Evolution of the Fine-Fast Casual Enterprise

January 28, 2016 by Leave a Comment

The restaurant industry has gone through a dynamic shift in dining habits.  Guests spend their money differently and seek to be more enagaged in their food experience. This change has incubated a class of restaurants—the fine-fast casual segment—which is, as we all know, fully blossoming.

With this, we are now also starting to see differences in service styles within the segment – We have highlighted 2 standard bearers to this and a new model that we call the Cafe-Table.

1) Assembly Line

Chipotle popularized this and made the envy of every restauranteur.  Guests enter the enterprise, get in line, and are engaged by a string of team members who assemble the order in front of the guest before ending at the cashier.   Countless enterprises have come to market as the “Chipotle of” their category by substituting pizza or Indian cuisine or salad for burritos.  And for good reason: this is the simplest, most efficient, and low-cost model.  Because the majority of the food is prepared ahead and assembled to order, labor is streamlined, and the delivery time is kept low, as guests are spending the majority of their wait in line to begin the process.  

However, the model does have some drawbacks; namely, there is little room for hospitality and it inherently feels more transactional.  Guests feel pressure from the line behind them and are shuffled from one team member to the next, making it nearly impossible to build any rapport.  But for moving people through the enterprise, nothing is faster.

2) Counter Only

Starbucks, Shake Shack, Panera—many of the major players are using this format.  It’s a model almost as old as the restaurant itself: guests place their order at the register, wait for it to be prepared, and are called back to the counter when it’s ready.  

The added benefit here is twofold: a sense of freshness and service.  While guests do notice the increased ticket time more, it also elevates the sense of occasion, which in turn increases average check.  Because the food is prepared to order, though, labor tends to be slightly higher.  

3) Cafe-Table

Lastly, what we are seeing become more and more popular as quick-casual eats up more of the full-service segment is this slight hybrid, counter service with a runner, the Cafe-Table Model.  For decades, cafes have utilized the system wherein guests place their order at the register, take a number, and identify their seat with that number for the service staff to deliver to when the food is prepared.  

As the market has become saturated with the aforementioned models, more and more operators are looking to differentiate and elevate their fine casual enterprise.  This is often how they’re achieving that.  Bringing the food to the table doesn’t add much in labor cost, but the guest experience changes dramatically.  Additionally, with team members in the dining room to run and clear, table turns can actually speed up in comparison to the Counter Only model.  This does require a more skilled team member—someone capable of reading a dining room, clearing tables, and interacting with guests.  

We anticipate this trend increasing as food and labor costs rise.  As third-wave coffee shops, bakery-cafes, and the like cope with the Fight for $15, they will need to either increase check averages or foot traffic.  Elevating the guest experience is a chance to improve from within your four walls.  If you’re considering this service format, do keep in mind that it also requires a compelling menu and strong kitchen to match.  Read about our most recent experience with the format in this month’s Retail Spotlight here.

Filed Under: Enterprise Insight, Operations Tagged With: ,

Annual Financial Budgeting (Budget, Don’t Fudge It)

December 31, 2015 by Leave a Comment

The end of the year is always a great chance to look back and reflect on what had happened—and also look ahead to the New Year.  Budgeting is a significant, but often over-looked, step in managing a business.  We’ve assembled the following framework to assist operators with the budgeting process.  The framework consists of three components: reviewing, forecasting, and implementing.

 

[Read more…]

Filed Under: Enterprise Insight

Tipping is Going Extinct

December 7, 2015 by Leave a Comment

Over the past week weeks, a storm of debate has surged over the news that Danny Meyer has opted to eliminate tipping in his fine dining restaurants over the course of the next year. It’s a monumental decision and the change has its advocates and skeptics. In this month’s Enterprise Insight, we’re cutting through the opinion to talk specifically about the benefits and challenges of implementing such a system.

Specifically, we will review what operators need to consider when thinking about this: why, how, and the possible pitfalls.

