Piece of the pie:

Barry Ritholtz points us to Amanda Cox’s NY Times interactive graph of consumer spending.

Americans are choosing to dine out on Thanksgiving:

Restaurants and Institution’s article “Some Deliciously Unpuritanical Thanksgiving Menus” reviews some of the creative menu’s for an increasingly large percentage of the population.

“More than 10% of Americans dine out on Thanksgiving Day, according to the National Restaurant Association, and restaurants are stepping up to the plate with mouth-watering holiday menus. Some evoke home-spun memories with traditional fare, others favor more-contemporary seasonal recipes and the rest fall somewhere in between. To satisfy the diverse dining preferences of any family or group, many operators hedge their bets by offering tastes from across the spectrum”

…further 53% Percent of consumers who use restaurant-prepared takeout items for all or part of their holiday meals.
National Restaurant Association

Increasingly consumers are coming to the realization that the essence of Thanksgiving is sharing abundance with family and friends, not slaving away in the kitchen and not being able to enjoy your guests. This realizations creates business opportunities for entrepreneurs. Are you up to the challenge of Americans choosing to dine out on Thanksgiving?

Rising Inequality:

Wall Street Journal Article by Greg Ip details the Income-Inequality Gap

“The wealthiest 1% of Americans earned 21.2% of all income in 2005, according to new data from the Internal Revenue Service. That is up sharply from 19% in 2004, and surpasses the previous high of 20.8% set in 2000, at the peak of the previous bull market in stocks.

The bottom 50% earned 12.8% of all income, down from 13.4% in 2004 and a bit less than their 13% share in 2000.”

The gap has been widening for thirty years so the effect has been pronounced. What might be an interesting question for restaurateurs is how this plays out in their restaurants. The last three decades has seen the rise of specialty coffee houses (i.e. Starbucks, Caribou), gourmet sandwiches (i.e Panera, Corner Bakery) and national upscale concepts (i.e. McCormick and Schmicks, Mortons).

Could the inequality that is being created be offset by the fact that some one can walk into Starbucks and for the price of a cup of coffee feel wealthier. The cost of meal or cup of coffee from a percent of income perceptive is negligible, however the wealth effect is substantial.

If your restaurant can find a way to make the vast majority of Americans at the lower 99% of the income strata, feel like they have experienced what the 1% of Americans at the top feel in their dining experience, than your restaurant will have bridged the Rising Inequality!

Move in Day:

The inspectors have completed their examinations and you have passed. The furniture is in place. The paint is dry. It is move in day. You’re elated to finally bring perishable product into the space. This will be one of the happiest day’s in your business life.

The long struggle of the build out is behind you, no more contractors until the next project. The sucking sound in your checking account will ease a bit. Do not get accustomed to that. Operations can be just as challenging as a build out, but it is challenges that you signed up for. Opening a restaurant, you had no idea you had to become a contractor for six months to a year. Ahead of you lies the joy of operating a restaurant, personnel issues, menu challenges, customer service and the hope of customer advocacy.

Here comes the first truckload of produce, yes it is Move in Day!

How to Grow Step 1:

Becky Carroll, “Coffeehouse Blues” post did a very good job at tackling a common growth scenario. She looked at the project from the point of view of the customer and you must also.

“They are profitable, they are well-known locally, and they have a group of loyal customers from which to build. By taking some time to understand the needs of their best customers, as well as how they can improve their customer experience, they have the foundation necessary to keep and grow existing customers as well as bring in new customers via word of mouth and customer advocacy.”

Only by understanding “why people frequent your restaurant” can you ever hope to build and grow. Let your guest tell you why they come to your restaurant, do not guess. Knowing that you do not know is wisdom, thinking you know is arrogance. It may be that the best thing about your restaurant is the location and this concept will not work anywhere else. It is easy to fool oneself into thinking that you are a great restaurateur. Until you ask the guest and they tell you “why”, you do not really know.

Forget about other projects until you understand How to Grow Step 1.

Social Proof #2

Jonah Lehrer at the Frontal Cortex mentions Information Cascades, a fancy name for Social Proof:

Information Cascades. Imagine two restaurants that open next door to each other. The first hungry customer doesn't know which restaurant is better, so he flips a coin and hopes for the best. A little bit later, another customer arrives. He also doesn't know which restaurant is better, but he assumes that the restaurant with at least one customer must be better. When the third customer shows up, he sees two people in one restaurant and none in the other, so he also goes to the popular place. The cycle continues in this manner until most customers end up choosing the popular restaurant, even though the other restaurant might serve better food. This is irrational behavior, but it's wired into us. One of the ways we deal with an uncertain situation is to follow the lead of others. We find comfort in numbers.

