7 Food Service Challenges

I've got several friends who run restaurants, and frequently entrepreneurs launching a restaurant ask my company for help with designing their logo, business cards, writing a business plan, training salespeople and, especially, raising money. Food service establishments are not the easiest to fund, because of several factors. Yet, if you can show me a business with more passionate owners, I'd like to see them!

Why is this? I'd say it is because we love to eat, and as much as we love to eat, many people love to cook good food. I even have my own dream to have a restaurant some day in the future. Why? I love food, I enjoy entertaining, and I love the dining experience - when it is done right.

Most GOOD restaurants are owned by people who love people and/or love food. Usually, both.

But, today, even the good small restaurants are running into challenges. What's going on?

I decided to take a closer look at the food service industry and open the kimono and share what I've discovered for those in other industries to gain insights from the food service industry. And, as you'll see, much of it isn't pretty. Is it all bad? No, of course not. Between 1970 and 2000, the food-service industry reported a compound annual growth rate of 7.5%, which outpaces most other businesses in America. But those statistics do not show the recent changes in business facing restaurant owners -- especially small restaurant owners -- over the past FIVE years.

I do want to illuminate the challenges facing food service operators, though, and review them here (please let me know if I've missed any):

1. Raising money. Food-service industry struggles to obtain funding. Restaurants are on a "grey" list for most banks to loan money. Why? Because restaurant owners frequently default on their loans, simple as that. According to the US Small Business Administration, 27% of restaurants fail in their first year, alone. Statistics like are a bit staggering. So, before you even get started trying to get money, the ghosts of Christmas' past, even those you weren't a part of, offer somewhat less access to money.

2. Locations. Restaurants are often slave to their location. How many times have you heard the key to a restaurant's success is "location, location, location"? I'll add to it "an excellent ambiance, lively experience, excellent food, at reasonable prices, along with great service" as also dictating success. Pick a great location, the business can thrive. Pick a poor location, God only knows how successful you'll be. High traffic, access to parking, proximity to crops and food supply, visibility, and more all determine how successful a given location will be at drawing and holding a clientele. From what I've studied, even factors like Feng Shui may influence the success of restaurant location. Besides retail, show me a business more dependent upon the RIGHT location -- I'm not sure there is a business more dependent upon location than the restaurant industry.

3. Rising costs. Prices are soaring on food products. According to Ken Burgin, the costs of dairy have SOARED in the past year: "Some dairy prices have increased 50%, soy bean and corn prices have jumped, and let's not start on seafood, beef and green vegetables. Why? Asia's rising affluence and demand, increasing use of ethanol in fuel (often made from grain products), and drought in many parts of the world. But the reasons don't help reduce the squeeze on your margins." Agreed.

If prices go up 50% and your menu only goes up 25%, guess what? You just might be upside down. According to Douglas R. Brown in The Restaurant Manager's Handbook, most restaurants must maintain a food cost between 25% to 40% in order to achieve profitability.

For example, if you sold $100,000 in food for one month, and your food cost was $40,000, then your food cost was 40% of your total revenue. Using a recipe and procedure manual, you can determine the cost of each portion or serving of food that your restaurant offers.

If you are to determine what to charge for food, according to Brown, you use this formula:

Portion Cost (Food Cost)/Menu Prices*100= 25% - 40%

If the portion costs have risen by 50% to 80% and you don't raise menu prices accordingly, then you'll lose the percentage on the right side of this formula that ensure your profitability. You might be thinking, "So, I'll just raise my prices, then." Well, with the jump in food cost happening so quickly, the consumer may boycott the restaurant that raises prices so dramatically in such a short time. In that event, the restaurant who maintains proper price adjustment MAY actually be penalized by perceived high cost of their menu.

4. Compliance issues. Compliance issues with handicap access and other compliance codes are costing restaurants, big-time. On the Central Coast, where I live, one gentleman (if you could call him that) went around suing EVERY RESTAURANT he entered, on the basis of handicap access discrimination. The result? Some restaurants closed their doors, others underwent very expensive retrofitting for their elevator and wheel-chair ramps to be compliant with the law. It's a costly endeavor, from what I've seen, often impacting the restaurant by thousands of dollars. Many restaurant owners don't have access to that type of working capital and a small restaurant, especially, will be hit hard by such a lawsuit. Additional costs in benefits with health care and sick leave benefits have also impacted the industry.

