who is killing the south african restaurant industry

www.safw.co.za SEPTEMBER 201166

This has been an exciting year and it has been quite a while since I put fingers to keys (used to say pen to paper in the old days), waiting for something, besides the terrible state of the restaurant industry, to rouse my interest. I do not wish to belabour the dismal state of the industry, except to say that it has operators clutching at straws and throwing a fair amount of “Hail Mary” passes into the air.

Enter Groupon et al and all the promises of new customers, repeat business and full restaurants. Groupon and other local and international deal makers have proven to be wildly popular. What’s not to like? I can get a R500 massage for R199, I can get my hair done at a fraction of the price, learn to use all sorts of equipment and dine out at 60% off. Who wouldn’t like it?

Well, apparently, some merchants aren’t too enamoured with it and before you sign on the dotted line there are some things you need to consider.

Michael Said

Everything you REALLY need to know about those deals but were too afraid to ask…

by Michael Said

Deal or

On the upside there is the marketing shpeeeeeel you will surely be dealt.

We bring a lot more customers to your door… You certainly do attract more customers who were never going to visit you at your regular prices. The only problem is, will they return when the price is back to “normal”?

We will advertise your business for you… Granted this is a BIG plus. They have huge data bases and resources that few restaurants/businesses could reach on their own. So if you are doing this as a brand building exercise and if the costs are right, go for it.

We will help you move stock… Great, just make sure it is stock you were not moving already and try to ensure that moving all that stock isn’t actually costing you money.

We will help you build relationships… Well not with a one-time deal, but what if you could structure a deal that rewarded customers if they came back a few times in order to get the benefit of the deal?

We generate revenue… If you have a low cost or fixed cost business, this would be ideal. Let’s say you owned a bowling alley with fixed costs and overheads and a product that was not being depleted (besides a little extra maintenance), this would be fantastic. Maybe a hotel room or conference venue that was standing empty, but if you are reading this, you may own a restaurant with high input costs and possibly even turnover clauses with both your landlord and your franchisor… now things get a little tricky to say the least.

no deal?

SEPTEMBER 2011 www.safw.co.za 67

Michael Said often refers to himself as “Just a Waiter Who Got Lucky!” After 22 years in the hospitality industry Mike brings his own brand of humour and understanding to the weird and wonderful world of marketing and franchising. His company, brandStrategy, specialises in the development and implementation of social media strategy working with companies and individuals from all industry segments, advising them on branding strategy, market development and customer service. You can visit his website at www.brandstrategy.co.za and follow him on twitter at mike_said_what

If you are a restaurant owner, please participate in the South African Restaurant Owners Survey at:

http://bit.ly/RestaurantSurvey

How a discount affects your profitability

So even the upside appears to have a downside and I haven’t even mentioned the real problems you may anticipate.

Before we take a closer look at these, the first thing you need to understand is exactly how a discount affects your profitability. For the purposes of this exercise we do a simple calculation using the example of a restaurant. Assuming the restaurant generates sales of R10, 000 at a 40% cost of sale (here’s where I hope you know your cost of sale) and your overhead expenses amount to 45%, effectively this means that for every R10,000 in turnover you are paying out R8,500 and retaining R1,500 for yourself. If I am erring at all, I am erring on the generous side. Quite a number of restaurants are retaining a lot less.

Now if the restaurant generated R10,000 in sales at a 55% discount, round about what they will explain to you “works” as a deal, you receive only R4,500. From this you must deduct your dealmakers charges, which I have on good authority is between 20% and 50%, as well as a processing fee.

While overhead costs may reduce fractionally, let’s be generous and say by 10% to R4,050, production cost will remain at R4,000. The deal still cost you R8,050 and if you are lucky you will get back R3,500. This little marketing exercise ONLY cost you R4,550 per R4,500 of turnover (i.e. R10,000 turnover less your discount offer of 55%).

Now the deal is over and you are waiting for all those customers to come back and enjoy your faire at the “normal price”. (Don’t hold your breath). Let’s say they all do come streaming back, (yeah right). To recoup the money you expended on running the deal, at your current retention of 15%, you will have to generate an additional R30,333 in sales. I am no accountant or rocket scientist, but basic mathematics seems to be at work here.

Aren’t you glad I got all the good news out of the way first?

Now let’s take a look at some “challenges” (us marketers hate to say “problems”) you may encounter.

Deals are simply not good for your brand image! Now that you have offered that deal at a discount price how are you going to convince everyone that the meal/product/service is still great value at the old price? Have you been fleecing them all along? Will you be fleecing them now?

Deals don’t generate repeat business! Chances are you will never see those “new” customers again without another voucher in hand. Research in the US shows that, on average, only 19% of voucher users become repeat customers, that means it takes a long time to recoup that “marketing spend”.

Deals attract bargain hunters! The majority of voucher users are “deal seekers” and bargain shoppers, translating to a low spend per head and little chance of generating repeat business. Also, the greater the number of vouchers redeemed the higher the cost of your marketing exercise, so be sure to limit the number of vouchers sold.

Deals are not profitable! While I don’t wish to belabour this point, please ensure you have a clear grasp of exactly what is at stake.

Of course there is one other point they may not mention and that is “breakage”. Nope, this is not what your waiters drop, it is the term used in loyalty programs for deals not redeemed. Let’s say they sell 500 deals on your behalf, but only 400 people arrive to redeem within the allotted time, you only receive payment for the redeemed vouchers, less their commission of course. So, in fact, unclaimed vouchers are more valuable to them than claimed ones.

My good friend Nick from Global Wrapps Franchising took the trouble to write to me and point out the following positive aspects of these programs. Thank you Nick.

• Excellent method to create awareness of a new brand, new location or new product range.

• The ability to target a specific market segment. Those with internet access and credit cards.

• It is up to the store owners and staff to create return customers, by providing excellent service and quality products.

• Voucher users are usually big talkers/Facebookers/tweeters who tell everybody about their great deal thus spreading brand awareness.

• All advertising costs money and the mathematics thereto apply to all advertising campaigns. Compare the cost of such a voucher campaign to running a radio campaign, TV ad or billboard. We know print ads are costly and the results of these campaigns are hard to measure. Undoubtedly nothing beats word of mouth advertising, but Groupon style campaigns certainly have their place and that place is certainly ahead of print campaigns and for most small traders ahead of radio and TV.

Of course there are many instances where deals will work and I am not suggesting for a second that you dismiss them out of hand, but please go in with your eyes wide open, not like Posie Bakery & Café in Portland Oregon (Visit http://posiescafe.com/wp/?p=316 for the details).

MIKE SAID WHAT?

www.safw.co.za OCTOBER 20116

Crime thrillers are all the rage right now and while I am no James Patterson or Lincoln Child, the slow and painful death of the

South African Restaurant Industry makes for some pretty interesting reading. “Death?” you ask, am I not being a little too dramatic, a little too severe? I think not! Restaurants are closing down weekly and those that manage to keep their doors open are doing so against great odds. Of course there are the exceptions to this statement and over the next few months I hope to uncover some of the suspects and hopefully, aid some of the survivors.

Like all good crime writers, let me begin by introducing our lead character, the victim! The restaurant industry has always been a difficult industry, with a number of factors that unsuspecting entrants are often not aware of. For one thing it is a factory. You have to turn raw material into finished goods in little or no time at all. Secondly it is retail with a twist. Your clients sample the product in front of

you and not once they have arrived home. Thirdly, customers are only expected to pay for their purchase after they have enjoyed it. Combine these factors with a few others like cash, alcohol and ego and you quickly realise why an owner’s visit to any table is fraught with danger.