Economists refer to this process as an "information cascade".

People need to be with other people. The restaurateur’s mission is to facilitate that need.

Municipal Help:

New York City is helping restaurants navigate the web of regulations necessary to get a restaurant license. An article from Associated Press:

“The program — apparently the nation's first city-sponsored restaurant training workshop — is meant to help would-be restaurateurs navigate the city's notorious red tape in opening a restaurant.

"If you want to open a restaurant in New York City you may be visiting up to a dozen different agencies," said Robert Walsh, commissioner of the Department of Small Business Services. "In a complex situation where you have an outdoor cafe in a landmarked building, you could need up to 50 different permits. That is a time-consuming, maddening effort."

Run by New York City's Department of Small Business Services and Seedco, a nonprofit organization that promotes job training and entrepreneurship, the seminar consists of lectures and PowerPoint presentations plus the chance to network with fellow students.”

Just an “Average Joe” observation here, would it not be easier to enact laws and regulations that make sense and are not shrouded in mystery. Governments enact unintelligible laws and then help its citizenry understand them.

It is good to know that when the rules and regulations become so convoluted that everyone is confused, you can count on a little Municipal Help!

Demographic Labor Challenge:

Augmenting the immigration challenge of the previous post, the demographic shift of baby boomers retiring stands to disrupt labor patterns even more. Some boomers have already taken early retirement, however the first of the baby boomers will reach 62 next year, so it begins in earnest and will continue for several years. The pool of available workers in the restaurant will be smaller. Also impacted will be the amount of workers that provide support services to restaurants. (i.e. there will be less plumbers, electricians, delivery drivers, bakers etc.). Interestingly this shift will impact the immigration debate discussed earlier because immigration is a readily available solution.

These demographic factors will affect how you are able to receive, prepare and deliver products and services to your guest. Restaurateurs who innovate around these factors will prosper. In a future post I will discuss how the demographic shifts will impact your guest as their dining patterns change as a result of retirements.

Restaurateurs already beset with daily challenges, now they face the looming Demographic Labor Challenge!

Process:

“No man ever steps in the same river twice, for it's not the same river and he's not the same man” Heraclitus

Successful management of a restaurant requires that the staff, vendors, and almost everyone that crosses your path, question everything all the time. Every restaurant has processes in place. Exacting recipes are followed to prepare menu items, purchases are handled in a predetermined fashion, record keeping follows a preset daily schedule. The question that must be asked continually is “is there a better way?”

The criteria for the answer to the question is simple, will this make it easier for the restaurant guest to buy from us? In reviewing any process, determine the guest perspective first. If the guest experience is enhanced, do it. If the guest experience is not enhanced, however you save money, do not, repeat do not do it. The notion that you can save money without enhancing the guest experience is a fallacy.

Restaurants need to question processes all the time for two reasons. One, there is always a better to do something, find it. Two, your competitor is developing a better process. If you do not improve, they will.

No woman ever steps in to the same restaurant twice, for it’s not the same restaurant and she’s not the same woman. All is change, all is Process!

Rent a Restaurant:

Zipcars and Flexpetz allow you the flexible use of a car or a pet. Dinner By Design offers a slant on this idea by providing home meals prepared in their kitchens. (excerpted from their web site)

”We make it simple and fun for you to prepare healthy home-cooked meals to your family's taste. We do this by creating family friendly monthly menu selections, having high quality, whole-some ingredients, and preparing all those ingredients for you, even down to providing the appropriate measuring cup. We save days of shopping in grocery stores, debating and hunting for items, preparing, chopping, and cleaning up.”

High end restaurants routinely offer take out or curb service on many of their items. Corporate catering and home delivery already are in place. The restaurant prepared home meal is a growing segment of the industry. The concept being discussed is an actual outsourcing of a home kitchen on an as needed basis.

There would seem to be a marketing opportunity for being able to utilize the facilities of a restaurant on individual timetable.

If you can now rent a car for an hour, there would seem to be a need to Rent a Restaurant!

