No 13. The Invisible Recession

13. The Invisible Recession

Thank Goodness we aren’t experiencing a recession, right? Fortunately, we can trust our politicians and bankers with our lives, right??

Some businesses aren’t feeling it and it’s great for them that they aren’t feeling the pain.

But if you are feeling the pain, it can be tough. The pain is evident in your revenue / sales level, and it’s possibly either much more uneven than usual or it’s on a downward trajectory.

The hospitality industry isn’t actually a very profitable industry, with an average return on sales (ROS) of 5-10% which means that when your revenue line drops if you’re not on top of what’s happening, you can very quickly be losing money rather than making money.

Most hospitality operators aren’t old enough to have gone through too many recessions. I’m old enough to have been through a few.

There are telltale signs.

Revenue becomes erratic or starts a downward trend

Regular customers become less regular.

Average spend falls.

Customers change their buying habits if you’re familiar enough with regular customers' purchases.

Recessions are times when we, as industry operators, come to terms with the reality that our revenues come from customers ‘disposable income’.?

Customers, from their perspective, are making different decisions about the money they have available to spend on ‘going out’.?

Common decisions that customers make include:

Going out less, generally speaking, cutting out the extra nights, which can often be the mid-week sessions.

They might ‘trade down’ from fine to formal and from formal to casual dining, from casual restaurants to pub dining and from pub dining to ‘fast food outlets’.?

Often they’ll get a takeaway instead of going out for a meal.?

Cafes will see that customers are realising how much they spend per week buying drink-in or take-away coffees.

They might not get the second takeaway coffee, or not get the food with the coffee or even not have a coffee every day of the week.

Customers will become more aware of deals on offer in different places and will make decisions to try out places they might not otherwise have tried because there’s what appears to be a good deal on offer.

It’s not about price per se. What’s changing is their perception of value for money, which is the relationship between quality and price.

It’s worth trying to deeply understand your regular customer base and what they might see as great or better value for money.

We’ve also gone through an unprecedented period of increasing prices, as a result of the cost of living crisis, but we’ve done that after a period of many years where most customers wouldn’t have seen, or certainly noticed any price increases.

So, here are a few things you can do. None of these strategies and tactics are advice to you directly, because I don’t know your specific situation. They’re actions you can consider and if you evaluate the consequences of doing them both financially and operationally and you believe they might be worth trying, then give them a go and see what results you get.?

Don’t do anything without having financially modelled the scenario and considered the operational implications AND then made sure you can monitor the results moving forward so you know if what you’ve done is working or not!?

Know your numbers…

Review your trading days and opening hours. It’s likely that about 80% of your weekly profit is coming from about 20% of your weekly trading hours. Knowing which hours they are is critical to?

Review your costed roster / rota and make sure your inputs are up-to-date and make sure you’re monitoring it closely against your actual labour cost over the coming weeks.

Make sure you’re carrying out stocktakes on food & beverage inventory weekly, in order to get an accurate weekly food and beverage cost % KPI. Given the incredible cost & price rises that have been experienced in the last 12 months, hopefully, you’re already completely on top of these numbers and reviewing them weekly.

Become Market Intelligent…

You can see what’s happening in your own business and you know (or should do) what your customers are doing, but it’s powerful to have a reasonable ‘feel’ for what’s going on ‘out there’.

You’re likely to need to make several decisions over the coming months that you might not be familiar with making. Having ‘good data’ and not anecdotal commentary will help you get it right more often than you get it wrong.

Comp survey

Suppliers

Talk to competitors

Industry assoc / chamber of commerce

Understanding your customers

Customers visit hospitality premises generally ‘by/for an occasion’. They’re there for a reason. Get their caffeine hit on their way to work, they’re buying lunch in the 45 minutes they have to get it, they’re meeting friends after work for a drink, they’re out with their partner for a meal, they’re celebrating a special event. And a whole lot more.

