Viewpoint Too – March 2008
86 the Profits
by Lane Cardwell Chain Leader,
If our chefs and kitchen managers were our Chief Executive Officers, this would be the type of cry that you would likely hear coming out of the corporate offices these days. “86 the profits!” For those of you who are new to the industry, or who don’t often talk to the people running our restaurants, “86” is kitchen shorthand for “we are out of it.”
We aren’t really in an 86 situation, but profits sure aren’t as bountiful as they were a year or two ago. I talk to a lot of different restaurant CEO’s and presidents over the course of a week. I am used to the language of success and I am used to the language of tough times. New words are being developed to describe this ongoing period of simultaneous sales softness and cost pressures on the P & L. One president that I saw Saturday night described it as “brutal out there.” And I believe he was being stoic.
What makes this current period so tough is the amplified effect that negative traffic trends have on surging costs. There is the old cliché about high sales hiding a multitude of sins. Unfortunately, when high sales become low sales, the troubles are there for everyone to see. Different lines on the P & L are under pressure. Various commodities have soared over the past weeks and months. Normally, only your head of purchasing will know what wheat is selling for per bushel. However, when it goes from $3-$4 to over $15 in weeks past, that knowledge and pain is shared throughout the organization.
On the cost of sales line, wheat products, oils, corn and certain proteins are driving costs upwards. High gas prices translate into high transportation costs. Minimum wage initiatives at both the federal and state levels have begun driving labor costs skywards. Health insurance increases add insult to injury. And these are just the more dramatic increases. Many other lines on the P & L are creeping higher at the same time.
Believe it or not, this will pass. Sales will go back up and commodities will begin their next downward cycle. Unfortunately, legislated wage rates will stay high and will never go down again, but our industry can manage through this with healthy sales.
A short checklist of things to voluntarily 86 to come out of this cycle healthy and whole include:
- New locations if you are not certain that they will be winners (you can’t afford to be wrong)
- Current locations that are losing money that you can close or sell (pruning strengthens)
- Marketing programs that trade sales for profits (they only “wear out the carpet”)
- Deep discounting as a way of bringing in traffic (like heroin, the withdrawals are painful)
- Heavy price increases in an effort to keep your percentages whole (focus on the dollars)
This cycle has been painful but it won’t last. They never do. And neither do the good ones.
Be safe out there.
With almost 30 years of experience in the restaurant industry, trend-spotter Lane Cardwell has been associated with more than 30 restaurant concepts. He is an advisor and coach to various restaurant chain operators and suppliers. A member of the board of directors of public companies P. F. Chang’s China Bistro and Famous Dave’s of America, Cardwell’s resume includes executive roles at Brinker International and S&A Restaurant Corp. He is a partner in The Chain Gang, which identifies and invests in high-potential restaurant companies. And he eats in about 600 restaurants a year.
His Chain Leader blog postings can be viewed at:
http://www.chainleader.com/blog/180000418/post/510022451.html