Another one is on the horizon, so plan ahead now
By Ellen Hartman
Restaurants have been enjoying a renaissance thanks to a booming economy across most of Georgia and a new generation – Gen Z – who loves to dine out. The Great Recession is far behind us, and it’s hard to envision another downturn around the corner.
But experts are predicting another recession, and soon. According to a recent survey of National Association for Business Economics members, 42 percent expect a recession will happen in 2020, with another 25 percent predicting one in 2021.
Whenever another recession hits, it’s never a bad idea to plan ahead for not-so-good times. It’s important to prepare your restaurant now to keep doors open in the coming years.
In March, several restaurant owners gathered together to discuss how to plan for the years ahead at the “Thriving in Times of Economic Uncertainty” summit. The event, held at Ponce City Market in Atlanta, was sponsored by TalentServed, along with Mallory Agency, CertiPay, Aprio, the Georgia Restaurant Association and Taylor English law firm. All proceeds benefited the Giving Kitchen.
According to panel members, here are eight ways that restaurant operators can survive and even thrive during the next recession.
Own different types of restaurants. Rule No. 1 for Pierre Panos, founder and CEO of Fresh to Order, owner of Brookwood Grill and the fourth largest Papa John’s franchisee in the U.S., is to own different types of restaurants to protect yourself in recessionary times. Panos himself owns a casual dining, full-service concept, a fast-casual concept and several hundred Papa John’s Pizzas, a QSR restaurant brand.
“Usually during a recession, consumers will stop eating out except for quick-service brands,” Panos says. “During the last recession, our company was protected because Papa John’s was up 13 percent.”
Renegotiate leases and loans. Panos says that at the beginning of the recession, restaurateurs should immediately call their banker and landlords, who do not want to lose business or take over the restaurant. Make sure to only have the CEO call, not a lower-ranking person.
“The CEO needs to make the call to the bankers and landlords and renegotiate leases and loans,” Panos says. “This can reduce rental costs and rates by a third or more and exercising options at a very low rate.”
He also recommends avoiding short-term leases, instead taking a 5-year lease with options.
Cultivate a culture. The Iberian Pig opened in Decatur in 2009, right as the recession was in full bloom, says Fred Castellucci, president and CEO of Castellucci Hospitality Group, which owns and operates The Iberian Pig, Cooks & Soldiers and Bar Mercado, among others. He credits the success of The Iberian Pig and the company’s ability to get through the last recession to his employees. “We worked hard at cultivating a culture that attracts the best talent, which improves the guest experience,” Castelluci says.
Constanzo Astarita, owner of Grazie Hospitality Group, recommends building a culture where people want to work and take care of your people during tough times.
Double down on quality. Vince Van Brunt, CEO of Centraarchy Restaurant Group and owner of Tavern at Phipps and New York Prime, was the operations executive at Hillstone Restaurant Group, owner of Houston’s Restaurants, at the time of the last recession. Rather than skimping on ingredients and selling off real estate, Hillstone doubled-down.
“Instead of saving money with smaller portions, Houston’s continued to serve generous portions and upgraded to prime meat,” Van Brunt says.
Consider owning vs. renting. If your company has the funds to do so, owning property can help buffer you when a recession hits. “We owned our land so we were not paying rent. We had strong financials, and we even bought more land when the last recession hit,” Van Brunt says.
Pay attention to the details. Kevin Burke, who has served as CFO for restaurant groups like Concentrics Hospitality and Eat Here Brands, says restaurateurs must be transparent with bankers and landlords when faced with hard financial decisions. He advises to “pay attention to the balance sheet and pay attention to the details.”
Panos agrees, adding restaurateurs should scrutinize the profit and loss sheet and find ways to reduce cost. And it may seem obvious, but especially in hard times, be sure to pay your bills – especially the landlord’s – on time.
Be ready for anything. Castellucci says he ended up becoming more than a restaurateur when they were building out The Iberian Pig. The contractor took an early draw for construction then skipped town, and Castellucci found himself also in the role of contractor.
“It was a do-or-die moment, and thank goodness Iberian Pig became a raving success,” Castellucci says.
Improve your margins now. According to Astarita, restaurateurs should look for ways to improve the margins without hurting the quality.
“For the upcoming recession, restaurant operators should save up the cash now,” Astarita says. “Plan for the rainy day that will come!”
