How to Thrive: Insights Into the Restaurant Trading Environment and Lessons to Learn

Published: 23 January 2013

In the current economic climate the restaurant industry has found itself under increasing pressure. People have less disposable income and consequently think twice about eating out – and are more conservative when they do. In spite of this, there are certain players in the restaurant industry who are not only surviving the recession, but thriving.

Famous Brands recently released interim results for the six month period ended August 2012, which shows impressive results in the midst of an environment of continued subdued consumer spend, and provides valuable insights into the trading environment.  Revenue increased by 17%, operating profit went up by 12% and interim dividend per share increased by a notable 35%.

Famous Brands CEO Kevin Hedderwick attributes this to a dual-focused strategy: “Our solid results are attributable to continuous innovation at the front end of the business, represented by the Group’s extensive brand portfolio, and enhancements at the back end of the business, comprising the backward integrated supply chain, which served to drive growth in the review period.”

In the light of the challenges that restaurant owners face in the South African context, these are two solid lessons that restaurateurs can apply to their own businesses: front-end innovation and back-end enhancements.

David Lewis, CEO of Retail Capital – an alternative business funding provider provider that has introduced the Business Cash Advance product to the South African market – believes that restaurants that keep things fresh and innovative, while keeping a constant eye on ways to improve things at the back end of the business, have the potential to thrive in the South African market.

“Innovation is key,” says Lewis. “Irrespective of the scope of reinvention, it is crucial to stay current, periodically updating your environment where possible and appropriate. In the ever-changing food industry, this is not only vital to survival – it is often the key to success.”

With the majority of Retail Capital’s customers falling within the restaurant industry, Lewis has often witnessed this proving true. The business cash advance provider has helped numerous restaurant owners fund a retrofit, remodel or renovation.

While more people are choosing carefully where they spend, innovation in terms of changing customer’s perceptions can have a positive impact on your business’s bottom line. Joining the “green revolution”, for example, or ensuring that you use all local produce, can make a significant difference in attracting – and retaining – new or existing customers.

Another way to keep customers coming through your doors is to offer them value and quality propositions. Cash-strapped restaurant patrons will appreciate a value-for-money deal, so the introduction of a loyalty card or an enticing special offer will not go amiss in increasing spend at your establishment.

As Famous Brands’ report highlights, this front-end innovation needs to go hand-in-hand with enhancements at the back end of the business.

Measures such as reducing costs through efficiencies and the effective use of ingredients – perhaps moving towards a more rustic or traditional fare such as potjies, to use cheaper cuts of meat, for example – can make all the difference.

Stocking up on long life ingredients before hikes in prices – like the resultant price hikes that will follow the United States’ wheat famine and its effects – can go a long way to reducing costs. Investing in systems and software to assist with stock management and prevent wastage can also reduce costs in the long term.

“There is little to suggest that relief from prevailing trading conditions is imminent,” comments Hedderwick.

While consumer spend remains under pressure and there is continued hyper-inflation in diesel and utility prices, it is clear that things aren’t going to get any easier in the restaurant business. However, those with an innovative approach to the trading environment could well buck the trend and grow from strength to strength in a period where all signs point to the possibility of struggle.