How do I keep pace with a changing economy?

This essay examines the polarisation of the industry into modern, successful businesses and stagnant, doomed businesses.

Restaurants are either movers or museums

Restaurants in our major cities are fast polarising into two main groups — I call them ‘movers’ and ‘museums’. The movers are those restaurateurs who have been willing to radically change their operating methods in order to match changing economics. The museums are those restaurateurs who have been successful in the past but who have slowly slipped out of touch with contemporary standards.

The movers have accepted operating methods that would have been laughed at ten years ago, but which now give them an edge — methods like no bookings (to maximise covers); shared tables (higher dining density); shared dishes (preserve margins, alter perception, higher beverage sales). Rather than being regarded negatively, many of these modern, new restaurant incarnations have a customer demand that exceeds supply and patient queues of eager, would-be diners during busy times.  These kind of restaurants are even starting to be seen in regional areas and will become more common as the normal industry plagiarism spreads to remote locations.

A hundred years stability has well and truly ended

Considering the restaurant industry has changed its methods very little in the past hundred years, these recent changes are quite remarkable when you think about them. It all goes to prove that fortune does really favour the brave. It’s interesting how diminishing margins cause some people to react decisively and others to freeze like a rabbit in a spotlight.

Many of the museums are victims of being driven from back-of-house by chef/owners who work in closed kitchens, insulated from the sight of an aging clientele who often need oxygen ahead of food. A disconcerting percentage of these old style chefs have stopped getting out and about themselves due to their unsustainable working hours and lack of disposable income and are blissfully unaware of the trends that are kicking goals elsewhere.

Small businesses are losing viability

Running a restaurant from the kitchen is often problematic

Other restaurateurs are presiding over businesses that are now too small to survive and mathematically incapable of being viable without doing a number of table turns each day. Most of them were viable and profitable once, but the ratio between selling prices and operating costs have changed over time and what was once a profit and a good salary has now become a poorly paid prison — with minimal chance of selling out.

Financial performance needs to keep up with inflation

Another symptom of changing economics is illustrated by number of calls I’ve had from operators who have had demands for unsustainable rent increases. They generally enlist our services to help negotiate a better deal with the landlord after a market rent review. Most of the rents requested are within the range of expected per square metre rates for their locations, but the business is no longer turning over enough money to cover it comfortably. These operators are simply seeking our assistance to delay the inevitable, rather than facing the real issue — and they seldom follow our advice when we suggest they find a larger, cheaper location and move their business.

Stagnation will kill your business as the world around you evolves

Oddly, I’ve also recently been called-on by accountants to look at stagnant restaurant businesses. This might not sound strange to you, but up until a few months ago I had never — in 35 years — been called by an accountant. Accountants have traditionally sold business management advice themselves and are therefore competitors to us. The fact that they are coming to us for help with large, museum businesses that are not making a profit is intriguing — it appears they’d rather consort with the enemy than lose a sizeable account and suffer a loss of face.

I have to say that it’s kind of odd to be dealing with an operator who is struggling to keep up with demand, is awash with money, and needs better management systems one moment and the next moment dealing with an ‘old school’ operator who wants it fixed, but doesn’t want to change anything.  Besides, it’s often too late — there’s not much you can do when they’ve got no money, haven’t paid the Taxation Department for nine months, and they’re out to 90 days with their creditors.

I’m starting to suspect that the essential difference between the two groups is that the movers are largely optimists — who believe they can make almost anything work and are willing to take risks; while the museums are mainly pessimists, who always seem to reject change because they automatically assume ‘it won’t work’, and therefore don’t try.

Meanwhile the restaurant industry continues to polarise, with some of the movers having more business than they can handle, refreshing bottom line profits; and a steady supply of willing, skilled workers — while their museum relatives battle for customers, profit and staff. It’s Darwinian selection at work.

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