Why Would You Eliminate Tipping

With our clients, we’ve discussed three key reasons for implementing a more-European system: pay disparity, retention, and rising wages.

The back of house has always been under-compensated in comparison to the dining room. Due to the legal classifications of wages, back of house employees cannot be tipped. Under a tip-included system, the real cost of the meal—menu price plus tip—is built into a single number, and the revenue from that number is accessible to the owner to distribute as he or she sees fit.

This, in turn, can help with retention. Low-wage jobs are historically high-turnover jobs. However, with access to the tip ‘revenue,’ an owner can increase wages accordingly to alleviate this issue.

Lastly, rising wages are driving up labor costs and in some instances, driving away skilled labor. With the minimum wage in New York changing on a industry-by-industry basis, it will only become more difficult to find and retain great team members. Again, a tip-included system allows the operator to offer competitive wage rates.

Additionally, in the front of house, the tipped-minimum is also going up. Come January 1, NYC restaurateurs will be required to pay their servers $7.50 per hour–a 50% increase. However, if the restaurant eliminates tipping, then the team can be paid a salary, or a greater hourly wage plus a bonus drawn from the ‘tipped revenue’, thus alleviating this jump in labor costs.

How Would You Eliminate Tipping

Currently, there are only two viable options: increase prices, or apply an “administrative fee.” Be mindful with an applied “fee:” if you charge a “Service Fee” rather than “administrative,” you cannot disburse that revenue to any one not in a service position.

Neither feels good right now, but we believe that price increases will become the new normal. Here’s why: with an “administrative fee,” tipping isn’t eliminated, it’s removed from the diner’s control. With price increases, it’s truly taken off the table. The diner does not know and cannot argue with the prices because they give no allusion to the portion going to the team.

Pitfalls

Increasing pricing will always cause a certain degree of pushback from guests. Until they’re fully on board with tip-included system, the sticker shock will cause a reaction. However, as more and more of NYC s fine-dining enterprises move to this style, the less resistance operators will face. Whether your establishment plans on keeping or eliminating tipping, it’s important to understand the mechanics, because “tip-included” is bound to become the new normal for a significant portion of the dining scene.

Filed Under: Enterprise Insight, Global Market Buzz Tagged With: , , ,

Structure for Success!

November 3, 2015 by Leave a Comment

Structuring your restaurant ownership is a balance of needs, wants, sweat, and cold hard cash. There is no one right formula, and rarely is the formula the same from restaurant to restaurant. In this month’s Enterprise Insight, we discuss some common options, and how to balance your narrative and numbers. Specifically, we will review entities, equity vs. profit distribution, management fees, and valuations.

Entities
Restaurants are most commonly set up as a Limited Liability Corporation. More importantly, though, is to actually set up two: one for the physical location, and one for the intangibles, such as intellectual property. The purpose of this is to balance the equity and access to the brand that an investor group has. For example, if you publish a cookbook with only one LLC—then your investors, who have equity in that LLC, are entitled to a share of those profits. This leads to our second point, equity and profit distribution.

Equity vs. Profit Distribution
The first thing to determine is the ownership interest of the involved parties and how that differs from the profit distribution. As an LLC, which most foodservices enterprises should be, the business can distribute profits differently than the equity is split. This allows an owner to retain a majority stake but pay out his or her investors with an accelerated distribution.

Accelerated returns are common, but they can handicap the enterprise if the operator is left with nothing to help fuel growth. This is part of the reason why we advise owners take a management fee.

Management Fees
As the creators and operators of a concept, owners should consider pulling a management fee from the top line, especially if the concept is or will be multi-unit. This allows owners to accomplish two things: fund the centralized back-office operations and lower his or her risk by not relying on profits for compensation.

This is particularly important for operators with a pre-existing brand or background in the space. These management fees get directed to the holding corporation that we previously discussed. Think of this as protecting the intellectual property and creating a salary for the developer.  Generally, the more an investor wants in equity and distribution, the more important a management fee is.

