected the restaurant industry?

Whether they are fine dining, fast food or anything in between, restaurants face more competition today than in the past. Grocery stores and warehouse clubs are offering a full array of prepared foods so the consumer can pick up a meal that is ready to serve when they get home. These ready-to-eat meals are often perceived as a better value.

Also, convenience stores, gas stations and coffee shops are selling sandwiches, beverages and other food items you would have for lunch. They are taking that business away from the traditional restaurant. Another issue is that people are cooking at home more.

On the cost side, commodity prices have gone up for grain, which affects the production and price of beef and poultry. Then you have supply issues. Seafood, especially off-season, comes from all over the world. Whether it’s the fuel cost or just political issues in other countries, anything that slows the supply of seafood increases the price.

What must companies do to adapt and succeed today?

Consumers are sensitive, so restaurants cannot increase their prices to pass the buck along to the consumer. However, restaurants can reduce costs by offering alternative products. By substituting ingredients, they can still provide their ideal menu, but at a lower cost.

You have to listen to what the consumer is telling you. Today’s consumers are telling you they are price-conscious. They’re looking for better value; they are looking for quality. The younger crowd is looking for green menu initiatives. Another industry trend is offering smaller food items or portions, as well as multiple-choice meals like tapas.

Listen to your customers. Many people are looking for take-out, because they want to eat at home and it is less expensive. If you don’t currently offer a take-out menu, then adding one to the mix can help.