Cash Sources:

Ben McConnell, Church of the Customer Blog post pointed to

Michael Rosenwald's piece in the Washington post called “Check Please”

“Opening a restaurant can cost from several hundred thousand dollars to several million dollars, and Popovsky had several options to choose from. There's his money, of course. There's the bank's, of course. And there is an increasingly popular third option: restaurant goers themselves, particularly those with deep pockets and a desire to reap not only big investment gains but also the psychological income that comes from being part of the action.”

Restaurateurs are always looking out for new sources of cash, how about sitting down and talking to your guests to replenish your Cash Sources!

Recession Coming:

Greg Mankiw’s post showing the graph that a recession is now likely in 2008 presents a great opportunity. If economists are confident that there will be a recession, than in all likelihood we are in a recession already.

The best time to open a restaurant is during a recession. There will be plenty of available locations to choose from, build-out costs are more reasonable, there is a lot of very talented labor looking for opportunities and the revenue trends have no where to go but up.

The best time to start is now because there is a Recession Coming.

Build it and they will come:

A NY Times article by Joe Drape, “No, the Restaurant isn't called Coming Soon” details the trials and tribulations of the build out process.

“Murphy’s Law rules the insane world of New York City restaurants. Community boards can kill a liquor license. City codes must be met. Chefs and investors fall out and money just disappears.

“You take everyone’s word — lawyers’, architects’ and contractors’ words — about how long it takes and you end up blowing timelines and budgets,” said Jehangir Mehta, the pastry chef who is opening the 18-seat Graffiti Food and Wine Bar. “In my case I lost about $50,000 in rent waiting for my liquor license, which I just got. It didn’t make any sense for me to open a wine bar without any wine.””

Build-outs are non-stop fun. There are new challenges every day. The thrill of creating a concept and then seeing that concept come into fruition is priceless. The process however is Non-linear, there are an infinite number of twists and turns. The complications arise mostly because a restaurateur is navigating the uncharted waters of the general contractor. The skill sets for the two are a little different and requires a very quick education on the part of the restaurateur. The ability of the restaurateur to master the GC skill set will vastly impact how over budget the project becomes. Dealing with city codes and licenses is a process that defies understanding. The key is to find out what exactly what the licensing bodies want and give it to them. DO NOT try to understand why they need this or that or even worse fight them about this or that, simply discover exactly what they want and give it to them.

Build it and they will come!

Are you talking to ME?

Guy Kawasaki post on Steven Smith book “egonomics” is worth the read.

“ Question: How can humility survive in a capitalistic, “dog-eat-dog” market?

Answer: That’s the cool thing we discovered in our work, and the perceived “weakness” of humility is the assumption even in a question like this one. Humility is the only real way to become great, everything else being equal. As a trait, humility is the point of equilibrium between too much ego and not enough. Humility has a reputation of being the polar opposite of excessive ego.

In fact, the exact opposite of excessive ego is no confidence at all. Humility provides the crucial balance between the two extremes. When Jim Collins did his work in Good to Great, humility was one of only two characteristics he discovered that separated leaders capable of leading good—even very good—performing companies, and leaders who made their companies great performers. And all of those leaders who lifted their companies to greatness and sustained them for over fifteen years did it in the same dog-eat-dog world everyone else was in. Humility was custom made for the dog-eat-dog business world.”

The restaurant universe is awash in ego. Chefs who believe the world revolves around their culinary skills, to restaurateurs who are certain the next project will be successful regardless of what happened to the last. Confidence is integral to survival in the restaurant industry, however the effects of inflated ego’s have left untold carnage in its wake. Rarely is success the product of only one person’s efforts. Ego eventually comes around to understanding that a successful restaurant is the work of many hands working in unison.

Yes, is the answer to the question, “are you talking to me?”

Social Proof:

Robert Cialdini’s book “Influence, The Psychology of Persuasion” offers a great primer on social proof.

“Advertisers love to inform us when a product is the fastest growing or largest selling, because they do not have to convince us directly that the product is good, they only need to tell us others think so and that is social proof… “

Human beings are social animals, we like being in restaurants that are frequented by other people, that reinforces are decisions. Restaurateurs have known this little tidbit of information for some time. That is why window seats are almost always seated first. The impression is created that the place is full because people walking by see only the people at the window and no one else. Many times a large restaurant will seat only a section. This sometimes creates a wait for people getting into the restaurant. When you are finally seated and notice the extra tables that are available, you wonder why you had to wait. At times lack of staff coverage creates this manufactured wait for tables, also creating the illusion of popularity. Restaurateurs will often ask friends to come populate the restaurant, again creating the illusion of popularity so that when paying guests arrive they will feel more comfortable that others are reinforcing their decision to visit your establishment.

