How to Start Planning for a Recession in Your Restaurant Business

Hey there restaurant pros, it’s David Scott Peters and welcome to episode 50 of the Restaurant Prosperity Formula. Can you believe it? Episode 50. I’ve been coaching restaurant owners since 2003 and the Restaurant Prosperity Formula is based on what the most successful restaurant owners I’ve worked with do on a daily basis to achieve their success. The basic premise of the formula centers around achieving prosperity, freedom from your restaurant and the financial freedom you deserve. To achieve prosperity, you have to follow a very specific formula made-up of leadership, systems, training, accountability, and taking action.

Today’s topic centers around the high inflationary period we’re doing business in right now, and dare I say recession? Listen in as I share with you how my members are preparing for yet another financial hit to the restaurant industry and be prepared to thrive. Plus, stick to the end and learn how 10 lucky listeners can get a free signed copy of my book as a special thank you for being a loyal listener all the way to this very special 50th episode. Let’s get started. Let’s talk recession. I know what you’re thinking. What recession, David? The talking heads on my TV and our government officials are all saying we’re in a state of high inflation and we could go into a recession.

Now, nobody knows how bad a recession or how long or how short lived. No one knows. But we do know they’re doing their very best, they all say, to stave off a recession. Well, I’m not an economist and I’m truly not qualified to make this statement, but I’m going to do it anyway. I’m going to tell you that we’re in a recession. What makes me say that? Listen to how Google defines recession. Recession is a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GTP in two successive quarters. Hasn’t that already happened? are you telling me that we have not had two quarters of productivity falling?

Okay, maybe you’re thinking, well, I get what you’re saying David, but recession is avoidable. Maybe you’re from a different camp saying we’re not in a recession right now, but that we all can agree we’re in a state of high inflation, right? Okay, let’s look how Google defines inflation. Inflation is a general increase in prices and fall in the purchasing value of money. you cannot tell me we are not in a high inflationary period, right? We can all agree. We see it at the pump. We see it at the grocery store. Your customers see it in your restaurant. So if we can’t agree that we’re already in a recession, I know we can agree that again, we’re in high inflation.

And I know that everyone listening to me right now in the business is not experiencing recession, meaning Some of you weren’t in business in the Great Recession between December of 2007 and June of 2009. That was a collapse of our industry. For those of you who were back in business then, you can vividly remember the lessons learned. The restaurant industry looked like it was just taking a beating. Almost as bad as COVID. I mean, it was a shock almost overnight, again, like COVID. In fact, I can tell you that fine dining restaurants lost 50% of their sales overnight. Customers started buying down from fine dining to full service, family casual to quick service.

In fact, quick service restaurants were excelling back in that time period because at that time, their menu items The cost or price for your customer to buy it was less expensive and the customers didn’t have to tip. So we found people buying down and really stretching their money the best they could. Well, we don’t necessarily see that today. We see that the price we have in a full service restaurant is often the same in quick service or quick casual. But as an industry, we learned the importance of cash on hand, right? If we didn’t Learn anything from the Great Recession is you need to have cash on hand to be able to pay your bills when you see a decline in sales.

You’ve got to start storing the acorns. We learned the importance of budgets, that we create a plan for success. We learned the power of our menu can change our sales, change our cost of goods sold, change our labor. We learned that scheduling on budget was critical, that if we brought in too many people, we could literally bleed our bank accounts dry. Let me ask you a question. Did we really learn those lessons? Why do I ask that question? What happened when COVID-19 business restrictions went into place? 25% of independent restaurants closed their doors because they only had two weeks of cash flow on hand.

Most weren’t operating on a budget and they were slow to react to change their menus and they kept people working even though there was no business bleeding their bank accounts. That social workerness wanting to take care of people outweighed the fact that we were tanking. Okay, so let’s go back to the present day. So what do you experience right now as a restaurant owner? What are you truly experiencing as a restaurant owner? You’re experiencing costs that are rising at a record pace from food, labor, everything that you use. We’ve been on this trajectory since COVID-19 business restrictions and the unavailability of product and all the shutdowns and inflation.

