by John A. Gordon, Principal and Founder, Pacific Management Consulting Group
More Questions Than When We Started.
Typically, by this point in mid-January, we would have some idea what the restaurant operating tempo[1] for the year beginning jump-off point is going to be. We would have entered January, always the slowest month in restaurant sales and traffic in the Northern Hemisphere. We would have good summary indicators through Restaurant Finance and Development Conference (which came off beautifully, live in November) and the ICR Conference (which unfortunately reverted to virtual earlier this month). Frankly, none of this gave us a warm and fuzzy feeling.
Are Conditions on the Ground Clearer?
Unfortunately, not. Conditions on the ground in the field are quickly changeable. Consider:
Starbucks notifies all of its customers on January 14 electronically that US store hours, openings, business platforms, and product availability are apt to change due to the effects of COVID/supply chain issues.
The FACTEUS FIRST Report on consumer spending showed very gradual transaction count softness in QSR credit card transaction counts and full-service brands following in December and early January. [2]
Two restaurant analysts coming out of ICR mentioned their perception that companies seemed to talk “90% staffing” as the new staffing best point for now. Several companies noted the loss of sales due to closed units/early hour closes.[3]
Per my monitoring of company presentation of company presentations at ICR, I found little talk about supply chain/COGS inflation as “transitory”. [4]
Restaurant Research reported that the all-important sales to investment ratio have declined (unfavorable movement) as higher construction costs/times to build have more than offset AUV growth. [5]
So after hearing all this, my key January-February watchpoints are (1) supply chain food commodity analysis (2) US social sensitivity/reaction to this new wave (3) restaurant employment/staffing indicators, units closed early (4) restaurant operator marketing execution (5) unit margin contraction and impacts on franchisee new unit development in 2022-23.
No more hockey sticks please on Unit Development Guidance
I’m mentioning these observations to note that restaurant external communications, planning, and internal control must take on a new dimension this year. The days of spending monstrous blocks of expensive staff and executive time on a theoretical future 3 year/5 year plan are misplaced. The planning function has to be more current-focused and analytical focused on current drivers and then logical flex point options that can be adopted quickly. That is hard enough to get right. What I recommended is to get the budget year set with detailed operations options and alternatives (including CAPEX, G&A, dividends, etc.) and simply flow 2-3 outyears from the most likely scenario.
For IPOs, new funding rounds, new brands, debt issues, etc.: investors typically focus on how many new units can the brand open and sustain over some time. I get questions from investors all the time about the original S-1 numbers restaurants have stuck with. 2021 has seen some very attractive young new brands go public for example. But remember these claims of new unit count potential—5000; I just saw two fast-casual publicly-traded brands still backing 6,000 total units—that growth rationale is a tremendous burden to maintain. At the very least, those counts should be qualified as total world count up front in the book running process to allow for some time cushion.
Assessing New Concepts Post 2020
COVID-19 and March 9 2000 changed everything of course, but business is still business. What’s always been important in this business (good food, good margins—see Gordon Ramsey quote in Time Out, January 14, 2022[6] ). COVID has caused some emphasis shifts as I can describe below:
- It is essential to build or bake into the company DNA where staff engagement and involvement at all levels of the company—from the store level to the office of the CEO. This includes franchisees, the ultimate grey zone that is rarely handled well.
- Being engineered to be on point with targeted and aspirational guests and the right revenue channels is key to finding the right sites. The hunt for sites is ever-present. The landlord win factor—and outyear rent factors are key to consider.
Management Lessons: Bill Marriott
I admit it: in the late 1980s, I was interested to join the Marriott Corp. in Washington DC. At the time, you recall, they ran several restaurant chains. Another opportunity in DC came up that I took and shortly thereafter, Marriott divested the restaurants. I did continue to follow Bill Marriott. Mr. Marriott is still executive Chair of Marriott and is active on social media, Marriott on the Move. Recently I came about “Bill Marriott’s 12 Rules For Being a Successful Manager” and thought it would be good to cite here. [7]
Several make sense to note here:
Number Five: Do it and do it now. Err on the side of taking action.
Number 6: Communicate by talking to your customers, associates and competitors
Number 7: See and be seen. Get out of the office, walk the talk, make yourself visible.
Number 8: Success is always in the details.
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About the author: John A. Gordon is a long-time restaurant industry veteran with 45 plus years in operations, corporate financial planning, and analysis and the last 20 years via his founded firm, Pacific Management Consulting Group. He works complex operations and financial analysis projects as well as strategy assessment reviews for clients. He can be reached throughout at 858 874-6626, email, jgordon@pacificmanagementconsultinggroup.com.
[1] Or OPTEMPO, a word that represents the pulse of activity of the business.
[3] YUM, LOCO, JACK.
[4] Transitory is a Wall Street CYA word copied from the Fed Chair, and in my opinion, does not apply to the restaurant space now.
[5] https://chainrestaurantdata.com/new-unit-investment-2021/
[6] https://twitter.com/JohnAGordon
[7] https://skift.com/2014/02/26/bill-marriotts-12=rules-for-being-a-successful-manager/