Understand the occasions your customers are visiting your premises for. You’ll possibly have customers visiting on certain days and times of the week for certain occasions. If you understand why they’re visiting for you, it will help you understand how you work with current customers to increase their frequency of visit (or return it to what it was) and importantly, you’ll understand how to attract more of the customer profile / avatar that you’re targeting.

Segment your customer base by one or more of the following criteria. By occasion, demographics, frequency of visit, by ave spend, the products they buy, trading session and there are other cuts you can make.

Understand whether your customers have mortgages, have children, are self-employed or salaried. Think about their age ranges, what's important o them, what they’re interested in, and what type of jobs they have.

You’re aiming to understand your avatar customer better than you understand yourself! ??

When you do this exercise and you then you think about the specific financial pressures your customers have, that other customers might not have, you can start to identify ways to design your offer in a way that increases your profitable revenue.

Increasing profitable revenue

When we think about increasing revenue, we’re actually carrying out a promotional plan. There are three key promotional objectives we’re going to consider.

Increasing average spend

Increasing frequency of visit?

Attracting new customers?

You could use this exercise as a team-building exercise for your leadership team (if you haven’t got a leadership team, do this yourself, but create a leadership team. You will survive this better if you have other brains involved in the creative process especially if they know your customer base)

So, ask yourself how you’re going to achieve each one of these three promotional objectives.

So, how am I going to increase average spend?

Start by thinking about this being something you do with customers who are already inside your venue. We can get more complicated later and create offers to increase average spend to existing customers and new customers who aren’t already inside your venue but let’s take baby steps with some of this stuff.

From offering a muffin with a coffee as a deal to encouraging diners to order an entree and/or dessert, you’re aware of many of these tactics. Your team may come up with other options too.

Get creative. Make sure you measure your average spend so you can work out what’s working and what isn’t. Never hard sell. Not in a recession. Invite. Offer.?

So, how I am going to increase frequency of visit?

So, the way I’d like you to think about this is to consider, say, Tom who visits your wine bar once a week. He buys 2-3 glasses of wine and normally has something to eat. Tom comes in with different friends when he visits.

If you can encourage Tom to come in twice a week, and he brings friends with him, then you’ve doubled ‘his’ weekly spend with you.?

If you could do that with 1 in 5 of your regular customers, you’ll significantly increase your revenue.

Maybe Tom could be encouraged to come in for a different occasion on a different day or time of the week.

A little later we might have a deal that attracts Tom back again for another visit. We might take some care to avoid Tom swapping from a normal visit to a visit to redeem a deal, that is less profitable than his usual visit. However, if your staff discover that Tom is considering not coming out as often because he wants to reduce his spending then you might choose to try and switch Tom to another session to retain him longer term.?

It can be complex.

Be clear. Be careful.

Get an idea of what might attract customers visiting once a month to visit twice a month, coming twice a month to come 3-4 times a month.

Depending on your venue, you might cluster customer groups and work on clusters or you might work on, with and through your staff, individual customers.?

Think about how you’re going to communicate with these customers, from in-venue conversations and collateral like posters on the back of toilet doors, to social media posting (to your page or group that has your existing customers in), email, SMS, and more. You’re not advertising on social or in newspapers etc to achieve an increase in frequency of visit for existing customers.

So, how am I going to attract new customers?

There are a lot more options than I’ll list here, but the main thing I want you to think about is attracting more of the same customer profile / avatar that you’re already attracting.?

You ‘know’ this customer group well and you know what switches them on and off.?

It’s generally harder and more expensive to attract new customers than it is to increase average spend and increase the frequency of visit. So, you’d normally work on the other two first.

We can continue this conversation in the next newsletter…

Hope this conversation is useful. The main aim isn’t to give you prescriptive instructions but to get your brain working in a certain way. Hope it doesn’t hurt too much ??

David

PS I’m launching a group mentoring program for mainly business owners and GMs who want to transform their performance and thrive in life too. I’ve been asked to produce a way of working with me that’s not as expensive as 1:1 mentoring, so this gives you exactly that. DM me if you want to find out more. There are only 8 places available starting in May.

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