Despite these challenges, margins were acceptable to high if you managed your business properly and the restaurant industry remained an attractive and seemingly lucrative pursuit. Alas, all that has changed over the past three years. Restaurant profitability, or retention as it is often referred to, is at an all-time low. Whereas in the past a restaurant owner could expect to retain 18-24% of his turnover, this figure is now down to between 7-14%, something on par with what the waiters are earning in tips and often less than the landlord is receiving in rent.

There are a number of key factors that have contributed to the drop in retention. First and foremost is the considerably slower than anticipated growth. The

impact of this is a significant increase in the rental to turnover ratio that should ideally be sitting at 11% or less. Then there is the increased input costs as food prices climb and a budget conscious clientele continues to put pressure on restaurants not to increase their prices. I would be remiss in not mentioning the owners, franchisors and other industry role-players who are contributing to the decline, either through total apathy and neglect, or in some cases, sheer stupidity.

So the picture is not a pretty one and the casualties are mounting. Who is to blame and what can be done about it?

It is with great sadness and regret that we note the passing of yet another of Johannesburg’s restaurants. Last month, the Linger Longer Restaurant in Sandton joined the growing list of casualties and although the cause of death is yet to be determined, you can be certain that at least one, if not all, of our suspects were to blame.

Surely there must be warning signs to spur you into instituting a program of

Who is killing th e South African restaurant industry?

by Michael Said

CHAPTER ONE:Identifying the suspects

MIKE SAID WHAT?

OCTOBER 2011 www.safw.co.za 7

MIKE SAID WHAT?


Our six suspects, in no particular order, are as follows…

• Was it The Landlord with his Lease in the Shopping Centre?

• Was it The Customer with No Spending Power in South Africa?

• Was it The Supplier with No Concept Of How The Industry Functions behind his Desk?

• Was it The Staff with Total Indifference in The Restaurant?

• Was it The Franchisor with His Eye On The Joining Fee at the First Meeting?

• Was it The Owner with No Clue Or Conception in La La Land?

action to save the business? What are the indicators of failing health and increased risk that you can look out for in your own business? Here are a number of red flags to look out for in your own establishment and please, if you recognise any, take action now. Remember, you can always sell a restaurant a little too early, but you can’t sell it one second too late!

• The absence of a well-organized and implemented accounting system

• Key operating expenses that are too high, relative to gross sales

• Menu items that are not accurately documented, costed and updated

• Food and beverage inventory levels not counted, costed and recorded at the end of each chosen period

• Food and beverage inventory levels that are too high, relative to corresponding sales

• Daily and weekly financial operating data not collected, reviewed or acted upon

• Inaccurate posting of financial information to your accounting system

• Current liabilities sufficiently greater than current assets as to impair your future ability to pay accounts

• An owner relying on his online bank balance to determine the cash available for account payments

• An overall lack of understanding as to how to read and interpret period ending financial statements

You will see from the above that monitoring the health of your business relies less on tracking turnover or foot counts, but rather on your ability to control the financial aspects of your restaurant. If your mouth was getting a little dry or your pulse started to race as you read through the list - seek help now! Of course the best time to start putting these things in place was last year, but the second best time is now.

“To want to own a restaurant can be a strange and terrible affliction. What causes such a destructive urge in so many otherwise sensible people? Why would anyone who has worked hard, saved money, and often been successful in other fields, want to pump their hard earned cash

down a hole that, statistically at least, will almost surely prove dry? Why venture into an industry with enormous fixed expenses (rent, electricity, gas, water, linen, maintenance, insurance, license fees, trash removal, etc), a notoriously transient and unstable workforce and highly perishable inventory? The chances of ever seeing a return on your investment are about one in five. What insidious spongiform bacteria so riddles the brain of men and women that they stand there on the tracks, watching the lights of the oncoming locomotive, knowing full well it will eventually run them over? After all these years in the business, I still don’t know!”

So wrote Anthony Bourdain in the now legendary Kitchen Confidential and it certainly makes a fine introduction to The Suspects. While this investigation reveals more suspects than food critics at a free lunch, I have tried to narrow it down to six. Over the next few chapters I shall state the case against each one and allow you, the jury, to make up your minds. Who can forget the board-game Cluedo with its rooms, weapons and suspects and the plain brown envelope that sat in the middle of the board waiting to reveal the mystery.

Besides our six suspects, I am certain there are others that have contributed along the

way, from The Banks to The Legislators and Previous Owners who sold their restaurants under false pretexts… the list goes on and on.

And what of our poor victim, how is he fairing at the moment? He is on life support, meagrely trying to eke out an existence until the December season or until the election or until the next world cup or until the government changes or doesn’t, until interest rates come down, until sentiment goes up, until… until… until…

Monitoring the health of your business relies on

your ability to control the � nancial aspects of your

restaurant

South Africa?

6

www.safw.co.za NOVEMBER 201110

Who is killing the South African restaurant industry?

by Michael Said

ChaptER tWO:Investigating the suspects - Monsieur Landlord

MIKE SAID WHAT?

Our poor unsuspecting victim moved quietly about his business, opening the doors, mopping the floors, working IN his business instead of ON his business, completely oblivious to the danger lurking inside his filing cabinet. For there, in a dusty folder alongside the liquor license application he had been meaning to submit, was his lease agreement!

Landlords have a tendency to play independents off against franchise groups. Often, being ignorant of the pitfalls and driven by “the dream” of owning their own restaurant, independents are prepared to pay more.

Landlords actually budget for an attrition rate (failures in new malls) and when a shop does fail, they are merciless in enforcing compliance in meeting rental commitments. This even goes as far as installing a new tenant in the old tenant’s place and then charging the old tenant for any shortfall in the difference of the lease amount for the balance of the lease period. Next time you are faced with a lease agreement, watch out for that personal surety clause…

One of the single biggest killers is the dreaded “Tenant Mix”. In the process of looking out for ways to differentiate their mall from the competition, landlords may ignore tried and tested concepts in favour of something new and fresh, often with disastrous consequences for all involved. Other times they play it safe, installing more of the same successful tenants that can be found in every mall everywhere and then they wonder why they can’t drive feet through the mall. By installing similar tenants to those already established in the mall, often without consulting existing tenants, mall owners are effectively cannibalising the trade of existing tenants. As a result, instead of two or three struggling stores we find one or two successful stores.

One only has to visit any one of the literally hundreds of malls around the country, to realize the only ones making money are those selling the fancy paper landlords use to block the windows of empty stores. Don’t believe me? Pay a visit to Brightwater Commons, Balfour Park, Bel Air, Norwood Mall, Stoneridge… and the list goes on and on.

Mall owners are not addressing the real issue, which is that anchors are paying next to nothing for their space and are effectively being subsidized by the man on the street. Restaurants are often expected to pay the same rental, or higher, for large premises that

NOVEMBER 2011 www.safw.co.za 11

MIKE SAID WHAT?

When he originally signed the document, life was soooooo good. Restaurant profitability (retention) was running at a very acceptable 18-24%, there appeared to be an endless stream of customers and certainly no shortage of buyers,

should he decide to exit. How had it all gone so terribly wrong?

Well, the writing had been on the wall and the warning signs there for all to see. Over-trading, new centres opening daily, falling foot counts, rising input costs and an increasingly selective clientele, all coupled with a world recession, but why should this worry him? After all, people have to eat, don’t they?

Yes, they do, but they don’t have to eat out, they don’t have to eat out as often and they certainly don’t have to eat out at YOU! Suddenly foot count plummeted by 30% and the customers still eating out were spending 30% less. On top of which, the retention on the now diminishing turnover had alsodropped by well in excess of 30%.

