After months of forced closure, Hospitality businesses are preparing to re-open to the public in the wake of the coronavirus pandemic. Whilst the sense of relief is palpable amongst operators and guests alike, there is also a sense of nervousness as restaurateurs start doing the maths.
The solidarity of the Hospitality sector during this crisis has been awe-inspiring. Industry bodies have persistently lobbied governments for financial support and guidance to save jobs and businesses in the long-run. As the target date for reopening finally draws near, the question our clients are asking is: ‘How can we implement social distancing in our restaurants and remain profitable?’
Government guidance on social distancing requires people to stay at least 2 metres apart. This presents a significant challenge for pubs, bars, cafes and restaurants amongst numerous other hospitality and leisure businesses. Operators must implement social distancing measures throughout their venues by moving and/or removing furniture, marking out physical boundaries on the floors, introducing new Standard Operating Procedures (SOPs) that limit close contact between staff and guests, and removing items from table settings that might easily transmit bacteria, such as table condiments. Cleaning procedures must be updated and enhanced to provide additional levels of sanitisation of all floors, surfaces and moveable objects in the premises, carried out during operations and without posing a risk to staff or guests. No easy task!
Once social distancing measures have been introduced to our venues, we must – as always – rely on strong financial and operational expertise to ensure we perform at our best.
“The Profit & Loss is the most important financial tool for effectively managing your business”
Good financial planning is key to the success of every food & beverage business. Budgets & Forecasts will project your likely income and expenditure, whilst real-time use of the Profit & Loss (P&L) will prevent overspending and protect your profit margins.
Based on what we know about social distancing and the government guidance on reopening for business, we can make the following assumptions –
- Our sales capacity will be reduced.
- We will likely see the same trading patterns as pre-coronavirus, i.e. peak trading periods.
- The amount we spend on food and beverage purchases may be reduced.
- The amount we spend on labour may be reduced.
- Our fixed costs will remain the same.
How do we calculate the likely drop in sales capacity?
Every budgeting and forecasting exercise carries with it a level of uncertainty. The aim is to be as thorough and accurate as possible in calculating your likely performance based on all of the information available to you.
“Use all of the information available to you to predict your likely performance”
Once you have rearranged your floor plan to account for social distancing, we can use the number of tables or chairs (covers) removed as a good indicator of the reduction in our sales capacity, when represented as a percentage of the original total.
For example, a restaurant with 40 tables has removed 10 tables to account for social distancing and runs a full house most days of the week. Its sales capacity has been reduced by approximately 25%. When preparing our Forecast we can use this drop in sales capacity to set our Sales Targets for the month.
How will we remain profitable?
As is always the case, our costs must fall within certain margins to ensure we remain profitable. We can use the percentage drop in sales capacity to similarly reduce the amount we will spend on food and beverage purchases (COGs), on labour (COS) and on other variable costs such as napkins, crockery, marketing, stationary and all other items of general expenditure (General Expenses). Remove or reduce any costs that are not absolutely necessary to achieve your Sales Targets.
The greatest risk to our profit margins arises in the form of fixed costs. Most significantly, the rental expense will dramatically increase as a percentage of turnover as sales decline due social distancing and the drop in a business’ sales capacity.
The indefatigable work of our industry bodies in lobbying the government to protect hospitality tenants is ongoing. At the time of writing, Landlords are under no formal obligation to reduce their rental expectations of their tenants despite the loss of sales suffered by restaurateurs as a result of social distancing. Private negotiations with amenable Landlords to agree rental apportionments could help alleviate the burden on Hospitality tenants until further government guidance is issued. Be sure to take expert legal advice before making any formal changes to your rental agreement.
The best performing restaurants use incentives to drive sales and keep their teams motivated, as well as reward strong performance from kitchen and beverage managers. Systems and processes are in place to limit wastage, negotiate the best prices from suppliers, drive consistency and enhance the skills of employees. Budgets and forecasts coupled with spending authorisations limit the chance of overspending and dynamic leadership keeps managers focussed and motivated.
Hospitality is by its nature unpredictable and it is the sudden rush of a crowd that keeps us on our toes. Social distancing in our venues will be temporary and the crowds will return. When Hospitality gets back on its feet we will have had the opportunity to implement a complete set of financial and operational tools that will ensure our success long into the future.