News Analysis Recession tips
Recession proof your business As the Canadian economy flirts with a recession, consumers will likely cut leisure spending. Liquor Canada found out what licensees can do to cut costs and keep revenue up Times are getting tough. Take the U.S. restaurant industry – it’s enduring its toughest time in 17 years as tight credit and falling home prices compel consumers to spend less when they eat out, a National Restaurant Association economist told Reuters. Recent reports have shown restaurant closings in London, a crisis in Paris and concern across Canada that consumers will tighten up on leisure spending and enjoying an evening eating out will be up on the chopping block. In Ontario, sales seem to be holding up for now. The Liquor Control Board of Ontario says it hasn’t seen a drop in sales to licensees. Compared to last year, wine sales to bars and restaurants have actually increased by 4.5 per cent from April to October 2008.
Quick tips 1. Promote low cost items to increase profitable cash flow 2. Be careful of overbuying. Use par stock levels, don’t keep them too high 3. Keep storage areas well organized and locked 4. Check your menu portion sizes, are customers getting the correct size portions? 5. Ensure all outgoing items from the bar and kitchen appear on a guest cheque – even complimentary Source: Cobalt Hospitality Consulting
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In Alberta, total alcohol sales are up six per cent in 2007/2008 over the previous fiscal year, according to the Alberta Gaming and Liquor Commission’s annual report. However, the vast majority of alcohol ($1.6 billion) was purchased at retail outlets for consumption at home or private gatherings with friends. Of the nearly $900 million spent on beer, roughly three-quarters was doled out at retail outlets, followed by $210 million at hotels, bars and lounges. “People can’t afford to drink in public anymore,” Dawn Johnston, professor in food culture at the University of Calgary told the Calgary Herald. Johnston noted in Alberta, pints of beer run about $7 and inexpensive wine costs $8 a glass. The West Coast tells a different story. Restaurants have been hit especially hard given the number of large restaurants opening up in anticipation of the 2010 Olympics in Vancouver. Reports show the average cheque is shrinking substantially, while wine sales to licensed establishments are down. Suppliers, it seems, are calling on their customers, inquiring about their reduced orders, while chefs are looking for a cheaper cut of meat. Jay Mangan, general manager of Doolin’s Irish Pub in Vancouver says his average cheque remains the same, for now. “The major market crisis hasn’t fully hit us yet but it’s coming,” says Mangan. “I’m forecasting for a drop in sales.”
News Analysis Recession tips
Expert advice With widespread concern across the country about what the coming months will bring, experts in the field provide some tips for uncertain times. Mike Walmsley, owner of Cobalt Hospitality Consulting suggests costing out your top menu items and ensuring they’re making the contribution they should. “Where gross profit is very important, if you ignore food or beverage cost it will lead to reduced profits.” He gives this example. If you sold a prime rib dinner for $29.95 and it cost you $13.45 to make, your gross profit would be $16.50 with a cost of sales at 44.9 per cent. But if someone bought a pasta dinner that was priced at $7.95, and cost you $1.70 to make, your gross profit would be only $6.25, but your food cost is also much lower, at 21.3 per cent. It’s important to have a low food or beverage cost, but it may not always be the best for your pub. Would you rather have a menu item that contributes $16.50 to the bottom line or $6.25? You would have to sell more than twice as many pasta dishes to get the same financial contribution as one prime rib dinner would give you, according to Walmsley. In addition, Walmsley suggests talking to your suppliers, because if you’re experiencing a slowdown in business, so are your suppliers. See
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If you don’t have a system in place, you could be losing 15 or 20 per cent of your draft beer
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Mike Walmsley
if you can create a strategic alliance, which may require you to sign a long-term contract, but at a reduced price. Consider getting a beverage management system. “If you don’t have a system in place, you could be losing 15 or 20 per cent of your draft beer,” says Walmsley. “For most pubs, that translates into about $80,000 to $120,000 in losses.” If you’re short on kitchen staff, Walmsley suggests streamlining some of the repetitive tasks or buying ready-to-use products such as pre-diced carrots or romaine lettuce. As the owner of a pub or restaurant, there’s benefit in being more forthcoming with staff. By letting your staff know what the establishment’s financial goals are for the next three months, six months or year, and asking for their input to help achieve those goals, you’re allowing your staff to take ownership of the goal, which can be a strong motivator, he says. Beyond that, it’s important to find ways to connect to your customers. Walmsley worked with a pub on Vancouver Island who couldn’t name their regulars. He suggested running a contest for the staff to see how many customers they could remember by name and customer preferences. Within a week, the pub saw an increase in sales
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News Analysis Recession tips
Rose, who has been involved in the liquor industry for 15 years, says contests allow you to collect business cards and contact information from your customers. That information can be used to create a database you can call on when you introduce a new menu or hold a special event. Ensure you always have something going on in your venue, whether it’s theme nights, a guest chef or local personalities. If advertising budget is a concern, consider partnering with a city event, charity or organization. “Get involved with wine organizations representing regions. Speak to the marketing departments of some of the big wineries about doing specials with them. They’re going to advertise for you and send people directly to your restaurant.” And don’t underestimate the power of restaurant guides. Rose says people use them. David Rose
of eight to 10 per cent “just because the staff took the time to pay attention to the customer,” says Walmsley. Today, that pub has invested in nametags for all their staff, so customers can learn the staff ’s names as well. Communication is key Communicating with your clientele is a must. “If you’re not making them feel welcome and greeting them when they walk through the door, they’ll walk in and walk out,” says David Rose, owner of Forefront Communications, a marketing and communications company that specializes in the beverage alcohol industry.
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If you’re not making them feel welcome and greeting them when they walk through the door, they’ll walk in and walk out
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An emphasis on value Rose says the last thing licensees should do is cheapen the price or cut back on quality. “I would not be cutting back. I think that the consumer sees when you cut back. I think they’re looking for more added-value now not cheaper.” Rose suggests adding value through pre-fixed menu items and examining the price-quality ratio so consumers feel like they’re getting more for their money. Meanwhile, a Halifax licensee who weathered the last Canadian recession offers this advice. “A focus on value was our strategy,” says Gary Muise, vice president of operations of Halifax’s Grafton Connor Group who in 1990 was the general manager of Peddler’s pub and JJ Rossy’s in Halifax. “We focused on more combinations, more packages, more all-inclusive meals that would include an appetizer and dessert,” says Muise. “It was about repacking basically. We looked at the menu and packaged things together so we could stretch the customers we had.” He says two-can-dine specials were popular because it allowed customers to see the total price. But in general, “the same rules apply during a recession as they do the rest of the time.”