Restaurant companies face a month or two of steeply declining sales as local and state governments put restrictions on their businesses and even the president urges people to avoid eating out to stem the spread of the coronavirus.
Hundreds of locations have already shut their doors around the country, while chains as big as Starbucks and McDonald’s close their seating areas.
For many operators, however, the prospect of a month or two with a drastic cut in sales, or no sales at all, could be devastating. Experts we spoke with in recent days used words like “bloodbath” and “meteor” to describe what has hit the industry in recent days.
Surviving it may be difficult, even for well-capitalized operators with no debt, absent some federal bailout.
But there are things operators can do to cushion the blow and put their businesses in the best position to survive. Operators have to be creative as they work to stay in business, taking steps they might not have before.
Aggressive strategies are important in a time like this.
“It’s time to hunker down,” said Joe Pawlak, managing principal with Restaurant Business sister company Technomic.
Shift to takeout
Companies that have delivery and takeout should focus on those services and promote them as best as they can.
“Drive as much business as you can to avoid that kind of drop,” said Jim Balis, managing director with the strategic operations group for investment firm CapitalSpring. Balis is an operations expert who is working with his firm’s restaurants to devise strategies to get through what is expected to be a rough spring.
“Focus on off-premise. Push for delivery and curbside pickup. Anything along those lines is very important.”
Early indications out of Seattle and other countries is that consumers will shift some of their business to delivery and carryout as restrictions take hold. After all, customers still need to eat. Many people don’t cook. And plenty of people, particularly essential workers, are still commuting to and from work and take lunch breaks.
“We heard from some people abroad that delivery went up in some cases 200%,” Balis said. “Some people simply don’t cook or don’t want to cook. There will be a slow migration over time to off-premise.”
That shift also includes packaging. Many restaurants have started using tamper-evident packaging to give consumers peace of mind.
And then do what you can to promote it. Make sure your customers know you have takeout and delivery.
Remove some menu items
Don’t be afraid to trim some items from the menu, especially ones that don’t sell well or don’t work as well with takeout and delivery.
That can help reduce prep time to ensure that food is served more quickly and can reduce complexity at a time when staffing may be down.
“It’s an opportunity to scale back on the menu to reduce the amount of prep,” Balis said, suggesting the removal can be temporary.
Pawlak said it’s a good idea to trim poor-selling menu items, especially items that don’t work well with delivery, regardless of the economic situation. But it’s particularly important now.
“Certain products may not carry very well,” Pawlak said. “Or they may not sell very well, or products are not profitable.”
That can be tough for operators who worry about losing an order, but Pawlak said such considerations need to be dashed in the name of profitability. “They need to think smartly,” he said.
And limited-time offers should be a no-go.
“It’s not the time to think about LTOs and new product development,” Pawlak said. “They don’t have the runway. Do what you’re known for and ride that pony until this thing subsides.”
Cut costs to the bone
This is an obvious one, especially given that many restaurant operators are already taking this step. An NPR/PBS NewsHour/Marist poll, for instance, found that 18% of adults have either been let go or had their hours reduced because of the coronavirus.
Many restaurants have already reduced employees’ hours in response to the issue. But operators need to cut as much fat out of their expenses as possible.
Restaurants need to manage down to their volumes as best as they can with staffing and supply levels, Balis said.
And prepare for the worst. “Cut every cost you can,” said Gary Stibel, CEO of the New England Consulting Group. “Assume this is going to be worse than you think it’s going to be. Those that survive will be the ones who cut costs to the bone.”
But, he added, “protect your people.” Stibel suggested bringing up ideas to employees, who may have ideas to help a business survive and protect their jobs in the long term. “You’ve got to do whatever you can to protect your people.”
Have conversations with landlords and other vendors
Rent and loans are huge challenges for many operators, who may have had to borrow money from the bank to start their restaurant and almost certainly pay rent to a landlord.
A restaurateur can close tomorrow and still have bills to pay, meaning they are essentially a negative cash value.
Operators need to have conversations with their landlords on their situation as sales fall. They should also have conversations with vendors.
“Everybody is in the same situation,” Balis said. “People are generally understanding, whether it’s vendors or landlords.”
Loans may be more difficult and may require federal intervention. Yet a conversation with a lender doesn’t hurt.
Everyone we spoke with said restaurants need to think outside the box and be creative with their ideas. One local taco shop in Minnesota, for instance, is considering bike delivery.
Balis suggested restaurants urge customers to honk their horns once they arrive to get curbside service.
“Be scrappy,” Balis said, while acknowledging that decisions made now can have reverberations once business picks up again. “It’s a balancing act. The key here is to think about how we get through these times.”
Some of the strongest companies historically used brutal times effectively and came out stronger.
“Use your creativity to do things that are right, that are smart, that will permit you to come out of this stronger than you went in,” Stibel said.
He said restaurants should also prepare for how they’re going to welcome customers back once dining rooms are open.
It’s widely believed that customers will flock to restaurants once they reopen for inside business, or business altogether, to fulfill some pent-up demand. Operators should use their time to think about how they can take advantage.
“Many of them participate in Restaurant Week. That’s come and gone. They need to prepare for Restaurant Month,” Stibel said. “When this thing is over, [consumers are] going to want to get out and they’re going to celebrate because they’re tired of being cooped up.”
“The time to do something isn’t May or June,” he added, “It’s now.”
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