Now, in order to run a successful business, our victim understands that there are three key fundamentals he must adhere to. An acceptable food cost (35-40% depending), an acceptable salary to turnover ratio (18-21%) and a rental to turnover ratio of UNDER 11%. He seems pretty confident that his food cost is correct, despite only taking stock once a month and only occasionally glancing through the pile of invoices on the spike over the hot pass. He has been able to reduce staff to keep his wage bill ‘almost’ under control and it seems that the only matter requiring his urgent attention is the ever escalating ratio between his turnover and his rental.

So he wonders, if times are so tough for me, the same must be true of my competitors, my suppliers and of course, my landlord. “It is time to renegotiate my lease or at least negotiate some kind of break until the flood subsides, after all…” he thinks “we had such a great understanding when we first met; he seemed like such a nice chap!”

Well, there is an old riddle in the Restaurant Industry. Question: How do you turn a pleasant, helpful, compassionate, approachable and understanding landlord into a friggin monster? Answer: Just sign the lease agreement!

Now I need to state that this assessment of landlords may not apply across the board, but the overriding perception is that landlords are unapproachable and single-mindedly fixated on immediate profit at the expense of all else. (I would welcome any and all comments from landlords on the subject). Certainly, more and more landlords are becoming increasingly amenable to rental negotiations, if the restaurant in question can prove that they have given the matter serious consideration and are able to put forward a compelling case.

However, to gain a true understanding of this problem we need to look back to the circumstances surrounding the initial signing of the lease agreement.

Mall owners are not addressing the real issue, that

anchors are paying next to nothing for their space and are effectively being subsidized by

the man on the street.

What is required is a clear understanding of the pitfalls, a better working relationship between tenants and landlords, and proactive property

owners who better understand the challenges of their tenants/partners.

www.safw.co.za NOVEMBER 201112

other tenants are paying for smaller premises on the pretext that they are not big enough to pay anchor rates.

Most tenanting is done by brokers who earn a commission for each placement. Granted, when a business fails, the period until full commission is paid is extended, but then every new placement, or re-placements, also earns them a commission. To ensure that brokers are more careful about who they install as tenants, a commission clawback system and “switching” policy, as instituted for insurance and assurance brokers, should be implemented.

The “Ops Costs” paid to brokers to manage and maintain the malls and turn a profit, are simply too high. In Sandton City, for example, the Ops Costs run to approximately R120/m². With at foot print of approximately 130,000m², you do the math. With inflation, these costs have increased year on year, with no downward adjustment and at a rate approximately one to two percent higher than the actual basic rental costs.

here is an e-mail forwarded to me from one of my clients…

Despite the empty stores in every mall, this is the latest OTL (offer to let) received from Pareto for a store in Tyger Valley SC. Besides the ridiculous rental asked, they have added a NEW “availability” charge for items that one would expect to be provided for in the normal course of business.

Basic Rental R450.00 per sqm escalating at 10%

Ops R64.42 per sqm escalating at 12%

Marketing R 26.14 per sqm escalating at 10%

Ass Rates R 28.60 per sqm escalating at the council’s discretion

Refuse R 2.31 per sqm escalating at the council’s discretion

availability Charges !!!!! You will still be billed for usage for each of these

Air Con R8.80 per sqm (escalating)

Water R1.00 per sqm (escalating)

Sewerage R2.77 per sqm (escalating)

tOtaL R597.04 per sqm

Annual escalations are driving rentals too high, whilst annual menu price increases are unable to keep pace, a situation similar to the “subprime” crisis that has virtually crippled the world economies. With everybody convinced that restaurant turnovers would continue to rise in excess of the rental clause turnover and that their value would continue to increase, banks dished out money, landlords dished out leases and restaurant owners signed ANYTHING to get the premises. In reality store growth now is in the low single digits and inflation is ‘officially’ running at around five percent, but rentals are rising at in excess of eleven percent. In short, this is a recipe for disaster! Maybe this will be known one day as the Sub Prime Rib Crisis.


Rates increases are another killer! It would be interesting to conduct a survey amongst malls and mall owners to find out who amongst them has approached their local city councils to fight these ridiculous increases on behalf of their tenants, or do they simply add these costs onto the rental? Then we factor in the increase in electricity costs and we have more blood on the streets. Sadly, with landlords adding even more costs, such as insurance costs, it does not stop there.

Millions upon millions of rands have been poured into the set-up costs, hundreds of people have lost everything and thousands of jobs have evaporated. Somebody has to stop the madness! I am not implying that nobody should buy or open a restaurant, or that nobody is making money. I am suggesting that before you do, do your homework as you should for any other business. Owning a restaurant is not a dream job! Wipe the sleep from your eyes and conduct a careful and thorough investigation to ensure you don’t wake up screaming from a nightmare or the sheriff banging on your door.

What is required is a clear understanding of the pitfalls, a better working relationship between tenants and landlords, and proactive property owners who better understand the challenges of their tenants/partners.

Property owners are under pressure too. Loans were secured on projected turnovers and rental increases and empty stores are hurting everyone. There is a strong case to be made that no one was forced into signing the lease and “Ignorantia juris non excusat”, ignorance of the law, does not excuse, BUT it does kill!

Before you sign the lease and launch your concept or purchase an existing business, seek professional advice. There are some great restaurant consultants out there, franchise advisory services (start with FASA), informed and helpful brokers and banks that are slowly beginning to understand the challenges of what is a wonderful industry. You may well be sitting on “the next big thing”, but make sure you support your passion and drive for the project with the knowledge you will surely need.

Based on the 10% rule, this means your little take-away store must turnover R600,000 per month, before VAT, or based on an average transaction value of R45 you will need to serve 15,200 customers a month i.e. 506 customers a day. Likely? I don’t think so.

MIKE SAID WHAT?

www.safw.co.za DECEMBER 201110


by Michael Said

CHAPTER THREE:Investigating the suspects - Señor Supplier

MIKE SAID WHAT?

I t was after all only a few short years ago that the local restaurant industry was operating on a retention rate of 18 to 24 percent, way in excess of returns in the US, making businesses in this industry highly sought after. In fact, every

man and his dog who could get their hands on a few rands were gobbling up sites and franchises. Most restaurants were able to show year on year growth in excess of annual rental and product cost increases and all appeared to be well in the South African restaurant industry.

So, exactly how do restaurants make their money? Selling food and drink of course, but what are the percentages and how have they changed? For the purposes of this exercise I am going to show current retention of a franchise operation averaging a monthly turnover of R500,000.

At least 37 percent of that turnover is expended on food cost, with some restaurants only achieving 40 to 42 percent. That is money left on the table. Food cost is one of the last controllable expenses and if you are not controlling that, well…

From stock control systems to spreadsheets and manual books, there are many methods through which effective stock control can be achieved, but whatever system you use, use it properly. My personal favourite is www.idealstockcontrol.com, as I did have a hand in its early development.

In order to establish a clear motive and opportunity for our next suspect, Señor Supplier, it is necessary that we understand the circumstances in which both the victim and the suspect, operate.

After accounting for your food cost it leaves a gross profit of 63 percent. That is quickly gobbled up by…

�� 11.00% OCCUPANCY COSTS

This covers the basic rental and building operations cost, as well as any payments to the landlord in respect of the leased premises. Rentals vary greatly from place to place and in some operations may exceed the 10% level, but may be compensated for in volumes generated. (If you have read chapter two, The Landlord, you will know how difficult it is to achieve this.)

