The recent spate of high-profile restaurant closures suggests those remaining will have to work even harder to find that point of difference in a tight market. By Sue Nelson
Hospitality is a sector that needs to take risks to survive. Whether it is sinking capital into a fabulous fit-out that leaves you with an interest burden for years after the buzz has left the premises, or paying high rent in a desirable and visible location, or even getting the right number of staff to provide the experience your customers expect—it can be a challenge to get the balance right.
“There needs to be a point of difference—the cafe market is a good example,” says hospitality insolvency expert Andrew Spring, a partner at Jirsch Sutherland. “We’ve seen the hipster, eco-friendly, recycled market become saturated and it’s harder for these businesses to stand out. I saw a cafe recently that had the cold-drip coffee set up—that’s a big up-front capital cost to the business. It was supposed to be a point of difference, but within 12 months every other business had one.”
For Paul Newman, who founded Dracula’s theatre restaurants with his brother Marc, and sister Haydie way back in 1980, it’s about doing most things yourself until you can afford to grow and hire people. “We started small and built up, but we managed to pull off a themed, quirky experience right from the beginning. Don’t invest heavily upfront and, worse, borrow the money to do that,” says Newman. “You’ll be behind the eight ball before you open your doors.”
Spring agrees: “The real challenge is that in finding your point of difference you may be compromising your profitability. We worked with a restaurant that spent over a million on their initial set-up costs, using finance—so you’re already eating into your margins by adding the interest costs associated with that capital. Then you’ve got to consider if the niche you’re trying to create is going to be capable of meeting or exceeding all the costs associated with running the business.”
Invest in people
Staffing is hard to get right. “People value good service,” says Spring. “It’s important to provide a great dining experience, but you’ve also got to deliver bottom line performance. It’s tricky, and this is why we see a higher level of insolvencies in this space.”
“Always mess with the formula! You need to keep it fresh so that you don’t lose touch with the market.”
Paul Newman, co-founder, Dracula’s theatre restaurants
Some restaurants opt for a more casual structure for rostering requirements through busy periods, to be able to scale up or scale down. There’s also the temptation to use self-ordering technology—but hospitality is an experience-driven industry and this may not be a wise option for you.
Don’t underestimate the power of versatile, loyal staff, says Newman, who has a cleaner and a chef who have stayed with the business for 32 and 27 years respectively: “We put a huge amount of effort into our internal staff training and we treat everyone equally. Hospitality can be transient, but getting that magic continuity is also about having that magic continuity in your staff. And you’ll save more money than if you’re hunting for someone better all the time and not identifying where you can move people up the ranks and multi-skilling them.
“We have had waiters who were interested in show business who went on to become very talented performers. It’s about treating everyone with respect. It’s counterproductive to work people to the point of collapse.”
As the market tightens, decisions about location and demographics are critical, remembering that high rents can really start to erode profits when the going gets tough. There is room for everyone, but it’s important to know your target market and what you’re selling them.
“And know your competition,” Spring says. “Are you going head to head with larger businesses with better buying power? If so, you might need to rethink your business plan.
“We’ve seen the hipster, eco-friendly, recycled market become saturated and it’s harder for these businesses to stand out.”
Andrew Spring, partner, Jirsch Sutherland
“The balance is about understanding what your cost structure is,” Spring adds. “Many people that I speak to don’t know what it costs to open their doors.” Alongside obvious things like wages, hidden costs like insurance, utility bills, tax and workers compensation need to be factored in when you’re making this calculation.
The consistency of the offering is important to longevity; some aspects need to be constant and enduring. Dracula’s cost structure—meal and entertainment for a set price—is its point of difference, and the reliability of that package is part of the appeal. Longevity has given the restaurant buying power and allowed Newman and his family to form trusted relationships with high-quality suppliers.
So does this mean that once you’ve found your point of difference, your mantra should be: ‘don’t mess with the formula?’ “Always mess with the formula!” advises Newman. “You need to keep it fresh so that you don’t lose touch with the market. We don’t even have Dracula in our show anymore. We looked at where popular culture was going and evolved with the times.”