Restaurant owners should work to forecast their busy and slow seasons and use these projections to determine whether they are likely to need capital as they transition into their busy season. This can be especially true going into the holidays. Banks have been reducing exposure to small businesses ever since the pandemic, and now with higher interest rates putting pressure on bank deposits and greater regulatory scrutiny, banks are reducing their loan books even more. Fortunately, there are a number of small business lenders who have been expanding their ability to provide small business capital in the face of this bank contraction. Small business owners should consider exploring options with their bank as well as these non-bank lenders.
Restaurants trying to attract price conscious diners should make sure that their menus carry several low-cost, higher margin staples that can be sold at reasonable prices. Consider reducing the size and price of certain staples and then offering a “super-sized” portion for a higher price.
Flexible shifts and secure shifts may actually be more important than wages to some employees. An effort to maximize staffing levels by cutting shifts short or imposing last minute shifts can be very disrupting to employees’ lives. It may be easier said than done, but allowing employees more input into their shift times and durations can go a long way to creating employee loyalty.
When considering expansion plans, restaurants should understand the demand in their local market as well as the competitive environment. A restaurant’s success is likely to be driven more by the local economy and by the competition than by national economic indicators. That being said, unemployment remains low across the country and consumer spending is strong despite higher interest rates. We expect this continue at least through the holiday season. In these uncertain times, we encourage restaurant owners to automate as much of their process as possible, keeping headcount light. Keep a close eye on your margins, and don’t be afraid to slim up menus and reduce hours of operation if demand begins to slip.
Restaurants are expensive to start and can take years to become important fixtures of the community. As a result, it is important to have a good capital plan in place before you open for business. Most restaurant owners have financial backers to help them get off the ground, and debt financing relationships to help them grow and cover temporary shortfalls of capital. Having the right financial relationships is important, and fortunately there are a number of non-bank lenders who are able to provide financing options to restaurants.
How Restaurants Can Use Marketing to Drive Growth
As restaurant work to drive growth through marketing, there are several steps that they should follow. First, run a self-assessment of your business by determining:
- Restaurants offer both a product and service. Each pose their own benefits and challenges in crafting an experience your customers would want to gravitate to.
- Are you are offering a premium product vs. a low-cost, high-volume product? High volume products will need a broad marketing strategy while premium products will likely require a more targeted, niche approach.
- What stage of growth are you in and do you have the budget to fund traditional advertising? Early-stage restaurants with lower marketing budgets may want to employ viral, guerilla marketing strategies designed to raise awareness through organic social media buzz, while more established restaurants may choose traditional advertising campaigns designed to promote an established brand and product.
Next, calculate your expected customer lifetime value (“CLV”) by customer type, and design marketing campaigns that can deliver new customers at a cost that is well below CLV. If your CLV is $100, you can’t be paying $50 per Google click unless you convert nearly every click into a paying customer. Be sure to prep and record your marketing and sales data by customer, product, marketing channel, cost per lead and conversion rate. Understanding the conversion rates of each product by channel will inform you of which marketing tactics are working and which are not.
Several other tips to make your brand/restaurant a success:
- Tell your story and make a connection. One tactic is to show customers a “behind the scenes” look at how food at your restaurant is made by making short videos (Tik Tok, YouTube shorts). These videos are relatively new but are popular among startups and small businesses.
- Focus and connect to one singular audience where brand advocates can be found. These advocates can help spread the word about your restaurant virally, for free.
- Join Facebook groups centered on a specific audience and post/participate in the discussion. Platforms like Parler were conceived on this idea.
- Cater to buy-local mindsets. Cross-selling partnerships within the neighborhood, like when the local butcher promotes a nearby wine store.
- Lean into exclusivity, especially if your product is high-end. Create invite-only events and capitalize on seasonal trends, especially as it relates to food and local experiences.