Like I’ve never seen our food prices increase so quickly in any time period. I’ve been doing this for over 30 years. I know right now your guests are doling out $100, $100 to fill up their gas tanks. They’ve got to make decisions on where they’re going to be spending their money when you spend $100 when it’s double. And for some people, triple what they were spending before. If you’re a small family, you’re making decisions on where you’re going to spend your money because you got to have your car to go get food. You got to have your car to get your kids to school. You got to have your car to go to work.

I know right now, based on basically already incredible product challenges, like can we get the product in the 1st place and everything we’ve seen since COVID-19 reared its ugly head in 2020, We’ve already raised our menu prices in our restaurants at a record pace. I’ve never seen a time period where we just keep hiking up the price, hiking up the price. Now while the consumer has been paying it, we’re getting to a point where if you’ve been following for any length of time, you know that I feel like we’re dangerously close to what we are charging for what’s on the plate doesn’t equal the value for the money we’re spending.

So there is a limit to where there will be a ceiling that your guests go, I ain’t paying that. I mean, think about it. Did you ever think you’d be paying $15 for a hamburger as a consumer? It’s crazy. Yet it is happening. And of course, as our industry with a labor shortage, restaurants have raised their wages to keep good people, attract good people, right? They want to have good team members on the team. So we’ve increased our labor cost. So the challenges, the things you’re feeling right now in this inflationary period, or dare I say recession, They’re painful to your bottom line.

Now for well over the last year, I’ve been preaching, literally preaching that restaurant owners need to focus on the following. In order to combat all the challenges we’ve already seen, you need to become an employer of choice. See if we can reduce our turnover, we have more efficient employees, we become more efficient, we save money. If we can attract the right people and again, we can be that restaurant that is fully staffed, not one that is dangerously close to losing more shifts to being closed because you don’t have people.

So to become an employer of choice, you’ve got a lot of things you got to work on from great supervision, fair pay, great training, making sure people feel appreciated and part of something bigger. And that takes a six month or a year journey because you’re changing company culture if you’re not already there. And if you’ve been listening to me for any length of time, you’re not an employer of choice. When one of your customers asks one of your server, let’s say you’re a full service restaurant, a server’s at the table and they go, hey, customer says, how do you like working here? Oh, these SOBs, can you believe? I mean, they share in the restaurant in front of you.

But what you want to hear is how do you like working here? my gosh, these owners are fantastic. I actually had a dental issue and they took care of it and they take care of my family and I would do anything for them and I love working here. That’s when you become employer of choice, but you got to tick off all the boxes and it doesn’t happen overnight. Your managers are critical to this. I’ve been preaching that you need to step up your marketing, not only to attract new customers, but retain your existing ones. While I’m not the marketing expert, I provide you resources and people to go to. You must be working on marketing, building your sales.

See, we’ve got to work on our top line mentality with our bottom line efficiency at the same time. People often ask me, David, should I work on marketing first or operations? Yes, it’s chicken and the egg. You’ve got to always build business, but you’ve also got to be as efficient as possible on every dollar it comes in. That’s how we grow. And of course, I’ve been preaching. You need a budget, systems to achieve your budget goals, management in place to ensure the process is working, and that your menu is the key to changing your business. None of this has changed. It’s just become magnified as we take our one, two, three hits. COVID was a hit. Business restrictions were a hit.

The labor shortage was a hit. I’m sorry, this is the 4th hit. This is inflation slash recession. And what are you going to do about it? You’ve survived the most difficult 2 1/2 years of business I’ve ever seen. What’s the next year or two going to look like when we are struggling? Because why? Your customers are trying to decide what they have to do with their money. See, I think that for all intents and purposes, your sales are going to either remain flat or dip down slightly. I don’t see a 50% drop in fine dining, but you might see a 5 to 10% drop. Why? Your customer counts are going to drop. It’s going to happen as long as fuel stays up at over $5 a gallon.