Valuation
Determining the mix of management fees, equity, distribution, and ownership locations is always murky. Some operators say the idea is worth 33%, the work is worth 33%, and so their sweat equity is worth two thirds. Some operators base the valuation on a multiplier—usually five to six times—of the third year’s EBITDA, usually the year the restaurant hits its stride.

Ultimately, we advise that operators ask two questions: what must prove true, and what happens when? The right formula is based on your needs—what you need to see happen with the business—and your comfort with balancing risk and reward—what you do when the good and bad happen.

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Hire Right or Hire Twice!

October 1, 2015 by Leave a Comment

“Although restaurant job growth shows no signs of slowing – 2015 will mark the fourth straight year with employment gains of at least 3.5 percent – there are indications that job vacancies are becoming more difficult to fill,” says the National Restaurant Association. Not just in New York, but the US as a whole, foodservice enterprises are struggling to attract and keep their team members. From the National Restaurant Association to the Washington Post, everyone is talking about the labor shortage. Thus, it’s more important than ever to ensure that you’re using the right strategies to attract the right talent. In this month’s Enterprise Insight, we will review three strategies that need to be in your toolbox and put to good use:

Define the Job

The purpose of detailing the job description is two fold: it helps target candidates and ensures a good fit. By really defining what the job is and communicating that, you can get attention from the right applicants. Obviously, you don’t want to hire just any “baker” if you specifically need someone for an artisanal, sourdough-driven bread program. Likewise, if the General Manager position for a café is really to be the assistant to the owner, but the job description doesn’t read as such, the candidate you interview won’t take the position.

Before posting any ads or interviewing any candidates, the best use of your time is to clearly and very specifically define the responsibilities and abilities required for the position. The more descriptive you can get here, the better for both you and the candidate.

Post Strategically

Once you’ve clearly defined the responsibilities and abilities the position requires, you can move on to advertising the opening through the proper channels. Just the way your description is targeted at a particular audience, you need to advertise in the appropriate channel to reach the right audience. Here are the strategies we use with our clients:

  1. Review your options for outlets from both a price and audience perspective, and post accordingly. For example, Good Food Jobs is a great place to advertise a Manager or Director position, but maybe not for cashiers.
  2. Post wide and far. You want to ensure that your opening gets as much awareness as possible if you want the best probability of get the best hire. Here are some outlets we use: Good Food Jobs, Culinary Agents, Harri, Culintro, Chef’s Connection, EasyPairings, Shiftgig, Poached, and Craigslist. Also, be sure to post to the career services of culinary schools across the country. Students in California may very well be looking for jobs in New York!
  3. There are two more outlets that are great, often over-looked options: your social media and existing team.
    1. People that admire, like, and/or respect your brand are definitely following you on Facebook, Twitter, or Instagram. Use that to your advantage and post there.
    2. Secondly, everyone on your team knows people outside of your enterprise that work in the industry, and most people like working with their friends. Consider offering a referral bonus to your team members for bringing in candidates that get, accept, and stay in a position.

Ask the Right Questions

Getting the right people interested in your post and in your enterprise for the interview is only half the battle. Interviews can mislead both employee and employer despite all previous efforts, so it’s the most important step in the process to get right.

When it comes to interviewing, we advise our clients to take great care in executing the following items properly:

  1. Doing Multiple Interviews: it’s important that as many people on your team get to interact with the applicant as possible. At the first stage, this means having at least two people sit down and do a traditional interview with the candidate.
  2. Interview for Technical and Cultural Fit: An applicant might be technically proficient at everything the job requires—but is a total pain to work with! That will inevitably end in disaster. Likewise, someone that’s a great fit for the company but unfit for the position will cause just as much trouble. Thus, it’s important to screen candidates for what they can do and how they behave.
  3. Schedule a Trail: For both front and back of house positions, it’s important to invite the candidates into the enterprise for a trail or stage once they’ve passed the interview phase. This way, you can get a true-to-form example of how they work and how they interact—reinforcing or correcting your impressions from the interview.