5. Labor cost. After initial studies on hiking the minimum wage stating that it would not affect the restaurant industry, nothing could be further from the truth. A recent NRA survey indicates that the hike of minimum wage indeed caused operators to raise their prices, as well.

The cost of wages has increased 35% to minimum wage and wages, in general, need to be higher than that if you are to attract and keep good health. Minimum wages alone have grown from $5.75 to $7.50 during just the past 5 years. That's a 158% jump in wage cost, per hour, per employee, that is very real money to most small restaurant owners. In a recent study by Aaronson and Eric French examined government-collected price data. In a series of studies over the last four years, Aaronson and French show that a 10 percent hike in the minimum wage increased restaurant prices on the whole by 0.7 percent, and prices at limited service (fast food) establishments by 1.6 percent. Does this labor cost reflect the whole of damage to the restaurant industry? At the least, we see higher prices, but do prices need to increase MORE than the .7 percent as a result of labor cost increases? This is the question that remains unanswered.

More than this, it is a HUGE challenge for restaurant owners to get employees to report the correct amount of money in tips to the IRS. Why does this matter? Well, in the United States, the landmark case of The United States v. Fior d'Italia, Inc, 01-463, in June of 2002, the Supreme Court ruled that the IRS can ESTIMATE the amount of cash tips based upon the amount of tips shown on credit card receipts. This ruling can impact the FICA taxes for a restaurant.

6. Impact of health reports. The cost of maintaining good health. A restaurant in Calistoga received a health report of "C" which provoked press visits, health inspections, and costs of over $1,000 for a new report. In addition, the additional preparation to raise the health report to an "A" added to thousands. Plus, we're seeing more and more food scares with products like "Mad-Cow beef," the "spinach-scare," and other health-related problems. These scares present a serious impact to food-service businesses.

7. Customer Service training costs. The cost of training employees for service. Although this cost was overlooked by most people in all of my research, it certainly is not lost to me. In San Luis Obispo County, I've noticed a significant drop-off in service from the restaurants in the San Francisco Bay Area. Why? Perhaps the standards are higher, but it just seems to me that there seems to be a small-town attitude that patrons ought to be thankful they were served at all in this county! Not good, if you ask me. It took me the better part of a year to "get used to" the poor service at various hospitality establishments. In addition, I've tended to gravitate to the establishments who I know train on service and seem to value my time. What is the cost of your service? Are your people trained on salesmanship and how to present food in a pleasurable and successful way for both guest and restaurant management? This is vital to the restaurant's success. The question I'd pose to you is "can you afford NOT to train your employees?"

What are solutions for restaurants who want to THRIVE, not merely SURVIVE?

I've put together a list of solutions for restaurants who want to go from SURVIVE to THRIVE(sales mark for ARRiiVE Business Solutions), and increase revenues and profits through intelligent responses to the challenges outlined above:

1. Cost-balance your menu. If you have high-cost items, you might suggest a sales script that pairs these items with lower-cost items to balance your overall margin. I've utilized this profit mechanism more than once in my own sales past.

2. Control Portion Costs. Make sure your estimated portion costs are matching the end-of-month portion costs. If your employees are eating all your profits, you might have to change policies. In High School, I held a job at Taco Bell. I recall a meeting one Saturday morning where the entire staff was called in for a meeting, and introduced to our new manager. The former manager had been fired. And, in that meeting, we were informed employees had been eating free and this would no longer continue. We would now be billed 50% for all of our meals. The restaurant went on to success as a result of changing their employee dining policy, which clearly had impacted their portion costs prior to this change.

3. Evaluate your supply chain. Determine if there are wasted steps or waste in food delivery throughout your supply chain. One restaurant in Calistoga was dinged on their health report from a supplier who dropped potatoes on the ground in their haste. With the cost of preparing and ordering a health report in excess of thousands for preparation and $1,000+ for the report, it is wise to eliminate anything that could cause waste.