And in some places I saw pictures on Facebook where there were some cities in California that were paying $10 a gallon. You can bet your sweet *** that customers are not coming out to your business on a routine basis anymore. When I say routine, maybe once, twice, three times a week, they are now cutting back, but they’re still going to come see you. And because we’ve raised our prices, our menu prices so quickly over the last 2 1/2 years, what we’re going to find is our customer counts are going to be lower, but we may have similar or slightly off sales. So that’s the good news. Now, let me ask you this.

What do you think my members are doing to combat inflation, to again, or combat what I would call recession? Well, I asked them the very question on our last group coaching call. And this is a short list of the many things, the many things they shared with each other. So I’m going to start off with my favorite. And that is these members, they often said they signed up for my program, my restaurant transformation intensive program, my group coaching program. Why? Because they wanted to change their lives. They wanted restaurant prosperity, freedom from the restaurant and the financial freedom they deserved.

So as a coach, that was the very first thing came out of my first member’s mouth that made me grin from ear to ear. Why? Because I know I’m helping people change their lives and not only survive, thrive during these difficult times. Members talked about recipe costing cards and the need to keep up on their menu costs that they needed cost of goods sold software for food and beverage to upload their invoices, maintain the recipe costing cards, make sure they’re tracking their food costs. But more importantly, with those recipe costing cards, when they can see the price of brisket has risen 300%, they can re-engineer their menus to combat it, raise prices, make changes.

But they’ve got to stay on their recipe costing cards on a routine basis, which means you need software. Members talked about training service. Training service to make sure the guest is having a great dining experience. We are in the hospitality industry. We have an opportunity to create memories. And it’s so incredibly important to stick out amongst all these other restaurants. When they’re failing, when they’re giving a ****** experience, you want to be the one delivers upon a great dining experience that they go, if I’m spending my money, I’m having a great time. This is the place I want to spend my money. And so it’s really important.

It’s just as if not more important than marketing because it’s your four wall marketing. Members talked about focusing on efficiencies. And there was a long list of efficiencies from labor to food to looking line by line by line down their P&L. But some of those things were going to be equipment and so on, which I’ll share with you in a moment. Members talked about setting expectations for their team members. These were specifically seasonal businesses that in the next three months, because we’re in the summer months, are having their ***** kicked because everybody’s hitting the seashore and their team is going to be just blasted with business and tired as hell.

And these members talked about setting expectations for the team that they can get through this busy season with joy, with a smile on their face because they know the money they’re going to make, that it’s temporary, and that management is there to support them. These members talked about improving their kitchen workflow. Like if you always do what you always did, you always get what you always got. And so if all of a sudden we’ve got longer ticking times and so on, maybe it is we’ve got to move the damn burger buns 2 feet over that I don’t have to walk around a person to grab a bun in order to plate a burger.

Maybe it’s moving a refrigeration unit, changing our Ansel system to flop our flat top on our grill. See, by improving your kitchen workflow, we can improve efficiency, less steps, fewer people working and so on. So they’re looking at these things. They’re cross-training team members, especially in the kitchen, making sure they can do multiple stations. So on a slower day, I can have one person work two or three stations instead of having three people standing there. So cross-training is big.

These members are talking about improving their onboarding process to not only save time instead of spending hours onboarding somebody, they can fill out some forms online, get everything signed, have it all done, but they’re going to save money and they’re going to reduce their turnover because they look like somebody who has their **** together. That when somebody says, I want to work for you, they know they made a right decision when you have your act together and it’s efficient and good. They talked about purchasing and implementing new equipment.

and software, equipment that can stamp out tortillas or roll out pizza for you to holding BBQ such as brisket without losing moisture and having it shrink, doing the things necessary, machines that shred chicken because you’ve got an incredible chicken salad, but you don’t want somebody standing there with a fork raking across chicken breast and all of a sudden finding those efficiencies with equipment. and software. Software for running your POS system now online gives you great power to cost goods sold software, scheduling software, seeding software. You’ve got it. There’s software for everything.