�� 19.56 % SALARIES AND WAGES BILL

This takes into account salaries and wages for all staff including managers, whether permanent or casual. All salaries, wages and even waiters commission should be applied at market related rates. Even the franchisee/owner should be paid a market related salary. If he is fulfilling the role of manager, he should be paid accordingly. Anything over and above this is effectively drawings.

�� 6.00% MANAGEMENT SERVICES OR FRANCHISE FEE

This is the monthly levy payable to the franchisor, as agreed in the franchise agreement, and is typically calculated as a percentage of net turnover.

�� 2.00% MARKETING

The marketing expense should cover both the marketing levy paid to the franchisor, as agreed in the franchise agreement, and any ad-hoc monies spent on local advertising and promotions.

After all that it leaves a little under 11% to take away from the business… BUT, you haven’t paid interest, borrowings or tax.

Now, I realize that not all my readers are members of a franchise group, and that means the 6% management and 2% marketing fees may find their way to the bottom line, but as the Bard said “herein lies the rub!” If you are not paying franchise fees, a fair portion of that should be going to marketing, product engineering, research, human resources and other services that you otherwise ‘should’ be getting from your franchisor. (We will cover all that in a later chapter.)

That was rather a lengthy introduction, but in the context of understanding how suppliers are contributing to the death of the franchise industry it is necessary to understand these figures. In fact, I will be referring to these same figures in future chapters as well.

While there are many ethical suppliers, some who are ex-restaurant owners themselves with a sound understanding of the industry and who are willing to go the extra mile for their clients, regrettably there are many who do not fall into this category. How many of your suppliers have visited your restaurant and taken a

�� 0.50% ADMINISTRATION COSTSThis includes the cost of producing management reports, VAT returns, PAYE returns and audited year-end financials. FYI, PAYE does not stand for Planes, Automobiles, Yachts, Etc. so stop buying toys before you have paid off the business.

�� 1.20% BANK CHARGES This includes bank and credit card charges, but specifically excludes interest on loans and loan repayments.

�� 1.00% CLEANING MATERIALS Here we include all cleaning equipment, detergents, disposable uniforms, tidy mats and cleaning contracts.

�� 1.30% REPAIRS AND MAINTENANCE This covers maintenance contracts, equipment repairs and replacement parts.

�� 1.20% REPLACEMENTS Rather than capital goods such as fridges, stoves and furniture, this covers the cost of replacing crockery, cutlery and glassware breakages as well as cooking and baking utensils.

�� 1.00% GENERAL This should cover all costs directly related to operations including telephone, legal, printing and menus.

�� 0.65% INSURANCE All insurance relating to the leased premises.

�� 4.00% UTILITIES Consider your electricity, water and gas bills.

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MIKE SAID WHAT?

How many of your suppliers have visited your restaurant and taken a walk through your fridges or dry goods stores

to understand your space limitations?

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MIKE SAID WHAT?

walk through your fridges or dry goods stores to understand your space limitations? How many of them understand that delivering during a Friday lunch is not practical? And most importantly, how many of them realize the true impact of a price increase on your bottom line?

Amongst the many difficulties restaurants currently face, one of the greatest is balancing the increasing input costs with price points placed by the customers. Most customers come with a number in mind, an amount they would expect to pay for a type of product. As a customer you may feel that R30 is the most you should pay for a toasted cheese, R120 for a 300g fillet, R49 for a margarita pizza and so on… The moment the restaurant exceeds that number… POW they are perceived, and worse, described as expensive. Now, of

course expensive is relative, but customers don’t consider this when scrutinizing price.

Many suppliers do not appreciate the fact that as they push up the price of raw goods, the restaurant owner cannot simply follow suit and pass the cost onto their customers. “Yes, but” says the supplier “why should I absorb the price increase passed onto me by my supplier?” A fair point, but let’s consider the following two scenarios…

1. You purchase an international product that is imported from the USA. Suddenly the rand takes a dive and you receive the dreaded “sorry to inform you of our price increase” letter. Well, the rand is at an all-time high, yet not a single restaurant I have canvassed has received a price reduction. Perhaps the time has come for all restaurant owners to revisit their files, find all the suppliers who increased their prices according to Forex rates and insist on a price reduction.

2. The same is true for the price of fuel. As petrol prices increase, you can bet that suppliers will be pushing up prices to cover ‘transport’ costs. Yet when the price of fuel goes down, prices remain the same… Please explain!

How many of your suppliers are aware of when exactly you change menu prices? Do they realize that a price increase one week after you printed new menus means that you will be operating on reduced margins for up to six months? It is recommended that fixed prices for a guaranteed period be negotiated with suppliers. However, doing so requires commitment from your side, you cannot suddenly jump ship on a supplier because someone else has offered you a few cents discount. Quid pro quo, as they say.

Groups and franchise operations should have no difficulty negotiating such terms, but they are often sideswiped by franchisees who then buy off-spec products. This brings me to yet another matter. My father, a mine of useless information by his own description, would often tell us “you can always buy oats cheaper if you buy it AFTER it has passed through the horse”. That is to say you will get exactly what you pay for. Squeeze a soap supplier for a few rand discount an you may find your concentrate diluted. Squeeze your butcher and he may stop aging his meat as long, so as not to lose the interest, and so it goes on.

The relationship between restaurants, in fact all businesses I am sure, and their suppliers is a difficult balancing act, but if both parties can adopt a policy of fair profit, both could benefit greatly. Now get on the phone, call your suppliers personally and schedule a ‘getting to know me’ meeting. Speak to them about the challenges, explain restaurant margins to them, give them a tour of your business and make them a partner… you will both be richer for it!

It is recommended that fixed prices for a guaranteed period be

negotiated with suppliers.

www.safw.co.za JANUARY 201230

Who is killing th e South African

restaurant industry?CHAPTER FOUR:

Investigating the suspects - El cliente

MIKE SAID WHAT?

You may feel that all this is just semantics and merely a slightly different way of explaining the same thing, but in essence there is a huge difference.

Adopting the “the customer is always right” philosophy is tantamount to saying “I am always wrong” or “my staff is always wrong” or “the restaurant is always wrong”, and that can’t possibly be true.

I recently bought a shirt at a men’s clothing store, it was marked medium, but when I got home I discovered it was in fact a small. Back to the store I went. I stood in line at the ‘customer service’ counter (now there is a misnomer if ever there was one), waited patiently for my turn, had to supply the store with proof of purchase, two forms of ID, proof of residence and a blood sample before they gave me permission to change an item they had marked incorrectly. No free shirt, no complimentary round of socks for everyone in the line, in fact not even an apology! So why is it when I enter a restaurant and there is the tiniest error, I feel entitled to complain at the top of my voice, rant and rave if necessary, act as though the error was a personal slight and

then demand compensation in the form of a free meal or a round of drinks for the table?

Are restaurants themselves to blame for this monster they have created? Has our own willingness to accept all responsibility and to offer all manner of compensation come back to bite us in the rear? Strangely, I feel it runs a lot deeper than that, and is indeed a reflection of the state of the psychosis of the country. As a community we feel emasculated. Our government appears to do just as they please, public servants appear hell bent on making our lives miserable, we get pushed around by our fellow road users and have to deal with disrespectful kids, with nowhere to vent our frustrations… that is until we walk into a restaurant.

This is the safe space, the psychologist couch, the one place we can exert our authority, our chance to assert our “manhood” and prove our superiority. A strange phenomenon about the restaurant industry is that it is the one industry where there are more experts not in the industry than in it. Everyone knows more about meat cuts than we do, has a better way to

make a sauce, a dish or a dessert and, of course, everyone knows what good service should be, even when they are unable to deliver it in their own businesses.

