September 19, 2012 |

Poor Performers

By Dave Ostrander

If you sales are increasing, give yourself a big pat on the back. If your sales are flat, and you are barely breaking even, welcome to the new normal. If you are afraid of what the future has in stock for your store, the clock is ticking. The longer the restaurant runs unprofitably, the less time you have for a turnaround.

Pizzeria interventions or turnarounds are never the same. I believe that several factors are present when a once-profitable store gets in trouble. Since 1990, I’ve been called in to turn around a hundred or more teetering operations. Next to grand openings this is the hardest type of assignment I perform. No wonder people are fascinated with Chef Gordon Ramsey. The process can get very emotional and ugly.

I have adopted this model to evaluate existing operations. I grade operations subjectively on the following criteria, with A being the best and F miserably failing.

I call it the SLOPPIE system … but there’s nothing sloppy about it. In no particular order I look at these areas:

Sales — Is the operation grossing enough to generate a respectable bottom line? How many dollars per square foot of space per year?

Location — Is the location an A, B or C? Is it easy to get in and out? Is it relative to the core market, (business, residential, schools)? Does it have busy neighbors that compliment sales? Does it have high visibility and great signage?

Operations — Is it a well-oiled machine or a nightmare when busy? How well is staff trained? Are standardized recipes, portion control, ordering, cash management, scheduling and written job descriptions in place? Is waste, theft and scheduling lean and mean? Are the financials complete, or are huge flags present?

Product — What’s the quality of all entrees? Is the food coming from the kitchen consistent? Is one cook significantly better than the rest? What procedures are in place to guarantee that every pizza, every time, is great?

Profitability — Is the restaurant making money? Are expenses too high?

Image and Identity — How effective is the advertising and marketing? Does the client have a Unique Selling Proposition? Does the client have raving fans? What is the word on street about your place?

Effectiveness — Do the dollars spent have an effect on sales? Do they deliver on their promise … or is it a same-old/same-old place?

Every operation is unique and report cards can’t be graded until I ask many questions. When I’m satisfied that I have the unvarnished information I give each one of the above criteria a letter grade and a corresponding number grade. A’s = 4.00, B’s = 3.00 and so on. Then I add up all of the scores and divide them by the 7 criteria and get the grade.

When the report card comes out we are able to address each area and develop a plan to get the place on the honor roll.

The absolute number one area that I see in the field is the lack of accurate financial statements. Financial statements are similar to a medical chart that follows a patient who is under the care of a doctor. The Doc needs to be sure that the vital signs are within norms. If the reporting system you use is easy to read, follows GAAP (generally accepted accounting procedures) for the restaurant / pizzeria industry, you are in the top 10 percent. Without a real, accurate financial starting point, all interventions are simply trial and error. Businesses make profit by design. Hobbies make money by accident. If you have never run your restaurant by the numbers you are drifting without a rudder.

The action plan almost always involves doing a food cost analysis. After a day of inputting current grocery pricing, menu pricing and portion sizes we’ll have, sometimes for the first time ever, an accurate dollar amount that each entrée on your menu contributes to your annual profitability. For me personally, this is drudge work. I’d much rather be on the line with my apron on running the crew than entering in a hundred weights and costs. I get very little joy in balancing a ledger by underlining the bottom line with two lines. If you get your jollies by working with P&L programs, good for you. If you are like me, you must have someone, an enlisted bookkeeper, Certified Public Accountant or a like type who understands your business. Accountants either specialize in one or two disciplines or are general practitioners. I love them both, if and only if they can advise me and hold me accountable for profit and loss statements. If you don’t have to answer to someone every month you have no accountability. This starts the slippery slope of failure. One constant in every profitable restaurant, be it either a single unit or a mega chain, is they have an iron grasp on expenses. FoodCost, Labor Cost, Occupancy Costs, Sales per square foot ratios, Prime costs. These terms flow naturally from an accountant who understands your business. If you are ever subjected to a scrutinizing audit you’ll want an accountant in your corner.

Once I have a grasp on where the money comes from and where it goes I look at vendor pricing. If those expenses are in the national norm I move on.

The next really big issue is the quality aspect of your pizza and other menu items. Is this one of the very best, unforgettable, delicious pizzas I’ve ever eaten? If not, why not? I truly believe that our industry will be divided soon. Customers will choose between inexpensive cheap pies or choose to spend their budget on their perception of best.

Once I’m satisfied that my client is making praiseworthy pizza we move on to staff service. This is an overlooked area. We are not in the pizza business — we’re in the hospitality business. Right after the quality of the food comes service. It is your fault if any of your staff offends a guest.

Marketing is the first thing to go during economic downturns. I know it is hard to spend money on programs that have lame results. So you must get creative. I’m a huge believer in Boomerang Marketing. I advocate offering free samples with the understanding that customers will return once they taste a great product. I also believe you must have a memorable USP and tell your personal story. This is the glue that keeps customers returning.

If you are struggling, it likely took years to get to your current state of affairs. As such, it will take some time to turn the ship around. If you still have the burning desire to succeed, then get to fine-tuning your store and get yourself back on the right track.