4. Implement a Health Plan. On the subject of health reports, implement a plan that ensures health report success, and monitor it monthly. If you blow a health report it could cost you in both repair costs, a poor press review, and worse-yet: customers who read or hear about it and never return.

5. Utilize the down-sell. If someone isn't interested in a main dish, try offering them two smaller dishes and desert. The cost to the restaurant may be less, and the impact to the overall ticket minimal. Down-sells can be an effective way to keep your customers happy and offer highest profit-margin items as a contribution to your bottom line.

6. Utilize the up-sell. If your waiters give a check without suggesting a desert item, they're missing the up-sell. Most restaurants train their waiters and waitresses to ask if customers want desert. If yours doesn't, implement it immediately. However, you can go beyond desert. An excellent waiter will offer suggestions for "table-appetizers" or "starters" to build clever conversation and a more enjoyable meal. In addition, the smart waiter will maximize drink orders by suggesting fun and enjoyable beverages. Your staff ought to be trained on options for up-selling customers and presenting them in unique and entertaining ways.

7. Offer healthy-choice options. In this world of fatty foods, it still amazes me how many restaurants don't designate certain dishes as "healthy" in terms of lower cholesterol or saturated fat. I recall a restaurant in San Francisco which featured some rich Italian food ALSO offered a little heart picture by the capellini, and other lighter-fare pastas and salads. Some of these dishes can also maximize your profit margin, which, to me, makes a lot of sense.

If you're seeking additional ways to improve your sales and marketing for your restaurant, consider utilizing experts at improving sales and marketing. We take pride in helping customers improve their image, get funding, and train staff for better salesmanship. Or, if you seek to impact operational ideas to build more revenue and profit into your operation's bottom line, consider utilizing an outside agency or consulting firm to help you spot opportunity that otherwise might slip through the cracks.

We love seeing restaurants create enjoyable, entertaining, healthy, and successful dining experiences. If you have additional ideas on challenges facing the food service industry (as well as possible solutions) please either contact me directly or use our comment form, below.
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Post by Scott Andrews, CEO of ARRiiVE Business Solutions.

ARRiiVE Business Solutions helps executives improve sales, launch products and services, and build dynamic, cross-functional collaborative teams. For more information, contact info (at)ARRiiVE (dot) com, visit ARRiiVE , or call us at 1 (805) 459-6939.

Copyright © 2007 by ARRiiVE Business Solutions. All Rights Reserved. You may republish this article only if you publish in WHOLE with the COPYRIGHT and ALL ACTIVE LINKS intact.

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Under Commit, Over Deliver

If there is one sales mistake that has to be the biggest mistake you can make, it is this:

OVER-committing on a product capability, service offering, distribution timeline, or price. Actually, the bigger problem comes when you UNDER deliver. So, I want to talk about this critical component of sales and operation teamwork that builds company success: the concept that you must UNDER-COMMIT and OVER-DELIVER.

The fact is, it is human nature to want to commit to what prospects request - even when their request is unreasonable - because we WANT to make a sale. However, committing to a customer when you cannot deliver on that commitment will cost you more than an order: it may cost you a customer for life.

I once had this happen to me when my company's service collapsed. I had committed to my client, Home Express, that I would take care of them if something happened while we emerged from Chapter 11 bankruptcy protection. She signed with us. Then, six months later, it just so happened that my two-day vacation coincided with when my company filed Chapter 11 again as part of a sale proceed to become Decision Servcom, Inc. I could have cancelled the skiing trip because I knew we were going to be purchased and going through a merger, but I knew tough times were ahead and it would be the only vacation I was likely to get for a couple of months. So, I went anyway.

