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Restaurants must adapt to survive the downturn

04 December 2008 by

In the latest in our series on how hospitality operators are preparing for the 2009 recession, Kerstin Kühn focuses on the restaurant sector.

It may have been easy to miss, what with the "other" Gordon Ramsay story dominating the tabloid agenda, but it emerged last week that Gordon Ramsay Holdings has closed Foxtrot Oscar for two days a week and two further evenings in response to a drop in diners at the Chelsea restaurant.

Industry murmurings suggested that the neighbourhood bistro could be Ramsay's first credit crunch victim and close for good after the celebrity chef ordered it to shut completely on Mondays and Tuesdays as well as in the evenings on Wednesdays and Thursdays.

The move seems to imply that no one is safe in the current economic climate, and what is certain is that the looming recession will affect the majority of restaurants in some way. A survey by consultancy firm PricewaterhouseCoopers (PwC) conducted earlier this year found that more than a quarter (27%) of consumers said that restaurant meals would be the first expenditure they would cut back on.

Right response

What is key is how operators react to the drop in customers' spending. The right response could mean the difference between a business's success and failure - and being flexible is vital.

So, rather than being a negative sign for the future, Ramsay's partial closing of Foxtrot Oscar was "exactly the right way" to respond to a decline in footfall, according to Stephen Broome, assistant director of hospitality and leisure at PwC.

"Understanding the profit drivers and focusing on improving this is key in a recession," he said. "If you discover that you make 75% of your revenue on Friday and Saturday, then concentrate on improving those two nights and don't waste time dreaming up plans to promote dining on a Tuesday. Ramsay clearly understands when he can and can't make money at Foxtrot Oscar and has responded accordingly."

However, closing a restaurant completely is a step many operators will be reluctant to take, and there are other ways to save money, such as looking at labour costs.

Paul Merrett, chef-proprietor of the Victoria in Richmond, Surrey, said he was keeping his spending on hourly staff at a minimum while maximising the potential of the permanent staff. "Staffing costs are the biggest variable in our business and the only cost we can really control," he said.

Anthony Demetre, chef-proprietor of the Michelin-starred Arbutus and Wild Honey in London, said that he was controlling staffing levels by relying on natural wastage. "We're not replacing staff who are leaving," he said, "which means we all have to work that extra bit harder in the run-up to Christmas."

Andrew McKenzie, managing director of the Vineyard at Stockcross in Berkshire, which is home to a two-Michelin-starred restaurant headed up by chef John Campbell, added that multitasking is key.

"John and I are off to New York soon to take a closer look at the service model there, which is a lot more integrated than over here," he said. "You don't need a head sommelier advising guests as well as a commis sommelier who then delivers the wine to the table."

However, Broome warned that while saving on staff can be beneficial, operators must be careful not to implement cost-cutting measures customers will notice. "The danger is cutting costs that cause erosion of service levels and lead to unhappy customers," he said. "While reducing operating costs is a good way of saving money, what's vital in a recession is lifting service levels to ensure customers return again and again."

One way of ensuring customers return is, of course, providing value for money. Offering set menus, wine by the glass and discounted promotions can all drive footfall but, according to Paul Campbell, chief executive of Clapham House Group, which owns brands such as Tootsies and Gourmet Burger Kitchen, they need to be selective. "Discounts need to be targeted, as blanket discounts across the board can erode profitability," he said. "They must be focused on achieving specific goals."

Increased footfall

Kenny Atkinson, head chef at the Michelin-starred White Room at Seaham Hall in County Durham, said he increased footfall by reducing the à la carte menu and introducing a "market menu" at £20 for three courses at lunch and £38 at dinner.

"We're also constantly speaking with our suppliers, bargaining for better prices on what's best on the day, and we're starting to use cheaper cuts," he said. "This means our food spend is lower, and we're making a profit, as we are busier thanks to the reduced menu."

The bottom line, according to Glynn Purnell, chef-proprietor of Purnell's in Birmingham, is to offer value for money. "If you get it right, you will be able to ride out the storm," he said. "It's those operators who are trying to be greedy who will be found out and struggle."

Preparing for the recession: top tips

  • Understand your profit drivers and focus on improving them.
  • Offer selective discounts, not blanket ones across the board.
  • Remove costs that don't add value, not those that erode service levels.
  • Carefully design menus to maintain margins.

Want to read more?

Go to www.caterersearch.com/creditcrunch

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