The labor shortage is definitely real, and it’s definitely putting real pressure on employers. That’s why it’s more important than ever to keep your hiring practices focused and polished. Remember: define the job, post strategically, and ask the right questions.

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Bringing Concepts to New York City

September 9, 2015 by Leave a Comment

It’s not news that the New York City hospitality industry is unlike any other in the world. With over 40,000 restaurants, New York is a mecca for foodservice. While this presents a great opportunity for operators from elsewhere, it is also not to be taken lightly—the NYC market is competitive and volatile. As advisors, it is our responsibility to ensure your success. The following is a brief overview of the work we do to achieve that:

Fully Understand the Concept
This means going to the source. As advisors, it’s of utmost importance that we really comprehend the entire experience—from product, to packaging, to interior design, to the location, to the culture. We need to understand what makes your business work where it is in order to properly plan out how it will succeed in New York City. Whether you operate in San Francisco or Sao Paulo, we will come to you to do our due diligence. Last month we were in Mexico City! (Stay tuned for more details!)

Refine the Concept
Next, we identify where your concept fits in the current landscape—is it entirely new, or is there already direct competition? Based on this, we begin to refine the concept accordingly. Any adjustments we suggest are driven by what will generate revenue. We want to maintain the authenticity and soul of the enterprise but ensure that it resonates with the NYC market.

In the same vein, we want the concept to appeal to a similar demographic. New York City is not one large homogeneous pot; it is a stew of different neighborhoods with different characteristics. As such, a high-volume, fine-dining concept from Japan that is frequented by businesspeople with high disposable incomes won’t fare well in Red Hook. We’re going to make sure you open in the right place.

Plan Accordingly
Once we’ve defined the concept for New York, we can honestly develop a business plan. Now, we can put the vision on paper and tie it to financials and a timeline.

Capital and operating budgets come from cold, hard data. We analyze your menu, equipment needs, labor scheduling, sales mix, floor plan, goals and vision, like concepts, menu pricing, average check, traffic counts, and market rents to flesh out a realistic budget. A steakhouse requires drastically different equipment and seating types than a coffee shop.

New York City is known for moving quickly—but that’s not actually case with restaurant development. Finding the right space, getting Department of Buildings approval, getting ConsolidatedEdison to turn on your gas, getting a certificate of occupancy, sourcing the right ingredients and finding the right team, and getting a cooperative’s board to approve plans are just a few of the items that can dramatically slow down the pace of a project. We’re going to make sure you open on time and on budget.

No matter where you’re from or what your model, we’re ready to bring it to life in New York City. Our town is booming with opportunity for those properly prepared—we’re here to shepherd you to success.

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Enterprise Insight: Employee Tips get boost from POS systems

July 28, 2015 by 1 Comment

It’s not news that your Point of Sale can drastically affect operations. However, we’re seeing a new trend—the POS boosting employee tips. In this month’s Enterprise Insight, we will discuss the different types of point of sale systems, the effect mobile terminals have on tipping, and the concurrent changes in minimum wages.

Type of Systems

Point of Sales systems can largely by classified into either legacy-based or tablet-based systems. Legacy systems are those that run on proprietary hardware that hasn’t caught up technologically to what is available to consumers. These terminals operate on touch screens that are linked to an in-house server. These systems are good for keeping data on site, but that is largely no longer necessary. Aloha and Micros are great examples.

Tablet systems use hardware such has iPads to run a cloud-based point of sale software. These tablets process orders locally and push the data into the cloud, which is then accessible from anywhere. One of the biggest selling points of these systems—namely Square, Revel, Shopkeep, and Lavu—is the ease of use and mobility of these systems. The graphical user interfaces are friendly, editing the menu doesn’t require using a Windows-based database software, and the back of house reporting is more visual than legacy systems.

