How to minimise the financial impact of COVID-19 on your F&B business
Kevin Zajax, CEO at new food & beverage advisory company Ground Control, offers guidance on the practical steps food & beverage businesses can take to mitigate the financial impact of the coronavirus.
This article is part of a new series of thought-provoking Op-Ed articles on trends, challenges and opportunities for the F&B sector written by Zajax, who served as Chief Operating Officer at Emirates Leisure Retail in Dubai for 11 years until May 2019.
COVID-19 is hitting our industry hard. The headlines make for grim reading. A combination of fear, a decline in tourism, government-imposed bans, and general consumer sentiment are resulting in significant reductions in spend and, with seemingly no end in sight, the outlook appears bleak.
Key questions being discussed right now – from boardrooms to bars and from the C-suite to coffee shops – include:
- What additional processes do we need to introduce to minimise the risk of spreading the virus?
- Am I liable if my staff or customers become infected because of contact within my venue?
- What measures do we take to lessen the immediate financial impact without crippling the business infrastructure and morale?
- Who are we going to have to let go?
Kevin Zajax: “Ultimately, guests return to restaurants, bars or coffee shops because the product, environment or service met or exceeded their expectations. Virus or no virus, this does not change.”
Significant literature exists on what venues and brands should be doing to protect themselves from the health, hygiene and legal risks from COVID-19 – I suggest you read these and, if in any doubt, seek expert help.
This article focuses on the practical steps F&B businesses can take to mitigate the financial impact of the coronavirus.
Ultimately, there is almost nothing anyone in our industry can do to deal with the macro impact the virus is having. So, we have two choices: sit back and watch or fight like crazy to safeguard the existing business as well as reshape the business for the future. I prefer the latter.
Limited resources also require focus. The following hints and tips have yielded the ‘biggest bang for your buck’ in my experience during challenging times.
People and staffing
Reward high performers: It may sound counter-intuitive to reward in times of downturn, but the rewards don’t need to be monetary or immediate. At least half of your workforce will be fearful of losing their jobs. Finding ways to recognise and reward high-performers during these times boosts tremendous loyalty.
Cross-train staff: Terminating staff and re-recruiting is expensive - not just financially, but from a customer service element. Use quieter operating times to find opportunities to cross-train. As and when people leave (it is the F&B industry after all) you will have a strong team of individuals capable of taking on additional tasks or stepping up into roles that would previously have required a new hire.
Better scheduling: I have not come across one outlet – ever – where the supervisor or outlet manager could say, ‘my rostering is perfect’. The reason is rather simple. Our industry is typically filled with optimists – we believe customers will show up and we want to give those customers the best experience possible. There are many tools out there to help predict rostering. In my experience, someone in-outlet has the best knowledge to predict rostering (and it’s not always the manager). Challenge them to find ways to reduce man-hours (and don’t forget to reward them when they achieve great results).
Cost of goods sold
A word of caution when it comes to this section: any operator can reduce costs here – opting for inferior ingredients, making portions smaller, watering down beverages. These are all ‘blunt instruments’ that are likely to damage your brand and/or your reputation. Use those tactics at your peril.
Re-use: Long before millennials decided to drive the #uglyfood movement, chefs all over the globe were sensibly using ‘leftovers’. Instead of throwing out slightly stale bread, turn it into croutons or breadcrumbs; use over-ripe fruits to make jams; use good, but perhaps unpresentable green veggies to produce a pesto dip.
Localise: In my previous article, I heralded the movement towards localisation, catering to the growing wishes and desires of international travellers. Now I am talking about buying from local suppliers. While most chefs prefer the highest quality ingredients regardless of source, if you look hard enough and are prepared to work with suppliers, in many instances you will find very good locally-sourced quality alternatives for a large percentage of your ingredients list.
Don’t be afraid to challenge franchisors/licensors. If the local product is of the same quality, there is no reason why you shouldn’t be able to use it.
Menu rationalisation: More often than not, the 80/20 rule applies. That doesn’t mean deleting half the items from your menu, but rather looking at the worst performers. Remove items on the menu that are not making money (and I mean cash margin, not sales) and/or find new limited-time offers to replace them.
