What do a Real Estate Mogul, a Textile Merchant, the Patriarch of a Family Owned Group of Companies and a major Electronics Dealer have in common? I mean besides the fact that they all spent a lifetime building and nurturing businesses that have evidently done quite well for them.
The telling answer is that each one has an intense, almost palpable desire to enter the Food Service business in some shape or form. I know, because I met them all within the past 6 weeks. In each case, a curiously abstract sense of enthusiasm for the business and the promise of abundant cash flows emerged as their most compelling motives. More compelling than diligent, incisive, cold analysis at least.
Perhaps its because industry outsiders are mainly exposed to the ‘front of the house’ aspect of food service operations – and that’s where all the cool stuff happens. The eye catching decor, the smartly dressed servers, the music, the captivating aromas, the artistic food presentation, the sense of choreographed drama and of course, the sweet sweet sound of the cash register. It appears close to what heaven would be like, and who wouldn’t want a piece of that?
Food and us – its complicated
Positioned at the very foundation of Maslow’s pyramid of human needs, there’s far more to food than mere physiological nourishment. This place of primacy is deeply ingrained into our psyche, right on the blurred line between need and want. The resulting, deeply complex relationship that we have with food evokes and stirs emotions like nothing else ever could – emotions that permeate all aspects of our lives, including business. Ok, make that ‘especially business’.
Getting your reasons straight
Common logic that feeds culinary business aspirations is that ‘we all eat’. And most of us also eat out to varying degrees. So, in a way, that already makes us a quasi expert on the subject. Moreover the internet, TV, books and magazines devote an inordinate amount of space and time to food and beverage, and are a ready source of learning. Then how hard could it really be to get involved and open the cash faucet, especially when we’re talking about one of the most robust, recession proof businesses around?
‘Think again’ is probably the best riposte to such logic.
Sky high potential
In a perfect world, one out of every three Dirhams of sales in a food & beverage business could go straight to your pocket. That means a mere Dh. 3,000 of daily sales in your food & beverage outlet could give you a monthly net profit of Dh. 30,000 and a modest Dh. 5,000 per day could increase your personal bank balance by Dh. 50,000. Add a few more outlets to the equation with slightly more ambitious sales figures, and we’re already raking in annual profits in the millions.
Sounds terrific. Except that it doesn’t quite happen that way.
Fuzzy math aside, food service (which refers to the whole gamut of Restaurants, Cafés, Fast Food Joints, Delis, Pizzerias, Steak Houses and their kind) remains professionally rewarding and financially lucrative as a business. Realistically, even today, you could start what could go on to become the next Five Guys, Chipotle, Starbucks or Cheesecake Factory. Know that success in this business is not meant to be the prerogative of a select few………..at least not by design.
So what does it really take to run financially successful food service businesses?
Without being privy to their inner workings, I can categorically make the assertion that those who generate wealth and sustained growth in the food service business, will invariably have the following in common:
1. They think and act with a clear sense of purpose
The constantly cited ‘high failure rate’ of the food service business is cringe inducing, especially in the absence of specific context (dig deep enough and there is always a plausible explanation for why a particular restaurant had to shut down). Success and failure are a part of any business, but starting out by focusing your energy on avoiding failure than achieving success is guaranteed to make success elusive. In business, as in life, what you think about, you will bring about. Mindsets create focus, focus creates actions and actions dictate results.
Achievers in the industry are focused on customer needs, value, building winning teams and improving bottom lines. Such people live by ‘failure is not an option’ simply because they have no time or inclination to think about it, proving that ‘self-fulfilling prophecies’ are no psychobabble.
2. They limit their menus
Food service operators must optimize the utility of time and resources. Large menus confuse the customer with too many choices, take longer to order from, require more inventory (and more management and wastage), more equipment, longer ticket times and increase the chances of less than perfect food, at least on some occasions. All this translates to LESS REVENUE & BELOW PAR PROFITABILITY.
Successful operations, on the other hand, carefully select what to offer on their menu and ensure that their focus is on quality and consistency.
