By David Cantu, Chief Customer Officer, HotSchedules
It was a busy fourth quarter for the country and for restaurant operators.
Donald Trump was elected the next President of the United States, signaling waves of change – to what degree has yet to be determined. In the restaurant and hospitality sector, Moody’s Investors Service caused us all to shift in our seats when they slashed their operating-profit growth forecast and revised its outlook of the restaurant industry from “positive” to “stable.” Instead of the previous forecast of 5% to 6% growth, the rating agency expects profit to grow 2% to 4% in the next 12-18 months.
What Moody’s shift in projections points to, experts say, is a summer recession.
The signs have been there. Wage increases and a string of legislative changes have pushed labor costs to almost unbearable levels. Traffic has been static if not slowing for most segments. Meanwhile, the restaurant sector has seen some dim earnings reports from the likes of Sonic Corp SONC, +1.52% , Burger King parent Restaurant Brands International Inc. QSR, -3.53% and Chipotle Mexican Grill Inc. CMG, +6.93%.
I’ve been talking with a lot of operators about the “r” word. We all agree that there has to be a way – a tweak to operational efficiencies, productivity, labor or inventory – to not just survive the prospect of a summertime restaurant recession but thrive, profit and perhaps even grow.
Price Hikes On Their Own Aren’t the Answer
Consumer spending is highly unpredictable in the restaurant and hospitality sector.
Moody’s analyst Bill Fahy described the current atmosphere saying, “consumers are wrestling with higher nondiscretionary spending needs, while restaurant companies face higher operating costs, predominantly labor and challenged traffic trends.”
When cash is king, limited time offers, expensive marketing campaigns and other price-slashing activities would be a no-brainer to get people through the front door to spike some same-store sales during the usual slumps. Right now, in this environment, there’s not as much cash to throw around.
Operators can’t just hike prices up 2-4% to make up for the deficit. Faced with a competitive price – the consumer will go to the cheaper option to stretch their dollars – unless you provide something so valuable they’re willing to pay for it – like a great experience.
You could trim portions or sacrifice product quality. You could also reduce your workforce. But all of those things either cost you something on the front end or backend. In a world where all of your flaws are rated and reduced to a star-rating, there’s little room for error.
Master the Market, Don’t Let it Master You
The big takeaway for me here is that we can’t let the market dictate our success or failure. We have to be extra vigilant on the activities that drive our success. For restaurants, your key differentiator is your guest experience – the culmination of your quality, consistency and service.
What drives a perfect shift and excellent service? Staff levels. I’ve seen it time and time again with our customers who use advanced labor forecasting. When staff levels are darn near perfect, the result is higher level of productivity, appropriate workloads, consistently great food, service levels and ultimately happy guests. Operators have to get this level of predictability down to a science if they’re going to master the market of the moment.
Tools to Manage Daily Store Performance
This exact conversation came up as I was preparing for a panel at the Restaurant Finance Conference alongside one of our customers, Real Mex Restaurants. On the panel we had Randy Sharpe, Vice President of Operations and Dessi Sarabosing, Senior Vice President Finance & Accounting from Real Mex Restaurants. We also had Larry DeVries and Dean Haskill of National Retail Partners Group.
Randy, Dessi and the team at Real Mex Restaurants have been doing some incredible things using advanced labor forecasting across their stores. And not only are their labor costs in control, our HotSchedules labor management tools and Activity Based Forecasting Module have had a direct and positive impact on guest satisfaction.
In a nutshell, HotSchedules Activity-Based Forecasting Modules combines your restaurant’s unique business rules with historical data and, using powerful labor modeling algorithms, generates optimal shifts or hours.
Since Real Mex Restaurants implemented Activity-Based Forecasting across their 99 stores, their guest social rating has gone up 6%, while their neutral and negative reviews have gone down.
They’ve also seen a 6% improvement on productivity across all Real Mex Restaurant brands.
And if that’s not exciting enough … they’ve been able to exceed California’s casual dining industry and category in sales – reversing a multi-year sales decline.
When we did this presentation, Randy and Dessi had several big takeaways:
(1) Choose to schedule beyond simple coverage.
When you’re just starting to get controls around your schedules in place, a blanket or block scheduling approach will cover you and deliver some awesome initial time and money savings. But at some point, you have to get scientific about your operations and your labor to stay ahead of shifting market conditions and the competition.
(2) The bigger you are, the more you need an advanced forecast engine.
As you grow and add locations, you start to see every interval of time as a way to optimize your labor. Every moment counts, literally. So, the more accurate you can schedule at the store level, the more accurate your entire business can be. That’s powerful insight for leadership and a confidence-booster for investors.
(3) Leverage algorithms in the technology to automate shifts & hours.
At each interval of your day part or shift, there’s an activity that drives a labor need. Advanced labor forecasting technology like HotSchedules Activity-Based Forecasting module pulls in all of your historical data and applies an agreed upon set of business rules to automatically generate shifts that optimize your costs and your people. The result is a labor blueprint that your managers can follow and trust.
(4) Technology is a tool to coach your managers.
When your managers understand how their daily decisions about labor impact your bottom and top line and you have the right rewards system in place, you’re going to see consistent results.
(5) Have reporting systems in place to drive accountability throughout the operation.
Advanced labor forecasting takes the subjectivity out of scheduling. That’s not to say there isn’t flexibility in the system or ways to empower employees to manage their schedules – all of those exist to complement the labor blueprint. With activity-based forecasting, the data does most of the talking which gives everyone across the organization an objective view of what’s happening. There’s power in that level of accuracy and accountability.
“With accurate, advanced labor forecasting based on activity and data, you can build efficiency, grow revenue and master the market of the moment – recession or otherwise.”
- David Cantu, Chief Customer Officer, HotSchedules