Cooking up trouble Featured

7:00pm EDT February 23, 2010

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.

How can restaurants improve their internal processes?

Anything they can do to improve the process itself can help. People may not think of technology being important within a restaurant, but it can significantly improve transaction processing, from ordering the food to delivering the check. Some systems automatically enter orders and communicate them to the people in the kitchen, while tracking the timing and efficiency of them.

You’ve been at dinner where your entire group is served except one person, or someone at another table gets served first, even though you arrived before them. Computerized systems can help improve that service, as well as make sure that you capture all of your revenue and that checks are delivered to your customers efficiently and in a timely manner.

Programs that allow you to control your inventory are typically married with those systems. Anything that helps you forecast and manage your inventory is very helpful.

Matching your needs with your supply is important because so many restaurant items are perishable. Restaurants that are not run as efficiently as they can be tend to lose a lot of money in lost food costs.

How can restaurants determine where they must improve?

They have to be honest about their own current operations. Just like any operation, they need to look at their cost accounting and understand how they are making money, where it’s being made, and where they are losing money if they’re not as efficient.

They need to understand where the potential problems are so they can identify what it is costing them. Anticipate savings from the implementation of a new system that would reduce or eliminate those problem areas. Then, compare that to the initial investment in the software.

How are successful restaurants thriving?

They are using the Internet a lot more as a pure advertising tool. More and more consumers today are running to the Internet to find out about things, no matter what they are looking for. Younger customers will make a query looking for a type of restaurant and location. For many consumers, that Web site is their first introduction to the restaurant.

You have to make a distinction between yourself and your competition. There has to be enough information to answer that consumer’s potential questions regarding the restaurant’s ambiance, pricing and menu.

Some restaurants are allowing customers to make reservations or order carry-out food over the Internet. Successful restaurants highlight the hook that brings consumers to them over one of their competitors.

What can other industries learn from the challenges facing the restaurant industry?

They truly need to understand what is going on in the local and global economies, because they are impacted by everything from the first revenue item down to the last expense item. Politics, the economy, consumer confidence, changing demographics: you need to be aware of how these trends affect you.

For instance, restaurants have noticed people are eating lighter and/or want different menu options. You need to be prepared for those changes, but also understand the changes in consumer trends.

Michael L. Minotti, CPA, is president of Skoda Minotti. Reach him at (440) 449-6800 or mminotti@skodaminotti.com.