There is no denying the fact that every cent that enters a restaurant, does so in the pocket of one of our customers and without them there would simply be no business. However, the same principle applies to businesses in most industries, yet they don’t feel the need to take the pain and abuse that the restaurant industry is required to put up with. Falling foot counts, dwindling spending power and decreasing margins mean that each customer is more valuable than ever before. There is an old adage that says “Nothing is sacred other than that the customer returns and nothing costs more than an empty chair!”

The Americans have a term called “The Lifetime Value of a Customer” and a quick Google search will refer you to a number of different calculators you can use to determine this. In a nutshell, it attempts to predict what a customer may spend with you over a specific period of time, and this is added to the business you will receive

“If it wasn’t for the customers, the suppliers and the staff… this would be a great job” lamented

our victim as he trawled through the complaints at hellopeter.CON, “for heaven’s sake, why couldn’t

they just complain to me, instead of writing to the world about that one tiny little unreasonable

incident?”

“That’s ‘cause the customer is always right!” said a voice from his distant past.

“No!” He shouted to no one in particular “He is not always right, but he is the customer and it is the

customer’s right to be wrong.”

by Michael Said

JANUARY 2012 www.safw.co.za 31

from referrals from those same customers. While the numbers can appear staggering, I am not certain that anyone has attempted the ‘other’ calculation. The one that reflects the damage done by ranting customers, the very same customer you have tried to placate and bribe with free meals and free drinks, who STILL leaves your restaurant and carries on telling anyone and everyone that will lend an ear, that not only is your restaurant cr@p, but that they managed to extract some compensation from you as well.

Is there an answer to this conundrum? Well, maybe not a definitive one, but perhaps I can offer some advice to alleviate your sleepless nights, assured that you have at least given it your best shot. Let me start by introducing you to my very own 10 – 80 – 10 rule. Henceforth to be referred to as Mike’s Law, kinda like Newton’s Law of Gravity or Malcolm Galdwell’s The Law of the Few, only much more important. Mike’s law states that customers can be divided into three distinct groups; the bottom 10% who we would rather never seen again, the top 10% who we are quite prepared to move heaven and earth for, and ‘the rest’, the other 80% who come and go almost without notice.

Typically we expend all our of energy trying to turn the bottom 10% from hating us and the top 10% to keep on loving us. The answer to real success actually lies in getting rid of the bottom 10% without a moment’s thought, maintaining a strong but healthy relationship with the top 10% and concentrating most of our effort on a certain segment of the 80%. You need to find the 10% to 20% of the middle group who are almost great regulars, almost brand ambassadors and do all you can to tip them into the top group. Now you are on the way to a highly successful business. By the way, Mike’s Law works with your staff too, but I shall address that in a later chapter.

The second tip I have is in ‘complaint handling’ and as much as I would love to tell you I came up with this on my own, the concept was introduced to me by a life coach I will simply refer to as “The Hoff”. He introduced me to a way of apologizing that I believe would alleviate most of the tension and problems you face in the restaurant. He explains that there is a very specific three step process to follow. (And I shall add a forth from my own experience).

Firstly, let us understand what happens when a staff member is called over to a table to handle a complaint. In this instant there are three major influencers at play. Cash, alcohol and ego. A lethal combination at the best of times, which this is not.

Step one in handling the complaint, and this is my contribution, remove the

offending dish from in front of the customer. In doing so you remove any reference to the offending dish along with the customer’s ability to poke his finger into the food or waive a lettuce leaf in your face. Now the waiter or manager holds the dish behind their back as a signal to anyone walking past that there is a problem. Passing staff members can then remove the dish to the kitchen and warn them that although they don’t know the exact nature of the complaint, that there is a problem and they should be prepared. Now back to the table. The person taking the complaint now begins “The Hoff’s” Three Step Process.

Step 1 - Look the customer squarely in the eye and say “I am terribly sorry Sir/Ma’am” continue with Step 2 - “I am sorry for the trouble/inconvenience/embarrassment this has caused you” (notice how we have personalized this) and finally Step 3 - “What can I possibly do to correct this for you?”

By placing the decision of recovery on the client you will be amazed by the calmness that sweeps over them as they realize that the resolution is now in their hands and that ranting and raving will not accomplish any more than a simple request. “Could you please ask the chef to cook it a little more for me?” or “Would it be possible for you to replace it with another dish?” Crisis averted AND mission accomplished. Now go and attend to the preparation of the meal, make sure the cutlery has been changed and keep the customer informed of the process. You are now able to enjoy the rest of your evening, no screaming, no shouting, no blame, in short, no problem.

Of course most customers are completely unaware of a restaurant’s ability to sum them up in a few seconds. Malcolm Gladwell calls this “Thin Slicing”. It is our ability after years and years in the trenches to categorize our customers without ever letting them know we are onto them. For those of you feeling a little battered and bruised by a hard year, here is a little light relief for you…

CUSTOMER PROFILE 1: ZIJN EN HAAR KONINKLIJKE HOOGHEID (His & Her Friggin Royal Highness)

Easy to identify, they announce their presence long before they walk in. Not wearing a single item of clothing that doesn’t have a designer label on the outside, his highness always walks in front of her highness. As they are greeted by the smiling hostess, he simply walks past her looking for his ‘royal’ party. After not finding them, he will return, interrupt the hostess who is now speaking to mere mortals and just say “We have a booking!” assuming the hostess will know exactly who they are.

No matter what table you take them to it is not good enough and she will be whining on about that time in [insert exotic city here] when [insert celebrity name here] had the same trouble. Once seated, he will turn his chair slightly to avoid eye contact with the lowly waiter. He will order one of the more expensive bottles of wine on the list (and probably miss pronounce it), but not the most expensive, after all “no one can pay these prices!”

When the rest of the party arrive all the girls will do the double kiss without actually making contact and the men will all shake hands or maybe give each other a manly biff on the shoulder. The women will chatter through the specials about their kids, school and the trouble they are having with their domestic staff and the men will simply ignore the waiter until he is done before one of them will say… “Don’t you have any specials today?” and then make some comment about how service in the country has gone to the dogs.

Not one of the ladies will order directly off the menu, after all it is simply a list of ingredients from which to choose. They will discuss, Mbeki, Zuma, Zimbabwe, falling property prices and drop plenty of names throughout dinner. They talk a lot, say nothing and interrupt each other constantly. They then continue to order expensive cigars and cognacs, which they all hate, and complain bitterly when the bill arrives. You can expect a 10% tip on the dot! You can thank them all you like as they leave but don’t expect a reply; they are too busy saying nothing to each other.

Not one of the ladies will order directly off the menu, after all it is simply a list of ingredients from which to choose. They will discuss, Mbeki, Zuma, Zimbabwe, falling property prices and drop plenty of names throughout dinner. They talk a lot, say nothing and interrupt each other constantly. They then continue to order expensive cigars and cognacs, which they all hate, and complain bitterly when the bill arrives. You can expect a 10% tip on the dot! You can thank them all you like as they leave but don’t expect a reply; they are too busy saying nothing to each other.

On a slightly lighter note, here

is something to brighten up

your day, share this with your

staff, post it on your notice

board and have a laugh (to

yourself) the next time one of

these guests walks in.

www.safw.co.za JANUARY 201232

MIKE SAID WHAT?

CUSTOMER PROFILE 2: LE SOLITAIRE (THE LONER)

Usually found sitting at the bar, on the same seat, wearing the same rugby jersey, drinking the same beer and eating the same snack he has for the past seven years. The modern version can be seen at the same table, in the same corner, reading the same newspaper, sipping the same coffee, in the same coffee shop, morning after morning.

