According to the Canadian Restaurant and Food Association, the restaurant industry directly employs more than 1.1 million people, or 6.5% of the Canada's workforce—making it the country's fourth-largest employer. However, despite the size of this industry, the average commercial foodservice establishment in Canada recorded a pre-tax profit of just 4.5% in 2010 (CRFA, July 2012 Report) and staggering failure rates within the first year of operations.
Your business doesn't need to be a statistic. Here are four steps to consider in your drive for profitability.
1. Alignment to Vision and Long Term Strategy
The hospitality industry is a service industry and it's all about creating great customer experiences. You are passionate about your concept, but you need to rely on others to execute your strategy flawlessly each day, because execution is what keeps the doors open. The key is translating that vision to your key people so that they too can flawlessly execute your strategy, because customer loyalty stems from great customer experience. So, do your key people buy into your concept, and more important, can they translate it into action?
As the owner, you are responsible for setting the direction of the company, the boundaries for your leaders to work in and the space in which to execute. You need to constantly communicate with your managers, staff, suppliers and guests to gain market intelligence about your customers and your execution. Look for trends in the feedback to help your team tweak the execution, and ensure alignment with your strategy.
One of the most important tools I used in my big-business career was the post-appraisal process. It's a great way to engage your managers in continuous improvement—by taking an incident or event, looking for things that went well, things that could be improved and what systems or processes need to be changed.
The important thing is how you relate to feedback. Complaints are just poorly worded requests, and incidents are a learning opportunity. For it to work well, you must be authentic and sincere in wanting improvement versus creating blame. It's about showing your leaders that mistakes are opportunities for learning and creating safe opportunities for your team to learn and grow, so that they can make adjustments to executing your strategy. I believe that mistakes are an investment in education. Too often, we entrepreneurs are "benevolent dictators" and are not used to collective learning. The key is to create a culture of continuous learning so that leaders are engaged in learning and improving, to develop the leadership with whom people are excited to work and to deliver your strategy of a great customer experience.
At Vin Room, we use this process and have found success in shared team learning, as well as implementing systematic changes. As a busy small business, initially creating the time for this team learning was met with resistance. But as soon as the team saw its benefits it became a cornerstone of our management meetings.
2. Measuring the Critical Few
With cost of goods and labour accounting for nearly 70 cents of every dollar of revenue, you need to focus on the key metrics that will make or break your business. Too often, though, you can get caught up measuring too much and achieving little. The right balance is to pick a few key metrics to measure, create single points of accountability for delivery of targets and create space for your leaders to do what they do best.
At Vin Room, our focus is on five key team metrics that are focused on the business delivery. Every manager knows the metrics and the current performance against them. Within these key metrics, there is a single person who is accountable for their delivery—meaning you have a champion to steer expected behaviours and actions underpinning the delivery of the metrics. We review performance regularly as a team and have real conversations on what is going well, what can be improved and what we need to do differently. With two locations, the team metrics have proven valuable in the sharing of limited resources and in cross training between teams.
Stan Fuller, president of Earls Restaurants Ltd./The Fuller Group, has always measured performance based on customer experience and execution. They company experienced benefits from kitchen and bar bill times to labour productivity to improved profits. Fuller calls measuring performance "telling your people the standards and experiences you value most" and advises that you carefully select the performances you wish to measure.
3. Create Long-Term Partnerships
In this business, it's important to create long term partnerships with your key suppliers who show a genuine interest in your success. In my business, I've developed a network of "best friends" among my supplier network, and it is not just about cost control. If you focus on a one-sided relationship that is just based on the "best price" it makes for a shallow short-term relationship, not a long-term one. We share our long term strategy with our best friends, look for common goals and create relationships that create win-win solutions as the relationship grows.
As a result, we have built a series of long term contracts that result in preferential start-up pricing, volume-sales rebates, shared education and development, and partnerships in key events. Most of our suppliers have been with us since our opening, and they've helped us gain profitability when we first needed it—in the first year of our fledging business. As a result of their commitment to us as a startup, we are fiercely loyal to that long-term relationship.
4. Rewarding for Behaviours and Performance
In my oil and gas career, I had a safety leadership coach who constantly reminded me that I would reap the behaviours I reward.
As much as I love my business and my team loves their job, creating a profitable business is important to survival. So, driving reasonable profit also means that I have to share the success with those who helped me achieve it. Rewards are paramount to achieving success—both from a monetary perspective and an emotional perspective. It's about creating time to give and receive feedback on performance to metrics, creating learning opportunities and linking rewards to behaviours and performance. At Vin Room, we use annual profit sharing for staff if targets are met, and manager bonuses are based on the delivery of both behaviours and metrics. We look for opportunities to celebrate—whether recognition of an individual's behaviour, team celebrations or hitting a milestone. There is a shared sense of responsibility and pride in achievement.
Fuller, who has been in business since 1982, credits his success in driving profit to three key factors: creating an experience customers desire, ensuring there is a well-defined personal accountability for every single person and measuring and rewarding performance. I'd say he's a great role model for the rest of us restaurant startups.
Phoebe Fung is proprietor of Vin Room, a Calgary-based wine bar with two locations and that ranked No. 25 on the 2011 PROFIT HOT 50 list of Canada's Top New Growth Companies, proprietor of VR Wine, a boutique wine store, and a former financial executive with a multinational energy company.
More columns by Phoebe Fung