Four Ways to Fight the Restaurant Industry’s Winter Sales Dip
Winter is Coming…
In the fantasy TV show Game of Thrones, which captivated a nation before savagely disappointing them, the main protagonists were the Stark family. The Starks were a clan of ill-fated lords who suffered from messianic delusion, split personality, and psychopathy but were known for their constant and gloomy pronouncement that “Winter is Coming.”
The seasons work a bit differently in Westeros, but for people in the restaurant business, Winter is Coming. As you read this newsletter, it will officially be the first day of Winter. Now, our winters hit a bit differently, but heeding the Starks and preparing for decreased revenue will serve you in good stead.
Seasonality is real in our business, and we hate to see clients starting out the year in a financial hole.
The key drivers of profitability for any restaurant are Prime Costs: Cost of Goods + Labor. Both of these deserve special attention if you are anticipating a serious sales slowdown, but we’re going to focus on labor because incorrectly managing labor is far and away the greatest challenge for unprofitable restaurants.
The advice we gave in October is a good place to start:
“Find the Floor” and “Last Year, Same Week: The Guidepost”
Setting a realistic labor floor is crucial to optimizing operations without compromising the quality of service and guest experience. A labor floor refers to the minimum number of staff required to ensure that the restaurant can function smoothly and deliver a satisfactory experience to its guests. Determining this threshold is a delicate balance: too few staff can lead to overworked employees, decreased morale, and a potential decline in service quality, while overstaffing can inflate operational costs unnecessarily and destroy any chance at sustainability.
A key data point in this labor-scheduling puzzle is to look at the 'last year, same week' sales figures. Historical data provides a reliable forecast, offering strong insights into expected sales – which is why we include it in the weekly reports to our clients. The sales figure from the same week last year will likely incorporate the same holidays, so it is a reliable starting point to evaluate your sales and corresponding labor needs.
Why this is important: Carrying extra staff for anticipated future peak periods can be detrimental. It’s much easier to add employees to a strong labor foundation than tearing down entrenched over-staffing and the attendant side effects. Using the Winter period when business is lower to dial in your real staffing needs informed by historical experience will not only minimize losses in off-peak months but will lead to higher profitability year-round. A mistake we often see is carrying unnecessary staff loads in anticipation of future demand only to not have that demand meet expectations (or costs to swell), leading to staffing reductions when cutting earlier would have saved significant money.
Now, some other things to consider:
Beware of Hidden Labor Costs:
Underutilized managers and employees create their own issues. Servers, seeing a dramatic reduction in compensation, become managerial challenges. Managers often try to chase unrealistic revenue goals. Overstaffed restaurants can breed bad habits that are tough to overcome in peak season months. You will be surprised at how much “more” you can do with “less.”
Why this is important: We love restaurants, and we love their employees. We’re not cavalier about cutting staff, but rest assured that talented employees will have no shortage of opportunities. A well-staffed restaurant that has stable jobs is much better than running out of money and not being able to take care of your staff around a closure. Better to cut early, both to be able to be generous to those employees and create a healthy staff culture for the employees who remain.
Pop Ups Don’t Pop Down (the Profit and Loss Statement)
We love creative marketing ideas, but seasonal pop-ups VERY rarely lead to meaningful profits – more often any increased sales are offset by the increased costs necessary to do something outside of the ordinary course of business. Better to staff appropriately and focus on marketing initiatives that could lead to more frequent customer interactions by focusing on the core things your customers already come to your restaurant to enjoy.
Why this is important: Marketing initiatives should be strategic, thoughtful, and designed with a return on investment of resources in mind. Seasonally activating your restaurant is something you should absolutely do when it makes sense for your concept, but we’ve seen too many restaurants try pop-ups/events that aren’t sustainable solely to avoid the difficult decisions around labor cuts. Pop-ups outside of regular operations are also a big challenge to effectively manage COGS.
A Word About COGS
Managing COGS is important. Making sure every dish that is on the menu is cost-appropriate (factoring in yield), regularly reviewing costs of key ingredients, cutting down on waste, and keeping track of food that is given away/consumed by staff are essential to restaurant success. We didn’t focus on COGS because your culinary team should be doing this unaffected by seasonal sales fluctuations.
Remember our #1 Maxim at Harmony: “Manage the business you have, not the one you wish you had.” Being proactive at managing your business this Winter will put you in a good position to have a great year. As always…we are here to help.