He never complains unless someone else is sitting in his chair. He knows all the staff by name, their ages, their likes, dislikes and innermost thoughts. He has been hitting on the same waitress for the past three years and is convinced she secretly has a crush on him and if it wasn’t for that stupid assistant manager with the biceps and the attitude, the two of them could be happy together. The 26 year age difference and his four ex-wives would not be an obstacle to their happiness.

He is happy when she serves him and delivers his favourite beer without asking, but woes betide the day you send a new waiter to look after him. He is friendly to a fault, bordering on harassment as the evening wears on and the drinks go down. He becomes increasingly animated and loud as the evening winds down and the subject switches to Super 14 or the race quotas in cricket. He may be running a tab at the bar which means the chances of a tip are pretty slim. Offer to call him a cab as he stumbles out protesting that he is sober, and watch as he attempts to open the wrong car with the wrong keys. He will be back tomorrow and the next day and the next day and the…

CUSTOMER PROFILE 3: SEÑOR Y SEÑORA (MR & MRS - THE MARRIED COUPLE)

Oh, shoot! Chances are one of them doesn’t want to be here. He would rather be in the clubhouse with his mates after golf today and she would rather be out with her personal trainer. Once seated, get them their menus quickly, they have nothing to say to each other and the sooner you give them something to discuss, even if it is the exorbitant prices, the better.

He will be dressed in his golf clothes, sans the shoes and probably look like a pimp. She in her tight jeans and sparkly top, high snake skin boots and excessive jewellery might look like someone who works by the hour. If you ever tell her that she might just take it as a compliment.

Don’t expect them to share a bottle of wine or a salad, they haven’t shared anything for ages and they are not about to start now just because you’ve had some suggestive selling training lately. He may have a bored faraway look while you are recounting the specials, but don’t let that worry you, it’s the same look he has had for the last 23 years.

When they order you can expect a small argument to break out about his cholesterol and although he may give in and order the side salad he will inevitably eat all her chips. She will have the side salad, no dressing, the steak with no basting, a lemon diet coke and finish it off with a Crème Caramel. Tip between 9 and 12 percent and a pleasant goodbye.

CUSTOMER PROFILE 4: L’AFFAIRE (THE MARRIED TO SOMEONE ELSE COUPLE)

Only found in quiet out of the way restaurants in a corner table near the back. You can immediately tell they are not married as they giggle and tickle each other. The meal is as close as she is going to get to foreplay so she might as well drag it out. He is in his late forties to early fifties and she is in her twenties to early thirties and may be wearing the corporate uniform.

They will listen intently to the specials, hold hands and whisper. They will definitely share the wine, share the salad, share the starter and eat off each other’s plates. Give them lots of space to enjoy themselves, he is dreaming of later and she of the day he leaves his wife and 3.4 kids… you are right, it is never going to happen, but why should that stop her from dreaming?.

If he had his way they would leave immediately, but because right now she is the boss, they will be the last to leave, having depleted your stock of Irish Whiskey and cream. By now all the other waiters have cashed up and are enjoying a smoke while waiting for you so that everyone can be on their way. When they finally leave, he is so excited to be heading for his hotel room that he completely over tips you and you get the last laugh at the other waiters.

Don’t expect to see them back in the same restaurant and if you ever recognise him with someone else do not remind him of his last visit.

JANUARY 2012 www.safw.co.za 33

CUSTOMER PROFILE 5: THE SECOND COUSINS Everyone’s dream customers! Second cousins like you, enjoy their visit, are polite to everyone and always go home. They have been coming to the restaurant for ages, know everyone’s first names, and bring lots of friends with them. When the waiters see their names on the booking sheet they scramble to get them into their section.

Second cousins are regularly found in most family restaurants, or their neighbourhood pizza joint. They love drinking the amusing house wine or may prefer to BYO (bring your own). They do watch the prices but would never be so rude as to discuss it at the table. They will eat plenty, enjoy the meal and leave the table a complete wreck.

Their kids are always polite, know the menu backwards and love paying the bill themselves with Dad’s credit card. When things get a little crazy in the kitchen and the food is coming out slowly, they are the one table that really does understand. Do yourself a favour and move mountains to get the kids' food out first, even the second cousins can get a little irritable when little Johnny starts moaning.

They are a steady 10 to 15 percent tip with little or no hassle and plenty of laughs. Do not forget to laugh at his latest joke, even if you just heard it at the table next door. The joke will be a little off colour which will cause Mrs. Second Cousin to blush and say “Not in front of the k-i-d-esses, Mike!” They will leave laughing and smiling and probably carrying the youngest daughter who fell asleep on the floor at their feet on a blanket he fetched from the Chrysler Voyager.

CUSTOMER PROFILE 6: THE “OTHERS”There are of course plenty of other types and one day I may even find the inspiration to write about them, they include the ‘30th birthday party, too much money crowd’, the ‘new entrepreneur, let’s blow the company budget type’, the ‘we didn’t realize this was going to be so expensive party’, the ‘ethnic group that never tips’ (this varies from city to city and location to location so don’t get all defensive) and of course there is YOU, a true individual who just couldn’t find a group to fit into.

MIKE’S LAW

Customers can be divided into

three distinct groups.

1. The bottom 10% we never

want to see again;

2. The top 10% we will move

heaven and earth for; and

3. The other 80% who come

and go, almost without

notice.

MIKE SAID WHAT?

www.safw.co.za FEBRUARY / MARCH 20128

I s the franchisee to be treated as a partner? Absolutely. Without him/her there would be no income for the franchisor

and they are dependent on each other for growth and survival.

Should he be treated as an employee? Well, they are expected to toe the line, to work within the constraints of the franchise agreement and are subject to certain penalties if they step out of line.

Should they be treated as a customer? Well, they do pay the franchisor a monthly fee, in return for which they expect certain deliverables and they did after all, for a hefty fee in some cases, buy the rights to trade under the franchisor’s brand name.

If at this stage you are feeling a little confused or unsure, we say: “Welcome to the wonderful world of franchising”.

Wikipedia defines franchising as follows: ‘Franchising is the practice of using another firm’s successful business model.’ Most franchisors would describe it as: ‘the practice of using another firm’s successful business model just so that you can try and do it completely differently and then blame us when it doesn’t work!’

To sum up the relationship in one short sentence: “A happy franchisee is one who is making money.” And there are not many happy franchisees out there at the moment!

The relationship hasn’t suddenly gone bad. Franchisors haven’t suddenly become money grabbing lowlifes who prey on the innocent. Some might say they have been that way for years, and franchisees haven’t suddenly become independent, lazy, brand-destroying, reprobates with absolutely no foresight or ability to understand the value of the brand. They too have been described that way since time began. Of course I am being facetious and inappropriate, but now that we have that out of the way we can attempt to discover where things are falling short and what can be done about it.

“Franchising in not a democracy”, boomed the deep voice from across the room. “This is my brand and I will protect it at all costs!”

The statement above could conceivably have been heard at any one of hundreds of franchise meetings held around the country each year. Only names and places have been changed to protect the innocent. The precarious relationship that exists between franchisors and franchisees has been a topic of debate for many years and will likely continue so for years to come.

MIKE SAID WHAT?

CHAPTER FIVE:Investigating the suspects - Capitán Franchisor

by Michael Said


FEBRUARY / MARCH 2012 www.safw.co.za 9

Let’s face it, as a franchisee, hiring a Finance, Engineering, HR and Marketing department or external consultants would cost you considerably more than the five to seven percent you are paying in royalty or management fees, so perhaps you should ‘shut up’ and get on with executing your side of the deal. If, on the other hand, you are not getting the input and the support you were either promised or were expecting, it is time to speak up and speak up loudly.

