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Published on: 5/28/2009
Last Visited: 5/28/2009
Allan Hickok, managing director of consulting firm Restaurant & Retail Strategies, said in an April report that during tough times restaurants must focus on cost reduction opportunities to protect assets, the most important of which is profit.“Profits are the oxygen of business,†he said. “To protect your assets you must protect your earnings.â€Streamlining an operation’s cost structure is essential as operators adjust to lower levels of profitability that could linger as long as top-line trends remain slow.
The cost side of the equation is where operators have more flexibility, Hickok said, because today’s environment will not allow for menu price increases to offset the sluggish traffic.
Hickok suggested in his report that operators should follow the 80/20 rule: spend 80 percent of the asset protection effort on the highest and most critical priorities.“Rent is more important than laundry,†he said.
eneral and administrative spending, or G&A, should follow the traditional rule of between 6 percent and 7 percent of sales, and may even need to be less, he noted.“I would not be surprised to learn that the normalized G&A average is reduced from this longstanding average as operators tighten their belts,†Hickok said.Finally, while cost cutting and profit protection are essential in tough times, restaurants still need to focus on the top line that drives the business.
Cost containment strategies to help operations stay afloat should not come at the expense of hospitality, as consumers will be quick to find flaws, Hickok said.