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Much of the world regards restaurants as retailers. And in fact, they are; they sell to the ultimate consumer.
The Restaurant Sector, and its four restaurant "segments" defined by NAICS, has been added to Key Financial Benchmarks section of The Retail Owners Institute®.
Now we can get perspective on their financial performance. Whether they offer sit-down dining, fast food takeout, or are a neighborhood cafe, brewpub or juice bar, all have telling financial vital signs.
And they are fascinating!
Here are some of our immediate takeaways as we examined the Five-Year Charts for these Restaurant Segments:
Higher Profits
Overall, the median-performing restaurants enjoy higher pre-tax profits than median-performing retailers. Pre-tax profits for the restaurant segments range from 4.1% to 7.3%, well above the retailers’ average profit of 3.5%.
High Margin Businesses
Any wonder that some retailers are incorporating snack bars and/or beer, wine and even liquor bars in their stores? Changes the in-store experience, keeps customers there longer - and has sweet margins! (Plus, they can absorb the operating expenses versus a stand-alone operator.)
But…Cash Crunch
The Current Ratio for these 4 restaurant segments is grim. Very grim. For each dollar they owe in the next year, they have less than a dollar in current assets. They are constantly in a cash crisis.
Hmm. Is it any wonder that many “alternative lenders” welcome cafes and coffee shops as their customers??
And, Lots of Debt
That on-going cash crisis may explain why the Restaurant Sector has such breathtakingly-high Debt-to-Worth ratios. (And remember, as you look at the Five-Year Trends, the improvements - that is, the decline - in the Debt-to-Worth ratio is likely due to seeing the numbers for only the survivors, those places that are still in business.)
Revealing, Aren't They?
Yes, restaurants are retailers. But the overall financial picture of restaurants is decidedly different than most other retailers.
To take a look for yourself, and see how your conclusions compare, go to the Restaurants Sector of The ROI's Key Ratio Benchmarks. Review all of the Five-Year Trend Charts for these restaurant segments:
- Snack or Juice Bars, Espresso Bars
- Limited-Service Restaurants
- Drinking Places (alcoholic beverages)
- Full-Service Restaurants
Are You Leading? Following? Or, Scrambling to Get Out of the Way?
We recently were asked by the owner of a mixed-use development to identify prospective retail tenants. This landlord wanted to be proactive in seeking tenants, rather than just passively choosing from the inquiries they were already receiving from various brokers.
- Our take-away from our initial meeting was that this commercial property owner wanted to “skate to where the puck is going to be”; to anticipate what kind of retailer would have some appeal – and some staying power – in their property. (How cool is that?!?)
One of our first steps for this project was to recap current retail trends, in order to identify retailers from each sector of retailing who were on the leading edge of embracing one or more of these trends.
Seven Retail Trends - and Three Questions - For Your Consideration
Meanwhile, we invite you to consider seven of the trends we focused on. As you do that, keep three questions in mind:
- Do you agree that this is an important trend?
- Where is your retail operation vis-a-vis each of these trends? (Leading? Following? Getting out of the way??)
- What about your competitors or neighboring retailers: which ones of them are evidencing these trends? (And what does that mean for raising the consumer’s expectations?)
“Smaller Is Better”
Retailers of all sizes want less square footage, are developing smaller format concepts, etc.
Urban Infill
In large cities, this is happening as more people live downtown, whether the Millennials or the down-sizing Baby Boomers. But, this revitalization of shopping districts also is happening on Main Street locations in communities of all sizes.
E-Commerce Expands Offline
Formerly e-commerce-only sites (think Warby-Parker, Birchbox, Zappo’s) are launching “offline” (e.g., bricks-n-mortar) locations as well.
Here Today, Gone Tomorrow
The pop-up shops that appear seasonally - thus avoiding the profit-draining costs of a year-round location - continue to gather steam. Some landlords are systematizing this practice by offering only temporary, short-term leases, with a constantly rotating and refreshing collection of retailers.
Retail on Wheels
Retailers have watched the food truck phenomenon, and are adapting! Hello, Fashion Trucks!! These retailers can alert their customers to their locations via social media.
Provide Experience
To attract customers into a store, retailers are focusing on the overall “experience”. In some cases, this involves expanded food service, or full-service bars that resemble hotel lobby bars. Whatever it takes to get the customer to linger longer.