Furthermore, these terminal do not need to be tied to a centrally-located server, which let’s users take orders from just about anywhere. Lastly, these systems all allow guests to sign for checks on the screen—which driving major changes in tipping practices.

iPad POS Systems Driving Up Employee Tips

Software research company Software Advice recently surveyed customers familiar with iPad point of sale systems and found compelling results: quick-tip buttons improve gratuity. Software Advice’s research found that the proximity to the server, the automatically-calculated tip amounts, and the presence of “no tip” buttons all create more frequent, more likely, and higher-value tipping.

Meanwhile, this tip creep in the industry comes at a time when two other significant changes are taking hold: an increasing minimum wage and a trend towards abolishing tips in favor of “service charges.”

New York State just passed legislation that increases the minimum wage of foodservice employees of chains with 22 or more locations to $15 per hour (by 2021.) Unfortunately for these employees, though, these operators are now less likely than ever to use iPad terminals with suggested tipping—with the increased cost of labor passed on to customers, the guests certainly won’t feel so willing to tip.

Furthermore, this comes just as the City passed legislation increasing the tipped minimum wage to $7.50. And given the recent unrest surrounding the difference in pay between service and kitchen staff, more and more full-service restaurants are prohibiting tipping and instead applying the gratuity automatically as a charge on the bill. This charge is then equally distributed amongst the entire staff, not just servers.

However, full-service restaurants will soon be operating in a more quick-service fashion once EMV payments are required, and the guests must process their cards themselves; the guest will come face-to-face with the POS terminal, just as in a quick-service setting. Perhaps the “service charge” will become preset buttons just as in the current quick-serve template, creating “service charge” creep at this end of the spectrum, as well.

To read more about Software Advice’s research, click here.

To read more about the increase in minimum wages, click here.

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Enterprise Insight: Managing the Design and Construction Process

June 30, 2015 by Leave a Comment

There is an enormous amount of work required in getting a foodservice enterprise open. A big part of that journey is the design and construction phase, and it is very easy to lose a lot of time and money on these processes. This month, we are going to discuss three items that can help alleviate some headache and heartache with design and construction:

  1. Know What You Want
  2. Do Your Due Diligence
  3. Constantly Reevaluate The Project

Know What You Want

Before signing with an architect, designer, or even a lease, it is important to have an idea in mind of the flow, service format, fixtures, finishes, and overall aesthetics. Bringing this collection of details to your architect and designer will help communicate to them what you’re looking for—and save a lot of dialogue and time. The closer to your own personal vision you can start the design team off with, the closer to it you will finish.

This can be as simple as a Pinterest board, or as in-depth as exact product samples; sketches on tracing paper or CAD drawings.  Whatever you’re capable of, do it and be prepared to explain what you’re looking for.

Do Your Due Diligence

Before singing a lease, bring your architect to the prospective spaces to poke, prod, and push around the site conditions. When bidding out the job, compile all of the RFI’s and ensure that the entire scope is accounted for in the bid set. Confirm with your architect of record that your space is properly equipped to handle your intended use, and if it’s not, what will the costs be.

In markets like New York, where operators are rarely going into new construction, field conditions can cause change orders that easily increase costs by 25% or more

Constantly Reevaluate The Project

You should reevaluate the project in both financial and emotional terms throughout the process. In 1995, Rita Gunther McGrath and Ian C. MacMillan developed a planning technique called “Discovery-Driven Planning.” In it, the authors laid out an approach involving five elements, with the chief one being, essentially, “what must prove true for this to work?”

Ask yourself this question throughout the design and due diligence process to ensure you’re still on target. If, for example, due diligence reveals that the space requires extensive foundation repairs that massively changes the budget, then the operator should pause and determine whether the future success of the business is enough to justify the cost.

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Enterprise Insight: Launch Strategy

April 27, 2015 by Leave a Comment

In this month’s Retail Spotlight, we discussed a single-product concept and how it is successfully operating in the city despite high rents and intense competition. In this month’s Enterprise Insight, we will discuss the strategy of launching and growing a single-product enterprise with specific case studies.

The benefits of launching a simple-product specialty shop are obvious: lower costs, less (slightly) to worry about, and a way to stand out in NYC’s crowded food landscape. But getting it done isn’t so obvious. Based on the most successful examples we’ve come across, the most effective path is participation in the NYC market scene.