While I was gone, things went bad. As a result or the company having to put all of these customers from the old company into the new company in (all in ONE DAY) the computer switchboard for our technical support WENT DOWN for a whole day (AUGHH!! Nightmare scenario if you're in the service business). But, rather than being able to HANDLE my customers smoothly by just calling each of them and having them call a temporary contact to get service calls dispatched, I was off snow skiing and unable to do anything about it. My service manager ought to have been on the phone with my clients, anyway, but he did nothing. Nobody did anything. The buck stops with the salesperson, as far as the client is concerned. And, as a result, my company fell into breach of contract. My customer sent me a letter terminating their agreement with my firm, effective immediately, the very next day. Can you blame them? I sure couldn't. I had to strike it up to a lesson learned to always have a double-contingency plan whenever any serious service challenge might occur with my company's ability to deliver. However, the worst thing about it was I lost the relationship with the CIO - someone who I really, really liked and would have preferred remaining friends and business associates with throughout my career.

See, what happens when we don't deliver what we promise is that we lose credibility. Worse than that, we often cost OTHER people their jobs, security, money, or happiness by not delivering what we commit. We force them to go to a competitor.

I remember a positive story, when I was assigned US Sprint up in Sacramento while selling for JWP/Businessland post-merger. I remember meeting the buyer for US Sprint, a guy I'll call Edward for this article's sake. Edward told me that he didn't want to give me his business because my company had missed distribution commitment dates since merging with JWP. This amounted to four months of missed commitments. That made him look bad. So, he went elsewhere. But, he WAS LOYAL to my firm, prior to the merger. Now, I recall reading from a Dale Carnegie book that if you want people to see your way of thinking, first agree with them. I knew that my company, JWP, still couldn't hit a delivery date if it had to. We just weren't shipping anything right. The customer was right. So, I decided to personally suck it up and told Edward, "Look, I agree with you. We can't deliver anything complete and on-time right now. I can't blame you for feeling the way you do, and I apologize for the problem you experienced before I took over handling your account."

Then I said something dramatically shocking to the buyer: "Edward, I'd like to ask you NOT to buy from me right now."

That's right. Those are the exact words that came out of my mouth. I'm not sure what possessed me to say it. But I just couldn't see anyway I could risk this huge account and all their business over another messed up order. I had nothing to lose, as he wasn't buying from us anymore, anyway. And, he was right: the next order simply had to get there on time, complete. And, I didn't think my company could do it, either. So, I agreed with him, and told him NOT to buy from me. BUT, I had a strategy in mind. I then asked for his FIRM COMMITMENT in return from my commitment to him. There's a rule in sales that you don't ever give a concession without getting one in return. I utilized that rule here:

"Edward, what I'd like to ask of you, in exchange for my commitment to you not to buy from us now, is that when I DO call and tell you that it is OKAY to buy from us again and that we'll DELIVER ON TIME a COMPLETE ORDER per your requirements, then I'd like you to give me back at least 80% of your business. Is that fair?"

His reply: "If you can deliver on the order you'll get as high a percentage as you used to." This seemed like a fair agreement. He smiled. The body language said, "you've got my trust, now earn it."

I remember once my company delivered two weeks of perfect orders to my other clients, I called up Edward and notified him that it was okay to order from us again, and we could meet his expectations. Notice, I didn't over commit, I just said we'd meet his expectations. Two days later, when I sent out my newsletter with the new Macs on it, Edward called me. He placed an order the same day for $60,000 dollars worth of Macs, which at the time was a decent order that made a third of my quota for the month. As a way of saying "Thank you for trusting in me" I took the client to golf. That's now over-delivering, right? We then delivered the order on time, and I continued to receive $60,000 orders for the next three months straight with that customer, up until I left the firm.

You see, you build credibility when you deliver beyond your commitments. Whether it is a pricing model, a distribution time frame, or a service quality, these are the evidence of our true relationship, from a customer's perspective. If we miss on all of these areas, we're in big trouble!

I recently signed up as an affiliate for a company who needs to ship products to fulfill their agreement. Well, unfortunately for both of us, they aren't shipping products on time. Worse yet, they are shipping completely different products due to a manufacturing defect. Their communication has been poor. And last, worst of all, they're shipping incomplete orders. Coupled with not making up for the credits they give me for the orders I place, this is about a 4-way losing scenario on their part for fulfilling their commitment. Top it off with their billing me over-zealously before they can even ship the product, and I'd throw money into the equation, too. So, I sent them an email on Friday explaining that I wanted a credit and explanation or solution to these problems. Guess what? Still no email or phone call back.