But the truth of the matter is adding their tech stack, if you will, tying it together that they can become more efficient. These members know that while other companies are now going to be pulling back on advertising because they’re going to see sales drop, because they don’t have the money in the bank. These members are talking about taking advantage of the lower rates because as people advertise less, maybe those Facebook posts become cheaper and they’re actually going to bump up their marketing efforts, bump up their marketing efforts in the downtime.

But do know that they’re not going to take on the poison pill that back in the Great Recession, people started looking at the Groupons of the world where you’re giving away the shop. We’re not going to devalue the ring at the register. We’re just going to market better, if that makes sense. These members are ensuring specials, features, right? Today’s special is we’ve got a risotto, dot, dot, dot, whatever it may be, selling at the table. that it’s not that we have a special that is a discounted price. Hey, normally you get a burger here for $15, but we’ve got this special burger today. It’s $10. Hell no. Rather, it’s an opportunity to increase sales.

Instead of a $15 burger, we’ve got a $50 burger. It’s got frogwa and it’s got the most incredible bacon that’s been soaked in honey and blah, blah, blah, whatever that chefy **** is, right? But we’re giving them an opportunity to spend their money to have a better experience and increase our sales with lower customer counts. These members are basically identifying and listing out those employees they’d get rid of if they had the right person come along. Right? We’re in a time where we may have been keeping some employees on because we don’t have them.

And we start to settle in and by having bad employees, you give bad guest experience, you lose money in training and efficiencies and labor cost and lost product, broken dishes and so on. But you feel like a prisoner, you can’t get rid of these people. Well, if I were to identify the first people go away and I can recognize somebody walked in the door is ready to go, maybe that’s when I can pull the trigger, even if I’m fully staffed. That way I can become again more efficient, have higher sales. These members have really learned to stagger start their team members on their schedule.

Meaning I may need 8 servers to cover, but I don’t need 8 servers to come in at 4:00 to play grab *** at the time clock and talk about what they did all weekend long, and then we get busy two hours later. Instead, to lower their labor costs, they’ve learned to bring those eight servers in, but maybe open the restaurant with two. at 4 o’clock to open up the restaurant. 30, several more at 5, and by 6 I’ve got a full team on to handle the peak periods. So I’m not wasting money. These members talked about identifying new revenue streams. This is important. This is a major change that COVID taught us, but we let go. We got lazy.

New revenue streams such as adding day parts, maybe your restaurant could pull off breakfast and should, or brunch for that matter just on weekends. Maybe you should be selling buyouts. of your restaurant, allowing people to book the whole restaurant, closing to the public, but it’s such a big ring at the register that it is well worth doing so. Doing pop-ups or catering events, whether it’s catering to go, drop off catering, or truly taking on weddings and big full service functions, whatever you can do or prepare to do. These members talk about putting in a major effort about beefing up their loyalty programs. there’s only three ways to increase your sales.

Get a brand new customer, most expensive form of marketing there is, get them to come back more often and get them to spend more each visit, which those two things a loyalty program does for us. And it’s one of those things that you can get a loyalty program, but it needs to be managed. You’ve got to put numbers in place. Hey, I want everybody to sign up five a shift, whatever it may be. But creating double, triple point days and slow days to drive people in, maybe increasing some of the benefits without giving away the shop, making it that a guest decides, hey, I could go to that sports bar or this sports bar.

They’re both sports bar, have generally the same menus, but when I spend money at this other one, they care about me enough that I can earn a reward. So if I’m going to spend my money, I’m going to spend it all in one place. Getting people to come back more and more often and spend more money, that’s a good thing. Members talked about having a plan B menu that is way trimmed down. As costs go up or labor goes up, can they simplify?

On A moment’s notice, could I reduce my menu, literally having a second stack of menus that we’re having our *** kicked, we’re being crushed, we’re about to fall down, and instead of giving the guests our full menu, there’s a plan B that gives me the opportunity to give the great guest experience and still make money. My members on this call are always looking to improve processes. They’re always looking to be innovative in their business. And that’s critical. If you want to make change, you cannot settle for the status quo. You have to continue to learn. Isn’t that a part of the restaurant prosperity formula, learning?