If you have to wait for a table or service, it must be popular, if it is popular that is more than enough Social Proof!

Urban Development and Restaurants:

Graham Bowley writes about the rebirth of New York.

“In a discussion paper titled "Consumer City," Glaeser and co-authors Jed Kolko and Albert Saiz call this "the demand for density." People now want to live in dense areas because dense areas offer what people want to consume - opera, sports teams, art museums, varied cuisine. In France, for example, he and his fellow researchers found a robust correlation between the number of restaurants and the growth of cities.

Chicago’s Lincoln Park and the West Loop areas have had a similar resurgence correlated with a vibrant restaurant scene. High density explosive residential growth followed pioneering restaurants on Lincoln Avenue and on Randolph Streets. Real estate developers include amenities in their developments, with the certain knowledge that such variables increase the price per square foot that a unit will sell for. A well worn joke in Chicago is that developers should offer a commission to restaurateurs in the West Loop for vastly increasing the value of their offerings.

The redevelopment of many suburban downtown centers is tied directly to reintroduction of residential units above retail on the ground level. The 60’s and 70’s saw “people living above the store” concept virtually disappear as suburban sprawl separated residential and commercial. The thinking went that people did not want the “noise” of commercial establishments. The dawn of the twenty first century brought the realization that the “noise” of high density provided by central cities has been an economic driver for centuries.

A neighborhood is anointed “up and coming” if Starbucks stakes out an outlet. Restaurants generally precede urban growth. The Museum Campus development in the South Loop of Chicago is one of the most incredible urban renaissance stories in the country yet residential per square foot selling prices lagged the Gold Coast area simply because it had limited availability of varied cuisine. That is changing as more restaurants are staking outposts in the area.

A wonderful recipe for success, Urban Development and Restaurants!

Can I Have That With!

Can I have that with! (note the exclamation point). The title of this blog refers to the expectation in all transactions, touch points and relationship interactions. When a customer utters the title they are not asking, they are customizing. The reason you are in restaurant business is facilitate that customization. This blog is here to provide a repertoire of ideas, resources, and humor to help you create customer advocacy!

Can I Have That With!

Talent Acquisition and Management:

Marc Andreessen post on hiring and management of executives is worth the read.

“Being a startup executive is not an easy job. The rewards are substantial -- the ability to contribute directly to the startups's success; the latitude to build and run an organization according to her own theories and principles; and a meaningful equity stake that can lead to personal financial independence if the startup succeeds -- but the responsibilities are demanding and intense.”

I have written before on the need to let go and bring in people whose behavior patterns fit well into your organization. Marc’s post is very clear about the steps required to evaluate the process of Talent Acquisition and Management!

Crash Kits:

The storms that the ravaged the Midwest and caused extensive power outages bring to mind the need to have backup plans. Systemic power failures can shut down a business and the only real preparedness is adequate insurance coverage. Short-term one or two hour power failures can happen anytime and there are steps you can take to mitigate the effects. If you use a computerized Point of Sale system you should have a crash kit, handy.

The crash kit should be kept in a specific location and consists of the following:

1) Old manual credit card imprinter to make swipes of the card for reentry later, old credit card slips.

2) Flashlight with fresh batteries, an old manual register, manual checks, pens and candles.

Essentially everything you need to create and cash out a check before the advent of Point of Sale systems.

Power failures can happen at anytime, sometimes they happen at 8:00pm on a busy Saturday night, since you do not know the duration of the failure, at first you may choose to ride it out, keep everything moving along. Probably not seat anyone new, however do the best you can to get the current diners their meals.

If the duration exceeds the time that the emergency lights go dim then it is time for plan B. Comp everyone’s meal that is currently in the restaurant and make a candlelight party out of the evening. Initially people respond with camaraderie to a shared experience such as a power failure. Yes, the evening receipts are gone, however the amount of good will you will accrue is priceless. The hallmark of a great restaurateur is the ability to fabricate a memorable guest experience out of ambiguous circumstances.

When disaster beckons be prepared with Crash Kits!