I've come to the conclusion that this company is just not ready for me to be involved with them. It's too bad, but I just cannot expose MY customers to THEIR broken promises. It is a bad reflection upon me. Can you blame me?

So, if you're in charge of an operation, be it sales, operations, or the CEO of a company, make sure you first under commit to what you CAN deliver. Make sure you are honest with people. They will respect you for it in the long run. And then, be sure you over-deliver to the requirements you sold. When you do this, you create a lifetime of happy customers. I know this because I've experienced both sides of this under-commit, over-deliver coin as both salesman/supplier and as customer.

Build stronger relationships through honoring your commitments. It's a win-win for everyone if you do.

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Scott Andrews is CEO of ARRiiVE Business Solutions, a firm dedicated to helping executives successfully launch new products, improve sales & marketing, and build empowered teams. Contact Scott at 1-805-459-6939 or email info@ARRiiVE.com with questions about improving your firm's sales success.

Top 10 Ways to Increase Customer Retention and Lower Turnover Of Valuable Clients

How good are you at retaining your customers and building customer loyalty?

Here's my Top 10 list of keys to maximize customer retention, lower turnover, and build bettter business relationships with your customers:

1. Send "Thank you" letters. Thank you letters boosted the former President Bush from a nobody to VP and eventually President of the United States. Think the 1,000 thank you letters he wrote a year made a difference?

2. Utilize better implementation. Project managers are key to success. If you don't have a project manager for each new customer, consider hiring someone dedicated to this function. It is key to all new launches. Statistics I've seen indicate that projects with a program or project manager (implementation manager) are 70% successful where those driven without this key person only succeed 30%, in general.

3. Handle complaints proactively. When a customer voices a complaint, ask them how you might ideally help them. If you don't have a solution, ask them what a suitable solution for them might be. Let them be in charge. Then offer them the solution, if you can, or point them to where they might find the solution. Do everything in your power to avoid customers remaining upset with your business. One negative customer can destroy twenty positive interactions with a prospect. You want to avoid toxic customer relationships, at almost any cost.

4. Get clear on what you want from each other. Avoid the common challenge of vague vision of relationship. If the relationship has not been clarified between your firm and the customer, you're running the risk of losing them to a competitor. People who can set the vision include the CEO, Salesperson, Operations Manager, Customer Service Representative, Greeter, Checkout, and more. I'm a big believer in this. To this end, I've been developing a model for Semantic Collaboration. Truly dynamic teams collaborate to deliver positive a experience for customers. So, if you aren't sure how to build cross-functional, dynamic teams, contact me and I'll hook you up with some resources.

5. Words matter. It's not just training people on what to DO, but also training to know what to SAY. Too often customer support agents, are thinking from THEIR point of view (as a seller or support person), not from MY point of view (as a buyer or customer who has a need that I want met). It's not about them, it's about me. If I have a concern as a buyer, it needs to be heard by the seller or agent of the seller. Why don't people get this? I suppose, it's because we're all dealing with our own point-of-view, yet when we transcend this we can truly deliver unique and wonderful customer support.

Training ALL employees on how to identify, meet, and communicate regarding customer needs is essential. If you don't have a program to do this, I can help you develop one rather inexpensively. Developing programs to increase customer loyalty and decrease turnover ought to be crucial to your long-term customer retention plan.

6. Hire and keep those who LOVE their job. (Get rid of the rest.) People that hate their job create dissatisfied customers. Why? They'll talk bad about the company, give a less effort, and deliver halfway results. How well are you empowering employees? If they are clock-watching, they're not loving their job! If they're staying overtime, they MAY be loving their job, or it might be culture coming from you, or from other managers. A WIIFM meeting usually won't determine how much people love or hate their work. People usually end up hating their work more after a WIIFM meeting than before it, from my experience. I'd poll people discretely, anonymously, every three months, then you can spot trends as to job satisfaction.