The New York City food market scene started to simmer in 2011. That’s when the team behind Brooklyn Flea, which had been incubating some food vendors, launched Smorgasburg in Williamsburg. Since then, Smorgasburg has expanded to Dumbo and to a permanent facility, Berg’n, in Crown Heights. Across the river, UrbanSpace had transplanted from the UK and started the Grand Central Terminal and Union Square holiday markets around 2003. In 2008, UrbanSpace went food-forward with Mad. Sq. Eats just off of Madison Square Park.

These markets have become proving grounds for concepts looking to test the sharky NYC restaurant waters.

Take, for example, Dough, the wildly popular doughnut shop in the Flatiron district. Dough started in Williamsburg’s Smorgasburg long before launching a brick and mortar shop. Dough simmered in Smorgasburg, building a reputation, testing recipes, and earning real revenue. Then, this past fall, the company opened their first shop with lines around the block.

Likewise, Melissa Weller started selling bagels in Smorgasburg in 2013. Weller had been kneading and baking for the likes of Thomas Keller and Roberta’s before starting her own company, East River Bread, and selling at the market. Now, Weller has been tapped to team up with Major Food Group to bake those bagels for their next concept, Sadelle’s.

Entrepreneurs eager to start their foodservice business in a market have plenty of homework to do in advance. The most successful concepts have done their market research and crunched their numbers. The markets do not allow overlap between concepts, and each market has a different rental agreement. For example, the all-indoor Gotham West Market charges market-rate rents, while at Berg’n, vendors pay a percentage of their overall profits.

The biggest barriers to entry in the foodservice business are capital and exposure. Focusing on one product allows you to keep capital costs down and increases your chances of getting into a market such as Smorgasburg, which increases your exposure.

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Growing Your Enterprise: What’s Next?

March 30, 2015 by Leave a Comment

In our business, it’s safe to say we see our fair share of new concepts – a great idea that’s ready to be put into action. In some cases, the concept is totally original and in others, it’s a twist on classic. We’ve discussed the ins and outs of conceptualizing your foodservice enterprise from almost every angle. We know the importance of defining your product offering, conducting market research, and financially planning for profitability.

But what if, unlike a new concept, you’re already in business? Let’s say you have a great product or a single retail location that’s doing gangbusters. What’s next? The next step for any business owner is always met with some trepidation, as the subsequent move isn’t always clear. As a foodservice provider, there are a number of different routes to consider. In last month’s insight, we reviewed the importance of the four P’s – Product, Profit, People, and Process. The same theories apply here but maybe in a different manner.

A retail location is often the natural stepping-stone for any food business. It’s great in terms of showcasing your brand identity, providing guests with an in-store experience, and organic marketing through location and foot traffic. But a retail store is also heavy on start-up capital costs and operating expenses with less wiggle room in terms of profit margin. Perhaps your product can be delivered to consumers in another manner? This is where a deep dive into the business fundamentals should happen.

Taking a close look at the product offering is essential. Does the product need to be made on-site and is it best consumed right away? Can it be produced in larger quantities and packaged for delivery? Depending on your answers here, it could make senst to consider adding wholesale accounts in some form or delivering directly to consumer via online ordering.

Understanding your process and people in terms of operations and production is also vital. It could be that you need specialized equipment to produce your product or it could be incredibly labor intensive. Can production happen across all stores or is a commissary location necessary? What do logistics look like in terms of delivery and shipping long distances? Your organizational structure is also important here when looking at how many avenues of growth to pursue. We can’s stress enough how important it is to think through every aspect in terms of the “how” things are going to get done.

At the end of day, your business has to be profitable and have the capital means to support these different growth prospects. Access to proper funding, tight budgeting and financial controls are key. So when its time to think about the next phase for your enterprise – remember its always great to be a big thinker, but any growth plan needs a solid foundation to start.

Filed Under: Enterprise Insight
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