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Blog
86 the Profits
February 26, 2008
If our chefs and kitchen managers were our Chef Executive Officers, this would be the type of cry that you would likely hear coming out of the corporate offices these days. “86 the profits!” For those of you who are new to the industry, or who don’t often talk to the people running our restaurants, “86” is kitchen shorthand for “we are out of it.”
We aren’t really in an 86 situation, but profits sure aren’t as bountiful as they were a year or two ago. I talk to a lot of different restaurant CEO’s and presidents over the course of a week. I am used to the language of success and I am used to the language of tough times. New words are being developed to describe this ongoing period of simultaneous sales softness and cost pressures on the P & L. One president that I saw Saturday night described it as “brutal out there.” And I believe he was being stoic.
What makes this current period so tough is the amplified effect that negative traffic trends have on surging costs. There is the old cliché about high sales hiding a multitude of sins. Unfortunately, when high sales become low sales, the troubles are there for everyone to see. Different lines on the P & L are under pressure. Various commodities have soared over the past weeks and months. Normally, only your head of purchasing will know what wheat is selling for per bushel. However, when it goes from $3-$4 to over $15 in weeks past, that knowledge and pain is shared throughout the organization.
On the cost of sales line, wheat products, oils, corn and certain proteins are driving costs upwards. High gas prices translate into high transportation costs. Minimum wage initiatives at both the federal and state levels have begun driving labor costs skywards. Health insurance increases add insult to injury. And these are just the more dramatic increases. Many other lines on the P & L are creeping higher at the same time.
Believe it or not, this will pass. Sales will go back up and commodities will begin their next downward cycle. Unfortunately, legislated wage rates will stay high and will never go down again, but our industry can manage through this with healthy sales.
A short checklist of things to voluntarily 86 to come out of this cycle healthy and whole include:
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New locations if you are not certain that they will be winners (you can’t afford to be wrong)
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Current locations that are losing money that you can close or sell (pruning strengthens)
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Marketing programs that trade sales for profits (they only “wear out the carpet”)
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Deep discounting as a way of bringing in traffic (like heroin, the withdrawals are painful)
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Heavy price increases in an effort to keep your percentages whole (focus on the dollars)
This cycle has been painful but it won’t last. They never do. And neither do the good ones.
Be safe out there.
Posted by Lane Cardwell on February 26, 2008 | Comments (6)
Reader Comments
at 2/26/2008 9:04:10 PM, Jeff Berlind commented:
This blog might well be titled 'Memory Lane'. The 5 point checklist has stood the test of time and ought to be a sticky note on every restaurant executives desk top. One additional thought: if ever there were a time to use superior service as a competitive weapon, it is now.
at 2/27/2008 2:18:45 PM, Carin Stutz commented:
Lane, your best column/blog yet. You'd think this would be common sense, but we have all seen this happen too many times. Well said! I won't be 86ing this column!
at 2/28/2008 3:22:37 PM, matt commented:
Lane-
Great list! A question that came up in reading it is, what are the things that operators traditionally 86 in tough times that you would say to hold onto as tightly as possible? (ex.training) Or, are there things that are non-negotiable in keeping the business moving for the long term?
at 2/28/2008 4:42:38 PM, Lane commented:
Great question! Doing the right things can be as important as avoiding the wrong ones. Things that often get 86'ed that shouldn't be include product quality, levels of staffing, marketing, training, community related activities and some of the "extras" at the table that the restaurant has become known for. Jeff Berlind, in his comment above, is right. Superior service in tough times can be a competitive weapon.
at 3/7/2008 3:32:27 AM, Orrick Nepomuceno commented:
What will clearly define this period is the washout of the very good from the very bad. What I think is more evident is the recent "pruning" of human capital. We have seen it recently at Brinker and Starbucks. With the recent layoffs, is that really going to be an overall positive for the industry?
at 4/10/2008 4:29:07 PM, Jeffrey Summers commented:
I certainly hope so and believe it will be Orrick. I've actually been wishing for it for some time.
At least it will force HR departments and field managers to take a longer, harder look at the talent they have and the talent they hope to have.