How many of your employees hate their jobs? 10%? 20%? It is kind of a harsh question, but can be even harsher if you don't know the answer. Go down the list of your employees and answer honestly. Are there many? Are there any?

What does this figure mean?

Actually, it means quite a lot. The implications of employees hating their jobs are significant to the extent that they affect the quality of customer service.

Employees who hate their jobs are most likely to develop the following behaviors:

* They are apt to quit at any moment. Many are highly sensitive and the slightest annoyance will trigger their leaving.

* Theft. When employees are not satisfied with their jobs, they see their actions as justifiable, however questionable they may be. Their justification may be that they feel they are owed or they may simply be vindictive and want to hurt the company.

* Rude. They are much more apt to be rude to customers--it's a way to act out their feelings of anger and frustration.

* Uncooperative. They will not be co-operative; they will not inform anyone about problems that they notice, ones that could be prevented and serve to improve the business.

* Their attitude will rub off on satisfied employees making everyone dissatisfied. This is a phenomenon that I find amazing. How can one employee with a bad attitude affect so many good employees negatively? You'd think it would be the other way around; many employees with good attitudes should affect the bad employee. Unfortunately, that is simply not so. The fact is, one unhappy employee can spoil the whole rest of your team. So, like a dead limb on a tree that needs pruning, so it is with your team.

7. Client maximization. It's 5 times easier to sell to the client you have than to add a new one and the last study I read indicated it costs 10 times more to sell to the new client than the existing client. How often do you ask your clients if they have any problems or concerns that you are NOT yet helping them with?

This will open the door to new opportunities.

Do you have a program to cross-sell to existing customers? Customer Retention programs are actually great ways to disguise this important selling method.

Are you up-selling people? Customer Retention offers the ability to up-sell people. Sometimes, if someone is unhappy, they have the wrong level of support. Sell them MORE and they GET MORE. Also, Customer Retention and Loyalty programs offer opportunities to ASK FOR REFERRALS (in my experience, the single most powerful sales tool in existence.)

Maximize your sales opportunities and grow your business through your Customer Retention program.

8. Evaluate your salespeople. If your salespeople are selling the wrong product or service, your customer can be very angry. I was once assigned selling to the Radisson Hotel, and when I called the controller, Frank, he was very upset with my company. When I dug deeper, I learned that the former salesperson had over-committed our ability to deliver product to him. And, when products were late, people would practically stomp on his desk out of frustration. Amazing he had any fingers left when I met him! Anyway, Frank explained the situation, and I learned that the former salesperson had set improper commitment levels. When I reset the commitment expectation to one that both Frank and I could accept and know I could deliver upon, Frank became a happy customer again. Customer Retention calls are opportunities to save lost business. They are also opportunities to learn if your salespeople are displaying bad habits.

Good salesmanship ensures you can deliver service that’s consistent with your value proposition and brand.

9. Measure trends. Are you using polls, trends, surveys correctly? Smart Customer Retention knows if various levels of support are getting better over time or slipping a little. If they slip a lot, you stand to lose a lot of customers!

Make sure you use polls and surveys to measure the lifetime value for different segments of your offerings. Also, use that data to improve your marketing to these segments, too.

10. How focused are you on retention? Are you using retention as a major focus of your marketing efforts? Every three months I go through my emails and look for problems, missed opportunities. You'd be surprised how many times I've created a customer by using this practice to self-monitor my own customer retention. If you've overlooked a question, you may have an opportunity. If you missed a chance to resolve a negative, take action and fix it now. The last time I did this, I ended up getting more business the next week. Is retention part of your annual plan for customers?
Make retention a built-in part of your marketing plan. Go the extra mile, and figure out ways to utilize this list. I've also been building a customer satisfaction survey, which you can find through the resources link at http://www.ARRiiVE.com. If you find this useful, let me know.

We care about your concerns, and I hope it shows. If you care about this article, please pass it on to your CEO, VP Sales & Marketing, VP Operations or COO, and Human Resources people. Help us get the word out so that we can all experience better customer relationships.