So what role is the franchisor playing in the Death of the Restaurant Industry in South Africa? Well, the role is multifaceted and we will start at the very beginning.

There is little or no doubt that a number of the concepts offered as franchises should not even be operating on their own, let alone as a franchise. Stricter laws need to be in force before you can take money from an unsuspecting public. While the Franchise Association of South Africa (FASA) is doing a fantastic job of setting controls and monitoring in place, it is not illegal to start a franchise company without being a FASA member. The Consumer Protection Act, having shifted the burden more firmly onto the shoulders of franchisors, may resolve some of the problems, but the onus rests with the potential franchisee to do his homework before signing.

Next is “the joining fee”. This is the upfront money paid for the right to use the brand name and for the training and preparation that a potential franchisee will undergo. Unfortunately the preparation and training is often not forthcoming and new entrants are left to sink or swim on their own, and regrettably it is often the former. Of course the company has a right to charge an entry fee for joining their organisation and the training they will provide, but if there is no support structure, the manuals and documentation are either nonexistent or outdated and the value of the brand has been overstated, then surely somebody must be held responsible. But please remember the Latin phrase “Caveat emptor” – Let the Buyer Beware!

Now, if charging an upfront fee when you are offering little to no support seems unreasonable, then charging it a second time is surely bordering on criminal. All too often the first poorly vetted, hardly trained, badly prepared and over matched franchisee fails miserably and is left to pick up the pieces of a failed venture. He is left facing financial ruin and wondering why he failed when ‘anyone else’ would have succeeded. Now the franchisor goes out in search of another ‘victim’, sorry I mean franchisee, and the cycle stars anew. No vetting, no training, no support and... no chance. The problem stems from the fact that the franchisor does not have a sustainable business model for himself, and not for his franchisees. Instead he relies entirely on repeat joining fees to sustain his business. Your failure is his success.

I need to state for the record that this is not indicative of all franchisors and there are plenty of excellent companies out there delivering much more than they promise. They offer excellent support, top notch training and ongoing guidance. It is up to the buyer to ensure they are dealing with such a company. If you are thinking of entering the market, do your homework; speak to existing and ex-franchisees and contact FASA.

So you have signed for a store and put down a hefty deposit. What happens next? Well, you wait for a location, and this too is often in the hands of a franchisor

MIKE SAID WHAT?

In order for any business, regardless of type, size or years in operation to be successful, you need the following departments in some form or another, and if you are a one man business you are probably trying to do it all.

� A Finance and Accounting division. Finance plans for future growth and long term stability and Accounting takes care of the day-to-day expenses and bookkeeping duties.

� An Engineering and Production division. Engineering plans ahead, developing new products and models and Production will produce these today.

� An HR and a Personnel division. HR is responsible for the future development of your workforce, ensuring that there is adequate manpower and skills for the company to build on while Personnel looks after the day-to-day welfare and attendance of the workforce.

� A Marketing and a Sales division - and they are not the same thing! The marketing department develops the strategy and the medium with which to take your company or product to market and your Sales team will go out there today and sell it to them.

� The common thread is that Finance, Engineering, HR and Marketing all relate to the future of the company with the franchisor assuming responsibility for these roles, while Accounting, Production, Personnel and Sales relate to the now and is the responsibility of the franchisee. The problems in franchising arise when either one or both parties are not delivering on their side of the bargain.

The Consumer Protection Act, having

shifted the burden more firmly onto the

shoulders of franchisors, may resolve some of the problems, but the onus rests with the

potential franchisee to do his homework before

signing.

www.safw.co.za FEBRUARY / MARCH 201210

MIKE SAID WHAT?

There are many ethical, honest and highly sustainable franchisors doing a fantastic job of

empowering people and creating wealth

and opportunity.

who is desperate to get the store opened so he can collect on another joining fee, demonstrate how well his brand is growing and collect on the ‘rebates’ on the set-up costs. Remember that a rand spent is not the same as a rand earned. An extra R100,000 in set-up costs means you need to earn an extra R1 million in turnover to pay it off. Now ask yourself whether it is worth the aggravation of bringing down the set-up costs? Of course it is.

All too often the franchisor has not grasped this simple concept and believes the cost is what it is… hogwash I say! Times are tough and every rand saved is like ten rand earned. The problem is that quite a number of franchisors are earning rebates on every piece of specified equipment and shopfitting going into a store adding as much as ten percent to the set-up cost that already runs into hundreds of thousands of rands. Remember, it is your money. Insist on a full disclosure of rebates before you sign.

Poor site selection, lack of upfront and ongoing training, no innovation, no sustainable marketing strategy, no vision for the future, no systems and procedures and total lack of respect for the fact that the franchisee is a bottom line company as opposed to their top-line business model...

No, this is not the state of the entire industry, but if you are a franchisor guilty of any or all of these, it is time to shape up or ship out. The industry has enough challenges without your help.

There are a number of other areas relevant to our topic that are also cause for concern…

� Undisclosed rebates on specified products

� Substandard specified products

� Increase in fees without increase in deliverables

� Hindering the sale of businesses

� Lack of understanding of the challenges

� No solution to current problems

The list goes on and on and the casualties are mounting fast. While I have much to say on the subject of percentage or fixed royalties/management fees, disclosure of rebates, price fixing, collusion, unscrupulous business practices and the like, we will leave the rest for future discussion.

Once again I will stress that there are many ethical, honest and highly sustainable franchisors in the marketplace doing a fantastic job of empowering people and creating wealth and opportunity for many. I can only hope they will come out in favour of this article and work with FASA to reverse the image the industry is slowly gaining from a few rotten eggs.

We have covered a number of external forces at work in Killing the South African Restaurant Industry and in the next two chapters we move a little closer to home by looking at the role of the staff and the owners themselves.

www.safw.co.za APRIL / MAY 201216

Let’s begin by clearing up a simple yet widely held restaurant misconception… Theft is not shrinkage! Shrinkage is when you

send your tablecloth to the cleaners and it returns the size of a serviette. When someone decides to appropriate your tablecloth and take it home, then it is theft. Many urban legends abound about the restaurant owner who calls his staff into a meeting, “Guys” he pleads “we have a very big function tomorrow and we are short of cutlery and ashtrays, if you could all please bring them back just for the day tomorrow, you can restock your homes again next week”. If it wasn’t so sad it would certainly be funny.

No, theft is not the only manner in which the staff are strangling the life out of the restaurant industry, neither is it restricted to any level or segment of the staff, and no, not all staff are stealing (some have already been fired… just kidding), unfortunately it is so rampant and so prevalent that it seems to overshadow all else.

Let me not, however, be blinded by this

one element and introduce you to Suspect #5 – De arbeiders aka The Staff Member. This highly versatile suspect may assume any gender, any sex, any race, any age, any nationality and have infiltrated all levels of the organisation.

A restaurant is a melting pot of talents and personalities and often it is an owner’s ability to blend and grow these talents that distinguishes a great restaurant from a mediocre one. Let us understand this, all restaurants draw their staff from the same pool of talent and all have the ability to train and develop this group.

“Train them? Why bother going to all

that trouble and expense, when they will probably just leave?” is a sentiment often heard from restaurant owners. But what happens, heaven forbid, if you don’t train them and they decide to stay? Restaurants, like many other businesses in South Africa tend to place their most valuable asset, their customers (not the Johnny Walker Blue), in the hands of their lowest paid, least trained, highly demotivated and least appreciated staff members - their waiters! Then they sit and wonder why. Why are turnovers falling, why are the expenses rising and why did they bother to get out of bed this morning?