My experience tells me landlords are willing to listen. We have already seen some landlords (airports in particular) offer rental concessions to those impacted by the virus. Don’t be afraid to have the discussion. Don’t be afraid to ask for what you need.
‘Blend ‘n’ extend’: Landlords have business models too, and simply giving rebates, reductions or rent abatements is easier said than done. Assuming your outlet is performing well and you want to continue, consider offering the landlord a way for him to continue receiving his total rent over the term of the lease, pushing current year rent into remaining years or, if you negotiate very well, into an extension beyond the existing termination date of the lease.
Offer a refurbishment: While I’m a big advocate of ‘cash is king’, sometimes it makes sense to invest in a refresh of the outlet. The opportunity cost of closing the outlet for 6-8 weeks is lower when sales are down and if you can do this and further extend your lease, even better.
Turn everything off: Unless you’re operating 24/7, ensure that everything is turned off at the end of the day. Aside from being good for the environment, it may help save some money on your utilities bill.
When meeting your landlord, be prepared. Clearly show the impact. Be realistic. Be transparent. Don’t try to hoodwink your landlord. Even if you do get away with it this time, it’s unlikely you’ll be looked upon favourably in the future.
If you started your business 3-4 years ago, and this is the first time you’ve had a constructive discussion with your landlord on outlet performance, expect to be laughed out of the office. If you’ve missed the boat this time, learn the lesson that relationships with your landlord are incredibly important.
The above three cost categories typically account for 70-80% of your cost base. The remainder of your costs will include marketing, franchise/licensing fees, trade licenses, bank charges, subscriptions, IT costs, entertainment, etc. Do yourself a favour and just go through what has been posted to these accounts over the last 12 months. I’m sure there will be entries that will surprise you – at least begging the question, ‘should we do something about that?’.
Don't forget sales
While the natural reaction in times of hardship is to attack costs (as they are more controllable), don’t forget the top-line. Capture rates for any F&B outlet are typically low. Even in ‘captive markets’ (like airports) the total number of people eating or drinking is around 50%. There is always an opportunity to drive patronage and footfall to your outlet.
Value offers: Bundle items to increase basket size. Yes, you will have a lower GP, but 75% of 50 is a lot worse than 60% of 100. I think this old-fashioned mindset of ‘you have to achieve a GP%’ is slowly leaving the F&B scene, but I still see some operators heavily focused on percentages, versus cash.
Ask your suppliers to provide discounted bespoke items for these bundle deals – for example a complimentary donut with coffee. Suppliers will be hurting too, so appeal to them, especially as their marginal costs are smaller than yours.
‘Signatures’: Don’t underestimate the power of a signature dish or a signature cocktail. Customers appreciate simplicity. Make the signature offer attractive enough so they feel they are getting something unique. Allow them to customise elements of it to really make them feel special.
Upselling: If you’ve trained your staff well, or you have a product offer that is customisable, this is your simplest way to increase sales and profit. I’m still always amazed that when I go to Starbucks (which is rare, I must admit) I find myself leaving with something that I didn’t anticipate buying when I went in. 95% of the time, that is because that one person behind the POS has been successful in piquing my interest into trying something different or new (reward staff for doing that).
A final thought
Successful F&B is all about memorable experiences. Eating and drinking is sensory. Ultimately, guests return to restaurants, bars or coffee shops because the product, environment or service met or exceeded their expectations. Virus or no virus, this does not change. What are you waiting for? Remember, those who act early, win.
*About Ground Control
Ground Control is a leading F&B advisory for airports, stadiums and brands. Spearheaded by Adam Summerville and Kevin Zajax, the team focus on creating award-winning F&B experiences and helping clients increase ROI through concession planning and selection, F&B management and strategies to grow brands.
The Moodie Davitt eZine
Issue 278 | 7 April 2020
The Moodie Davitt eZine is published 12 times per year by The Moodie Davitt Report (Moodie International Ltd). © All material is copyright and cannot be reproduced without the permission of the Publisher. To find out more visit www.moodiedavittreport.com and to subscribe, please e-mail firstname.lastname@example.org