What a recession might mean for your restaurant

A recession is bad for all businesses but can be especially rough on restaurants. Margins are already tight, and staffing issues can often compound themselves in those times. If you’re a restaurant owner that survived in 2008 or, most recently, the COVID-19 pandemic, then you know the myriad of challenges and obstacles that a recession might mean for you and your employees. 

Some sobering facts, according to a February report by CNBC correspondent Kate Rogers:

• The National Restaurant Association projects the foodservice industry will reach $898 billion in sales this year, up from $799 billion in 2021 and surpassing pre-pandemic sales levels from 2019 of $864 billion. However, when adjusted for inflation, sales in 2022 are projected to remain below pre-pandemic levels.
• While sales are rebounding, the group expects it will be a year or more before conditions normalize.
• Some 90,000 restaurants have shuttered, some permanently, as a result of the pandemic, the association reported.

While we hold our breath to see what happens for the rest of 2022 and into 2023, we thought it might be useful to take a deep dive into restaurant-specific things you can do to keep your business open during a recession. While this isn’t meant to be a comprehensive list, we do think there’s useful information here that might make a real difference. 

Are we currently in a recession?

As we write this, we’re not currently in a recession – but it does seem like it could be on the way. There are certain performance indicators for an economy that must be met to qualify for a recession, but anyone who’s operating a business in 2022 knows that inflation is high, consumer confidence is shaky, and there’s not a lot of indicators to say that things will rebound quickly. This could definitely change, but it’s better to have a plan and not need one than the opposite, right? 

Get creative with where you source your food

We had a client who found it cheaper to get his ketchup delivered to him from Amazon than to go with one of his traditional suppliers. While it might seem outside the box or unorthodox, having that institutional knowledge (and being aware of price fluctuations) can make a huge difference in the short AND long term. Make sure that you’re getting the best deal you can. You don’t always have a ton of options when it comes to sourcing your food, but listing all vendors and checking prices regularly can be a big help. 

A smaller menu is better than an inferior product

Are you a restaurant with a signature dish but are having problems sourcing that food? During the supply chain issues that plagued us the last few years, items have skyrocketed in price. If your menu item is getting to the point that it’s not profitable, it can be tempting to substitute that item with something of lesser quality. 

We’d encourage you not to do this. Instead, modifying your menu to offer limited options but with the same high quality that patrons are accustomed to is a great way to keep your customers. You don’t want people saying, “Boy, the food really went downhill at BLANK since the recession.” Those are the sorts of things that can leave a bad taste in your customers’ mouths and hurt your business well after the recession is over. There are product variables to consider, such as seasonal items that are more abundant certain times of the year. You could take advantage of this to create a new menu item with higher profit margin. We can’t say enough about the importance of knowing your costs. If your costs have increased significantly but you haven’t adjusted your menu pricing, you are losing out on much needed profitability.

Managing your inventory is key to success 

Do you know your inventory — what is spoilage, what is giveaways, and what is used? Are you carrying a surplus of an item that isn’t selling, therein tying up cash that can be used elsewhere? Do you have a case of ribs walking out the back door? Tracking inventory can seem overwhelming but having the right point of sale system will help you track how many slices of tomato goes on that burger and automatically take it out of inventory. Modern point of sale systems have come a long way with tracking inventory and keeping it up to date. Knowing your inventory not only helps you track your food costs, it also helps you to cost out your menu and see where you have inventory control issues.  

Your staff is the lifeblood of your business. Keep them informed.

Staffing shortages have plagued every industry since the pandemic, but these days it feels acutely bad for restaurants. Staffing is extremely hard to find, and when you do find a new person, the shock of the asking wage might make you wonder how you'll get by. This is a big reason why it’s always better to keep people when you can, instead of relying on a shaky job market. 

Managing overhead with the steps above gives you the best chance to pay and retain trained staff so that you don’t have to go through expensive hiring and training processes. Can you pivot and create a way to effectively run your business with less staff? The lack of available staff, combined with increased wages, makes it more important than ever to find new processes to reduce staff and ultimately help you keep labor costs down.

It’s important to help and empower your staff. Make sure you have regular employee meetings, and make sure that you’re honest and forthright in your conversations with them. Let them know how important they are and how much they mean to you and your business — and they may even have some great suggestions to help your business get through tough times. 

The most important thing you can do as a restaurant owner? Speak to a financial advisor.

You can’t make these decisions until you actually understand how your business works. A financial advisor can help you become business literate so that you can make informed choices that will allow your business to survive and thrive – no matter what the world throws at you. 

Ready to talk? So are we. Book a call now.