3. Their convictions are not easily shaken
If there was ever a recipe for failure in this business, it is the propensity to make hurried changes at the first sign of a challenge. Restaurants seldom succeed from day one, but if enough planning and preparation has been put in, they are likely to gain momentum sooner than later. Anxiety from not meeting performance expectations at the outset can be destructive and compel you to look for problems where none really exist. This can lead to unnecessary alterations in the menu, decor, team members and brand personality – all of which can have repurcussions that are beyond the obvious and immediate.
Behind any financially successful restaurant is the calm confidence of a cohesive, and stable team, equipped with belief and preparation.
4. They follow the 80 – 20 rule
We’ve all heard about it, read about it and probably applied it at some point. That doesn’t make it any less important though. The focus on the roughly 20% items that make up 80% of the sale (and a high percentage of the profits) is intense and single minded – right through supply chain, preparation, promotion, training and sales.
5. They are proponents of co-branding
When managing/owning multiple brands, they like to be involved with mutually complementary, non-competing concepts that have the possibility of co-branding, i.e. sharing retail space by placing both brands adjacently or one within the other. Ice Cream and Donuts is a common example of effective co-branding, benefits of which include reduced cost on real estate, labour, utilities, fit outs and a shared customer base.
6. They work from the inside out
PR, branding, social media, promotions are all important aspects of the food service business. Not as important as the need for running a tight ship in operations though. Successful operators acknowledge that predicting or influencing market behaviour is not an exact science and that the only place they really control is the one between the four walls of their premises. Manage, tweak and perfect what you actually can, before you try to control what is elusive. That is exactly why good restaurants can still do well with relatively little marketing, but bad ones can’t be saved by all the marketing Dirhams in the world.
7. They have well developed job descriptions and avoid turning team members into ‘Jacks of all trades’ .
In a practice that is quite pervasive, competent staff, especially higher paid senior personnel, are often burdened with miscellaneous tasks like real estate search, construction coordination, below the line marketing, administrative sundry and even solving staff accommodation problems. Managements that mistakenly think they are stretching their Dirhams by doing so, are actually doing a huge disservice to their core business. Physically or intellectually, if you are involved in too much, focus is bound to get diluted and productivity (read money in the till) is bound to take a hit.
8. When it comes to costs, they get to the very bottom
In practice (unlike the P&L), they avoid labelling costs as fixed, variable and semi-variable and endeavour to optimize each one of them. For example, food cost is variable by nature, i.e., the more you sell, the more food you consume, so the more you buy. This typically falls in the range of 28 – 35% of sales. But what about the vendor’s overcharging, uncalibrated scales at the receiving dock, wastage, pilferage, leakages and more? Ironically, these could be averaging up to a fixed (and staggering!), say 10%, on the regular variable cost.
Pennies add upto pounds and fils to dirhams at a very fast pace and often, when one is busy looking elsewhere. They understand this.
9. They view technology as a cost saver and revenue generator – not an expense
Inventory Management Systems, CRM (Customer Relationship Management) Softwares, Staff Scheduling Programmes, Web Monitoring, sophisticated POS (Point Of Sales) technology will all add far more to your bottom line than they temporarily take away – provided they are used effectively.
10. They effectively consolidate the small and big pictures of the business
What’s more important, the recent increase in smallware breakage of the outlet, the fact that cost of sales will be 3 percentage points above budget this month or that the opening of the company’s new outlet is likely to be delayed by 45 days? The answer is that you shouldn’t have to choose – each matter has a vital place in the big scheme of things.
Successful operators in food service strike the right balance between finer aspects of the business, and where its headed as a whole. They also have a very keen eye for KPI’s (Key Performance Indicators) as an effective way of separating the wheat from the chaf.
Profits, lifestyle, self-expression and glamour, coupled with the proliferation of turnkey franchising solutions are some of the factors that incessantly drive new entrants into the food service business. However, navigating, assimilating and managing detail remains the biggest challenge, on what is often a long, winding, gruelling, but fascinating journey.
Back to the beginning – is F&B the goose that lays the golden eggs? It certainly COULD be is the one true answer. And the good news is that YOU get to decide – by how well you look after that goose.