Advising the Hospitality Industry Into 2021

Advising the Hospitality Industry Into 2021

5 minute read

In 2020 the pandemic, and other world events, impacted businesses with unprecedented challenges, hitting the hospitality industry with particular force. But instead of retreating, VtSBDC advisor and hospitality expert, Steve Densham, says now is the time to move forward and take action by planning, getting financials in order, creating poignant messaging, and ensuring sustainability of operations.

Area advisor for northwestern Vermont and national hospitality specialist, Steve attended the University of Denver earning a BSBA in Hotel & Restaurant Management and an MA in Economics. He also served as a USMC combat officer in the Vietnam era. An entrepreneur at heart, Steve developed, owned and operated many successful businesses across and beyond the hospitality industry, and has shared his expertise on both regional and national stages.

The Starting Point recently had the opportunity to (virtually) sit down with Steve to get his take on 2021 and how to address the key issues facing the hospitality industry today:

The Starting Point: Steve, what does the New Year look like for Vermont’s restaurateurs?

Steve: Even in the best of times, January is a tough month. The holiday parties are over, catering is down, and guests are using holiday gift cards which decreases incoming revenue. The upside is that guests redeeming gift certificates often spend more than the value of the gift card, resulting in higher check averages and increased sales. 

January will be a good time for restaurant owners to take a full assessment of their situation and determine what they have learned from this crisis. It’s time to focus on sustainability of operations by emphasizing delivery, take-home, curbside pick-up, contactless payment and other supporting technology.

The Starting Point: As a VtSBDC advisor, you often emphasize financial intelligence and cash flow with your clients. How does that apply to the hospitality industry?

Steve: I tell all my clients to go back and look at their 13-week rolling budget. Plan accordingly in January and February to stabilize cash flow to get you to a period when you can dominate your revenue stream again. Gain traction by putting in some stop gaps, for example: petition vendors to two-week bill pay instead of one; in lieu of 30 days credit cut down to 14; work out a deal with your landlord to pay partial rent now, more later. These all lead to improved cash flow.

The Starting Point: What about business lending during the pandemic? How have PPP loans affected hospitality?

Steve: From the beginning, I have urged my clients not to mortgage short term fixes at the peril of future successes. I know that PPP (Paycheck Protection Program) loans brought everyone back for a while, but I am concerned that some of them may have to furlough employees for the winter. The goal is to avoid having to take even more loans in the spring to bring the employees back. I fear that piling loans upon sub-standard revenues will bring a day of reckoning. I would rather work with restaurant owners to assess their financials and lay out other options to forge a plan forward.

The Starting Point: Let’s talk about restaurant customers. What efforts should be in place to encourage guests to come back when they feel comfortable?

Steve: Unless your staff and customers feel absolutely safe and secure, customers are not going to be ready to return to the dining room. That’s the first priority. In addition, it’s easier and less expensive to get people who already do business with you to do more business with you. Ask yourself: what will get customers to come back? How much will they pay? What can I do to get customers to increase their take-out orders from two times per month to three times per month? You would be amazed at how much additional income that can generate. If you can build loyalty and work with your customer base, you will save on customer acquisition. Going back to the cash flow issue, consider value-added options rather than discounting.

Another tactic is to use gift cards as an incentive any time of year – whether an actual card, or an e-gift card.There are creative ways to promote gift cards on the restaurant’s website or via social media. You can incorporate value-added promotions, such as buy a $25 gift certificate for $20, or get a $25 certificate free with the purchase of a $100 certificate. These are well received by guests looking to find a welcoming gift at a bargain price. Considering that gift certificate redemption rates average around 80-85%, the cost of promotion is usually offset by the savings of those that are never redeemed.

Take a look at your website and e-commerce capabilities. Restaurateurs have to fully embrace digital ordering and provide e-commerce options so guests can order food and have a pleasant, contactless experience. Restaurateurs have a better chance of succeeding if they get on board with digital orders and provide ways for customers to get food where and when they want it. The demand for delivery and take-out will only continue to grow.

The Starting Point: How do you recommend disseminating these messages to consumers?

Steve: Effective messaging is more important than ever. Restaurant owners need to understand their consumer and get a handle on the new customer experience. Restaurants have to identify their brand proposition so that they are known for more than digital ordering and delivery. What makes you stand out?

Once the messaging is defined, think about how to deliver the messages: here is the standard array of digital channels, plus local advertising. Think locally about what your guests read and listen to so you can communicate effectively.

Being found by consumers who live, work, or drive by will be incredibly important. Independent restaurateurs can be proactive with a Google My Business (GMB) account and local listings to make sure they appear in the top finds.

Digital advertising is a high priority. The shift to off-premise has forced restaurants to rely much more heavily on digital advertising channels. A benefit is that restaurants can easily track conversions from online visibility to online orders. 

The Starting Point: What about the safety message? How important is that right now?

Steve: I can’t emphasize that enough. Being safe is ahead of everything and it’s not just a message, it has to absolutely be the reality. If you don’t get that right, nothing else matters.

Customers and staff must feel confident about being in the restaurant environment, and the best way to convey those messages is when the wait staff (rather than the owner) can say without hesitation, “Our owner is doing everything possible to keep me safe so I can keep you safe. This business takes care of its people so we can take care of you.”

Restaurant owners must walk the talk. Heightened cleanliness will remain a necessity. Serve-Safe and other entities that train restaurant employees to prepare and handle food will move to the forefront, and the constant disinfecting of communal surfaces, such as counters, door handles, tables, chairs and condiment containers will become the expected norm.

Another trend we will see is shrinking dining areas. Because of the shift to off-premise dining, many restaurants will reduce the square footage of their dining areas to make room for social distancing, or a redesign to accommodate take-out and curbside pick-up dining.

The Starting Point: Is there a silver lining in this situation?

Steve: Surprisingly, there are many. Here in Vermont, the pandemic has proven how resilient and amazing the hospitality industry is, and how Vermonters are strong and community minded. Our clients are working hard to upgrade their technology and adapt to a new way of doing things. At the end of the day, people have to eat, and most of us don’t want to eat food from home all the time. It comes down to the quality of the food and the excellence of the experience.

It has been said that, “Luck is where opportunity meets preparation.” Successful businesses just don’t happen; they are the result of proactive planning and reactive adaptation to the market fluctuations. That said, the better prepared one is, the better probability of success. 

The last thing I will add is to let restaurant owners and all VtSBDC clients know that they are not in this alone. I would reiterate what we always say: “We were there with you before, we’re here with you now, and we will be with you in the days ahead. Our door is always open.”

Looking for more? Check out our resources page or reach out to your regional advisor!

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