Integrated Technology
The use of in-store and interactive technology - whether to connect to a customer’s smart phone, engage them with interactive digital displays, or offer “Magic Mirrors” that are “virtual dressing rooms” - is increasingly available.
As you may be aware, we are witnessing a surge in new retail businesses. Most of these are entwined with the internet. They rely less than ever before on a brick-'n-mortar presence, further reducing the "barriers to entry."
Owning a retail business can be very exciting, challenging, creative, and a wonderful way of life.
In fact, we believe that the very best citizens in every community are the owners of retail businesses.
Two groups of individuals are the primary drivers of this current surge of new retail concepts: (1) the Millennials; (2) the Baby Boomers, especially those in their 50's and early 60's.
It's this second group, the Baby Boomers - who of course have never lacked for confidence - that has been most likely to assume "Retail? Why not? That looks so easy!"
Many of these Baby Boomers are "refugees" from corporations, relishing the opportunity to "Finally! I will get to be my own boss!! And manage my own time."
But, these newby-owners often are startled to learn an old axiom:
"As Owner, yes, I do get to manage my own time. That is, I get to choose which 80-90 hours each week I work!"
SURPRISE!!
The "ripple effects" of the Minimum Wage changes are affecting all retailers. The biggest question: not "What will this mean?", but "How will we address this in our operation?"
First issue, of course: WHEN will your business implement any changes? Well in advance of the laws? Or, coincident with the laws?
Why does the timing matter? Because of the perception. Are you out in front of this issue? Or, seeming to lag behind?
Next big issue: IF the minimum wage (the "floor") of the pay scale in your business needs to be raised to comply with the laws, what effect will this have on the wages of your mid-management team?
- Your current mid-management people may expect a separation between the minimum wages paid and their paychecks.
- If the minimum wage increases cause you to increase the wages of your entry-level employees, might you also need to increase the pay of essentially ALL of your employees.
- The bigger ripple effect may be how other employers in your community handle these first two issues. That is, are you remaining competitive for attracting and retaining the best people?
There are no right or wrong answers here. Every retailer must evaluate this, and determine what is appropriate for their business.
And, of course, that analysis must include how you will be able to pay for any changes in payroll.
- Increase prices for your customers?
- Reduce expenses in other-than-payroll areas?
- Expect more productivity from employees?
- Introduce other forms of compensation, such as more flexible scheduling, more paid time off, etc?
Again, there is no one-size-fits-all answer. But, we sure encourage all retailers to ponder this issue, and to examine all of your options.
Get Out in Front of This Issue!
As we all know, good people are very hard to find. How you choose to compensate - and therefore motivate and retain - your key staff is a key factor in the on-going viability of your business. We urge you to get out in front of this issue!
Want more ideas? Check out this thoughtful article from The Library for Owners at The Retail Owners Institute®: Beyond the Paycheck: Motivate Employees with Creative Compensation.
You've heard it. The "conventional wisdom" that suggests that retailers should move away from the Baby Boomers, and retool their operations to appeal to the Millennial Generation – those "digital natives" who now are 18-35 years old.
Hmm. Follow that conventional wisdom at your own peril! Instead, we believe retailers should focus on making their stores MULTI-GENERATIONAL. After all, each group is ± 80 million people, totaling about half the U.S. population.
You don't have to choose one group at the expense of the other. Cater to both of these major market segments. Yes, simultaneously! (Just not the same!)
- Do NOT ignore or marginalize the Baby Boomers as being in their "sunset years".
- Show the Millennials the respect they deserve.
"One size fits all" does not apply!
By strategically and pro-actively managing your operation to be Multi-Generational, you can – and must! – treat the Baby Boomers and the Millennials the way each group most wants to be treated.
- Baby Boomers have always done things their way, and show no signs of changing now. More so than prior generations, they are healthy, active, traveling, engaging in causes, participating in their communities – and yes, spending on themselves and their families. They are internet savvy, but still do "recreational shopping".
- Meanwhile, the Millennials are a market not to be ignored. While they may not fit the conventional definitions of "families", they are forming households, having children, commuting to jobs, going places and doing things. They are discerning shoppers, and will "put their money where their mouth is". There are causes they care about, and will mirror that in their shopping choices. Their "comparative shopping" is done online, and they are very purposeful when it comes to purchasing. They will not linger!
Retailers must think strategically about your unique competitive advantages. Then, update them to cater to EACH of these important market segments, on parallel tracks.
It's called "multi-tasking", and you can do it!
