Commentary

Penn Station president: 3 ways to survive the 'fast casual slump'

Craig Dunaway, president of Cincinnati, Ohio-based Penn Station East Coast Subs, which has more than 300 locations, says brands must know the difference between a trend and a fad and assess all facets of the business from that viewpoint before making changes.

January 24, 2019

By Craig Dunaway, president, Penn Station East Coast Subs

With an increase in the number of fast casual restaurants open and no increase in the amount of dollars consumers are spending on dining, the fast casual industry has been in a slump. If you don't believe it (after all the economy is strong, isn't it?), just Google restaurant closures or failures.

With this in mind, it's often tempting to make rash decisions to attempt to counteract the lower sales that come with a slump. However, brands should avoid knee jerk reactions. Instead, make sure you know the difference between a trend (i.e., direction the industry is headed) and a fad (i.e., short-lived craze). Then, assess all facets of your business from that viewpoint. See below for three considerations.

1. Consider your spending habits.

"Never tear down a fence until you find out why it was put up," is an old saying. There might be a bull on the other side or the bull could have died 20 years ago. The point is before you make rash changes, seek to understand why the original plan was put in place and evaluate from there.

Conversely, just because you have always done something doesn't necessarily mean you should continue spending money on it. The restaurant industry is a pennies business, and you should constantly evaluate everything you do to make sure you are gaining maximum efficiency with your expenditures. For example, you may be able to bring tasks you previously outsourced like window cleaning in-house or consider raising your deductible from $1,000 to $5,000. Do these changes save you a fortune? No, but if you find five to 10 similar items, they'll quickly add up to real dollar savings and more money on the bottom line.

While it's important to evaluate all expenses, never cut costs on ingredients that decrease the quality of your product. You should also avoid cutting back on personnel or training; customers continue to demand higher levels of service. Be more efficient when you bring people into work or when you send them home, but don't short change the training process. Restated, evaluate the efficiency of your employees' hours to make sure you aren't overstaffed during a lull.

Check on the cost structure with each of your suppliers, too. Brands often accept a 2 to 3 percent inflation adjustment each year without considering if the cost structure has actually grown at the same rate of inflation. Don't assume your prices are good, and check to make sure you can't be getting a better rate from your suppliers.

2. Evaluate your marketing strategy.

Marketing is an important part of bringing in both existing and new customers, which is even more crucial when sales are slumping. Focus your advertising dollars where today's consumers play. If your strategy hasn't been updated recently, you might be advertising in the wrong spots. For example, three years ago TV was more effective while Facebook wasn't as prolific, but today many people are fast-forwarding through TV commercials and spending more time on Facebook. When was the last time you really watched a 30 or 60 second television commercial? Your customers are no different.

Consider spending your advertising budget on brand messaging instead of product messaging. Remind consumers who you are as opposed to what you have. Consumers may see all sandwiches as the same, for example, but if you can remind them what makes your brand special and different, it helps draw them into the restaurant.

Avoid any new marketing or advertising initiatives that send a conflicting message with your brand strategy. For example, if your brand hasn't done a lot of couponing or discounting, now is not the time to start. You don't want to reach customers at the expense of lowering your prices and decreasing the value of your brand that you worked hard to create. I was always perplexed at the “dollar value” menu. Inflation has been growing at roughly 2 to 3 percent per year for a number of years. Logically, your margins will erode if you keep the dollar menu the same price, yet inflation drives up the overall cost structure of those discounted items. Even worse, brands have tried cutting back on the portions for those value items. It both confuses and frustrates the customer.

3. Show strong leadership.

From a high level, if brands are struggling with sales, that means franchisees are struggling. Communicate with your franchisees even more often than usual and make sure they know how the brand is doing compared to the industry overall.

Study your competition to learn best practices, but don't mimic it. Instead, look at the competitors that are doing really well despite the slump to see what they are doing differently and if you can implement it. Avoid feeling defeating and giving up on trying to increase sales because the industry is down as a whole: control and fix what you can.

Overall, it's critical to understand and assess the difference between fads and trends. Never get caught in a fad, especially during a downturn. It is expensive to implement, and the benefits, if any, are often very short lived. For emerging brands, hone and perfect what you do and don't try to reinvent the wheel. For longstanding brands, remember that you have persevered through slumps before and stay true to your brand.

Misery loves company, but if you're performing better than your peers in this economy, franchisees need to know this. If you're performing worse, you'd better assess why quickly. How? Re-read the above.

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