Back to the beginning of the story… where most of the staff you employ arrived at your door by accident! They have no formal training, little or no experience and most importantly very few have ever been a customer in an establishment like yours. Now, heed this next statement because herein lies the rub… “It is impossible to deliver a level of service greater that what you have been exposed to!”

If you have never been served with care or flair it is nearly impossible for you to

All restaurants draw their staff from the same pool

of talent and all have the ability to train and

develop this group

MIKE SAID WHAT?

CHAPTER SIX:

Investigating the suspects - De Arbeider (The staff member)

by Michael Said


APRIL / MAY 2012 www.safw.co.za 17

MIKE SAID WHAT?

deliver that. If you are constantly treated as inferior, stupid and untrustworthy that is exactly how you will treat those around you and yes, that includes the customers. In serving your customers, your frontline staff will emulate the treatment they receive. After all, who do they look to to set the example? Don’t believe me? Picture this all too common scenario…

At the pre-shift meeting the manager is addressing the waiters and he says “Guys, just returned from a restaurant breakfast and you know what they told me? The customer is always right, the customer always gets what he wants, and the customer always comes first! Get it? From today that is going to be our motto, and that is how we are going to run things around here, which is going to turn

our business around. Now go out there and let’s make them happy!”

Halfway through service a waiter approaches the manager and says “Table four needs a steak knife and we don’t have any”.

The manager looks at the waiter, raises his finger and sticking it in the waiters face he says “Do you know why we don’t have any steak knives? Because you steal them, that’s why! That’s why we never have any friggin steak knives or spoons and we always have a zillion fish knives, you see, you don’t steal fish knives!”

Cut back to the restaurant where the aggravated customer calls over the same waiter to demand a steak knife. “Sorry Sir,” says the waiter, “we don’t have any steak knives because the customers steal them all.” And of course, you the owner get to read about it on hellopeter.CON the next day.

Now, if undertrained and demotivated waiters were your only problem, life would be manageable. Instead there is a kitchen full of problems to

contend with as well. Once again we are faced with a lack of formal training and little or no respect from management and now there is also the constant running battle between back and front-of-house. Ah, the joys of being a restaurant owner! How come the franchisor never mentioned this in the disclosure document?

Slowly grazing their way through your stock or just walking out with it, the behaviour of the kitchen staff directly influences your bottom line. A disregard for property, a feeling of entitlement, a lack of vision, no aspirations and lazy are terms that have been applied in describing kitchen staff, and while it is not all of them, it certainly feels like it. And for what you are paying, you were expecting what?

So let’s speak of salary for a second. I am not particularly interested in how much you pay and whether you feel it is great, fair, market related or all you can afford, there is more to it.

In 2002, I was offered a job at Mugg & Bean at what was then a very poor salary. The company was just starting to grow, money was tight and no one was earning much back then. I was faced with a dilemma, take the job I really wanted at low pay or “seek work elsewhere”. I turned to a mentor for advice and what she said to me I have shared with thousands since then. “We all feel underpaid, every one of us believes we are worth more, the problem is the day you feel UNDERVALUED. Take the job, feel underpaid, but promise me, the day you feel UNDERVALUED, you will resign”.

So the question is not how much you pay your staff but how much you value your staff, and do you make them aware of that? Are they really part of your team? Do you share financial information with them? Do they know what your rent, gas and electricity bill amounts to? Do they know what a 40cm plate or margarita glass costs before it hits the floor? Do they understand the impact of wrong orders or expired product on your bottom line? Give them the benefit of the doubt, educate and involve them, they may surprise you and you may just surprise yourself. The doubters are already shaking their heads and wondering at my sanity, but the question is “What if you don’t?”

Einstein said it best… “Insanity is doing the same thing over and over but expecting a different result”. Let me spell it out, the staff are not going to change, only you can. If after you have tried it, and I mean properly, and you still have the same problem, refer to Mike’s Rule Number 17b “If you can’t change the people… change the people!”

Speaking of rules, I have been delivering my “Keep the Change” training for about ten years now and I still maintain that there are only seven rules needed in a restaurant.

www.safw.co.za APRIL / MAY 201218

So throw away the 238 page document and start living by

these seven rules:

� RULE NO 1

Be on time. Tardiness is a sign of disrespect implying that your time is more important than theirs.

� RULE NO 2

Don’t screw the crew. Keep all relationships outside of the workplace, and this applies to all levels of staff and management.

� RULE NO 3

Don’t steal. It is not the value of the item that determines whether it is theft or not, it is the action.

� RULE NO 4

Don’t swear at people. You will hear swearing in a restaurant, live with it. But there is a huge difference between f#ck and f#ck you.

� RULE NO 5

Respect those around you. This rule applies regardless of their age, race, sex or standing in the restaurant or the community.

� RULE NO 6

Make money. Work the extra shifts, take pride in what you do and make a positive contribution to the profitability of the restaurant.

� RULE NO 7

Have fun. This is a tough job in a tough industry; find ways to play and have some fun!

MIKE SAID WHAT?

because they aren’t going anywhere. There are still many owners who would gladly hand the keys over to a white guy with

a criminal record (that they never bothered to check)

than a black guy without one, and many more who still cling to the belief that if the customers don’t see a white face, they won’t return. These comments might make a lot of people uncomfortable, but it is a reality that needs to be addressed.

The only solution to the staffing problem lies in training… costly, time consuming, tedious and difficult! But what are the alternatives? More of the same, more restaurant deaths and more unemployment.

A word to the legislators… “Any labour law that helps cut jobs is not a good one. Minimum wages mean minimum employment.” I am not advocating cutting salaries and I am not implying we should pay less, I am saying that if a restaurant or any business is expected to survive in a free market economy, they need to operate in the same environment. You cannot legislate all the input costs and conditions and then complain about the lack of job creation in the country. Make up your minds, what do you want?

One of the solutions lies in a restaurant academy, and if there happens to be a big sponsor out there looking to make themselves truly relevant to the industry, give me a shout, it’s time for some serious change!

If it wasn’t for the STAFF, the SUPPLIERS and the CUSTOMERS… this would be a great job!

In the next chapter we turn our attention to the owners and after that we shall move onto some solutions that I believe will help turn the industry around, and hopefully help it reclaim its rightful position in the economy.

The single biggest threat to the restaurant industry

in South Africa is the disappearance of middle

management.

7So throw away the 238 page 7So throw away the 238 page document and start living by 7document and start living by

these seven rules:7these seven rules:

. Tardiness is a 7. Tardiness is a If you were planning to print these out and post them, don’t bother sticking it on the employee notice board. If I ever kill someone, that is where I am going to hide the body. Not even CSI Miami will find it there.

Wait, not quite done yet, I have yet to cover the single biggest threat to the restaurant industry in South Africa - the disappearance of middle management in restaurants (and many other industries). Why has this happened? Think back 15 or 20 years when, as I once did, most waiters dreamed of moving on to management and one day owning their own restaurant.

Back then, when rents and set-up costs where reasonable,

you could open a restaurant on a wing and a prayer, but this is no longer the case. The chances of

working your way through the ranks to

ownership have all but disappeared. Without that dream to incentivise you, why would you take the plunge from waiter to manager? For the pleasure of experiencing the aggravation, the responsibility, the hours and the stress at half the pay? Not likely.

Then there are our own racial prejudices, and we may as well get

them out in the open