Everyone who has run a restaurant knows it: the business has high overheads and slim margins. For many restaurateurs, it’s all about keeping costs down – and every cent counts. However, not all cost-cutting methods are as effective, and it can be a tough game to decide what cutbacks are smart, and which ones may save you a penny today, but lose you customers in the long run.
So what strategies you should absolutely avoid?
Here are the top nine worst cost-cutting ideas we have come across:
1. Hire unqualified staff
Staff salaries represent one of the biggest overheads for operators, so it makes sense that restaurateurs try to keep them down. By hiring young and unqualified staff you can save a few bucks, but is it the right decision for your restaurant? In the hospitality industry, the quality of your customer service can make you or break you – and hiring unexperienced workers will affect your service. There is another downside to keeping the salary costs down: underpaid workers tend to be demotivated and uncommitted, which inevitably shows in the quality of work. If you want to save money on salaries, focus rather on retention: although few restaurateurs account for these costs in the expense sheet, it is time-consuming and expensive to train new employees. If you manage to keep your employees by giving them a living wage and good working conditions, your restaurant will advantage from it, too.
2. Cut portions and ingredients
Probably one of the first, and most common, strategies restaurateurs use to save money. Although many establishments successfully reduce costs by decreasing their portions and going easy on expensive ingredients, some operators take this strategy over the top. American casual dining chain Olive Garden famously stopped salting their pasta water some time ago, to make the pots last longer (as the salt in the water corrodes the enamel). This thrifty decision was however quite unpopular with the diners. From offering the supermarket’s brand of ice cream as dessert, to saving beer by adding more foam to each glass, other establishments have been less inventive in their decisions - but as disappointing to customers. Although the solutions above can, indeed, bring about savings, beware the risks: the customer who only gets three shrimps in their seafood risotto is unlikely to recommend you, or come back.
3. Keep your old tech
Buying new IT is an important investment, which is often scrapped during tough times. Using old tech can however mean higher costs for your restaurant. System maintenance is often one of the biggest IT costs for companies; the older your system, the more you will have to spend in maintenance and integrations. Not to mention all the problems (and expenses) in cases of breakdowns and outages! According to Hospitality Technology’s restaurant Technology Study 2016, managing legacy systems is one of the top three IT challenges restaurateurs will face this year. Although new tech can be expensive, it is a smart investment, especially when trying to save money. A modern, integrated management system is not only cheaper to maintain than old tech; it can also help cut costs by accurately identifying and improving areas of waste. On top of that, restaurateurs who have real-time, accurate business data are in a better position to analyses their business accurately, and plan their business’s future based on real data.
4. Cut maintenance
When striving to save money, you may be tempted to cut on maintenance costs. Don’t. Broken handles, burned lights and chipped tableware create an atmosphere of disrepair and neglect that is only going to drive customers away. It’s worth spending a bit more – even taking a loan – to keep the establishment in good conditions rather than risking to damage customer perceptions.
5. Stop advertising
When times get tough, the marketing budget is one of the first expenses restaurateurs cut. Although this is common practice, times of slow business are the worst moment to stop advertising. Rather than save on the advertising, our advice is to spend smart. Avoid the old media: ads on yellow pages, television and billboards are expensive, and, unless you are a very big player, they are unlikely to give an adequate return. Focus instead on connecting to your customers where they are: start marketing campaigns on social media, reach diners on their mobiles, and do not underestimate the importance of advertising locally, to your neighborhood community.
6. Kill your staff’s morale
If you are trying to save money it’s a good idea to share this fact with your employees, and tell them what actions they should take to help. Make sure, though, that you don’t push your staff too far for the sake of being frugal - for example checking how much soap your employees use, or removing free coffee for staff. If you kill the morale, you risk making your staff disengaged and unwilling to go the extra mile – definitely not the best recipe in an industry that’s all about great customer service.
7. Lower the quality
When money is tight, it is tempting to cut corners. The customer at table 3 didn’t want chicken in her salad? Remove the meat and send it back. The half-wilted leaves of arugula? Mix them with fresh ones. This is a common strategy, but a dangerous one, which should be enacted carefully and in small doses. Once your quality starts to slip, the diners take note, and you risk losing regulars.
8. Rush diners
Maximizing table turnover is an important way of increasing revenue. There are, however, smart and terrible ways of speeding up the service and ensuring a quicker flow of diners. Patrons do not like to be rushed during and after their meals (the practice of table-turning is apparently equated to bad manners), so standing around or telling patrons they should move to the bar for their coffee is unlikely to win you customers. There are, however, subtle ways of increasing table turns: you could for example avoid explaining the menu to return visitors, or, if you run a casual establishment, drop the check at the table to save waiter’s time.
9. Close early
If you have started closing earlier and earlier believing this will save you money, you’d better rethink your strategy. No matter when you close, your last hour will always be slower than your rush hour; by reducing your trading hours, you will simply end up shortening your peak period, making your business worse off in the long run. By closing too early you also inevitably reduce the flow of regulars, as they will grow to think of your establishment as closed – and will start deserting in for more flexible and reliable restaurants. Cost management is an important part of running a restaurant, but hospitality operators must be careful when making cuts. Although there are smart ways to reduce overhead, some may end up being counterproductive; in the end, you don’t want to risk trading your reputation for a small cost decrease.