My most successful restaurant operators understand they don’t know what they don’t know, so they’re always looking for the next thing to become better. That is the difference between a growth and a fixed mindset. Fixed mindset people say, oh God, here’s another hit, our 4th hit. hit, right? Whereas a growth mindset person says, damn it, another hit, this sucks. But I can outlearn it. I can outwork it. I can outspend it. I will find a solution. And that’s what makes these members so powerful. A lot of members, we go back to adding Another revenue stream I missed to-go items or packaged goods, a refrigerator.

They’re putting actual refrigerators in their lobbies if it fits their concept with some of their best items that people can grab and go. Does that fit you? May or may not? Now, while I market myself as the restaurant expert, the creator of the Restaurant Prosperity Formula, and this systems guy, and I’ve been doing this since 2003, there is nothing more powerful than the restaurant owners together masterminding on these Zoom calls, sharing their successes, helping each other with their challenges and being there to support each other. Yes, I’m the expert, but I don’t walk the circle like you do on a day-to-day basis.

There are things that you teach me every single day, making me smarter and a better coach. There are new software solutions and pieces of equipment that I would never know about because I don’t operate on a day-to-day basis. And for the most part, while many of us have restaurateurs, restaurants next door that we love, we’re friends with, the truth is we hope they die because they’re taking our lunch business, they’re taking some of our dinner business. So we will not share with them how to fix a problem, how you fix the problem. We will not share with them that you have a struggle.

So when you have owner operators that are on a group coaching call on a weekly basis, all over North America, in fact the world from time to time, sharing, helping each other. It is magical. It is powerful. I’m not the only resource. In fact, the better resources are you. And that’s what makes this podcast so special. I just let you in on a little glimpse of how my members are gearing up, gearing up for what could be the knockout punch for our industry. Instead of feeling sorry for themselves, they’re putting plans in place to not only survive, but thrive. They can survive this hit, right?

COVID, rising costs and product issues, the great resignation, and now inflation slash, dare I say, recession. Instead of packing up their bags, they are finding ways with a growth mindset to thrive. Now, what also makes this podcast episode even more incredible for me, personally, is it’s episode 50. It is hard to believe that putting out a podcast, starting it, wondering if anybody would listen, would it provide value to be doing it twice a month and to make it to episode 50, I’m awfully thankful for all the support that you have given me.

By being a brand new or loyal listener, as a special thank you to you, I’m going to celebrate this 50th episode by giving away, right, this 50th episode of the Restaurant Prosperity Formula podcast by giving away 10 signed copies of my book, Restaurant Prosperity Formula, What Successful Restaurateurs Do. Yes, I’m going to autograph that puppy. I’m going to send it to you for free. Now to get your signed copy, you have to be one of the 1st 10 people. Like I’m not made of money and I want to say thank you. I’d love to give every one of you a book, but I’m not in a position to do so. But I’m going to give away 10 books, one to each person, the 1st 10 people to go to this website. Ready?

com forward slash the number 50 for 50. com forward slash 50. You want to go there right now and be one of the first 10 people. Good luck and thanks so much for listening. Hey, that was an awesome episode. I want to thank you for taking the time to take action on building a better, more prosperous restaurant. Before you go, I want to give you these three thoughts. One, by combining leadership and taking action with systems and training being checked by accountability, you are on your way to creating prosperity for you and your restaurant. Two, I have something I need from you. Please leave a review on Apple Podcasts, Spotify, or wherever you happen to listen to podcasts.

By leaving us a review, other restaurant pros seeking out this information are able to find it. I read the reviews and hearing how this information has benefited you does wonders for me. And three, if you find any of the discussions helpful, share them. The more restaurant pros who have access to them, the better we become as an industry. com. Be passionate about what you’re doing. Be persistent. But more importantly, become better and help everyone around you become better. And your restaurant is going to kick some ***.