Restaurants were among the hardest hit industries during the pandemic. Enter supply chain challenges, inflation, and a tight labour market, and it’s no question they’ve been put through the wringer the past couple of years.
For many, surviving has meant changing how they operate – like introducing digital platforms for mobile ordering, a stronger infrastructure for takeout and delivery, and amping up drive-thru efficiencies to support more vehicle volume. These transformations continue to evolve today, while the ability to be agile, get creative, and tap into customer loyalty remain critical ingredients.
Jacob Mancini, AVP, Franchise Restaurants with CWB Franchise Finance, says this is the year to preserve capital, drive new revenue, and focus on operations – particularly addressing key rising costs. When it comes to who’s best positioned in the current environment, he points to restaurants who’ve invested in digital platforms, as well as those offering experiences that engage their customers.
“Digital and automation have proven huge for this industry and they’re the way of the future,” he says. “In addition, as people return to in-person dining, restaurants with interactive experiences like game nights will have a leg up in attracting customers. That’s because people are looking to make the time – and money – they spend together more special.”
So, what are the important to-dos on the menu for restaurant owners in 2023? Mancini serves up seven considerations to help feed success this year.
1. Get tight on operational costs: In 2022, issues with supply chain, the rise of inflation, and labour constraints had significant impacts on restaurant profit margins – and that’s not going away, says Mancini. “Labour and cost of goods are the two most important expense categories for restaurants. This year, the focus should be on operations and figuring out solutions to those two challenges that were significant last year and will continue into this year,” he says.
What could potential solutions look like? Mancini points to exploring technology as a tool to reduce or offset higher labour costs, off-premise support for drive-thrus and delivery, and getting the most profitability from your menu by simplifying it and using ingredients that are easy to deliver.
2. Conserve your capital: In this economy you want to preserve as much working capital as you can to deal with rising interest rates and tighter margins, says Mancini. “Expansion ties directly to capital, so be really considerate of expansion plans and how aggressively you grow,” he says. “If you’re going to invest capital, it likely makes more sense to invest in existing locations to help drive more revenue to them – for example bringing in more technology, finding ways to get more people through your drive-thru faster, or a renovation that will improve takeout and delivery or support an engaging experience.”
3. Consider restructuring your debt: While it’s not an ideal interest rate environment for those looking to secure a loan, Mancini says restaurant owners may want to think about refinancing their existing debt to help reduce loan payments. “Re-amortizing your loans over a longer time period can reduce payments on a monthly basis, which helps preserve your capital. With interest rates going up the way they’ve been, re-amortizing and restructuring your debt is an effective way to combat increased lending costs.”
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4. Expand your creativity: 2023 may not be the best time to add new locations, so Mancini suggests getting creative with exploring new ways to increase your revenue and decrease your costs. “Being creative is how restaurants – and many businesses really – make it through this stuff. When it comes to trying new things, put your focus on attracting and retaining customers, opening up new revenue channels, and implementing technology that can help fight some of your expense pressures.”
5. Leverage technology: The use of technology in the food scene has proven incredibly important over the past two years – particularly automation. Mancini suggests continuing to harness it to reduce labour dependencies and costs, increase customer volume, and enhance customer experience. “Keep advancing your digital strategy. Whether you’re focusing on your kiosks or on mobile platforms that let customers order in advance or in-restaurant, the integration of technology into your business is critical going forward,” he says, adding that because technology is a working capital investment, larger brands may have an advantage over independent restaurants due to their ability to scale.
6. Enhance customer engagement and experience: There’s lots of interest in loyalty programs these days as brands re-think how to keep their customers beyond simple monetary and points-based strategies, says Mancini. “The key is to make the consumer feel special and involved, so we’re seeing a rise in non-traditional digital routes – like gamification, or even forays into the metaverse – that offer the customer an individual and personalized experience. We see this on apps too, where a customer may receive deals or coupons tailored to their geographic area, taste preferences, or in recognition of their birthday or another milestone.”
When it comes to dining out, he explains that despite inflation curbing some spending habits, people are more willing to pay if they perceive they’re not just getting amazing food or drinks, but an engaging experience they can share with others – both in person and through their social media accounts. “This is where things like trivia nights and Instagram-worthy events, décor, and menu offerings like colourful cocktails or indulgent desserts become increasingly important. Creating an experience doesn’t need to be costly, it just needs to be visual and have a great atmosphere, put the customer at the centre as an active participant, and play into that desire of not wanting to miss out,” Mancini says.
7. Attract and cultivate the Gen Z crowd: “Gen Z really likes restaurants – they use them a lot and see dining out as a social visit, especially if they’re still living at home. They’re very interested in experiences and Instagrammable moments that they can share with their friends, and they’re just starting to come into their disposable income years,” says Mancini. “They’re the future, so it’s only natural that you’ll want to focus on finding ways to attract and keep them in your customer base.” He adds this demographic hasn’t slowed down in terms of restaurant spend, they’re big on the beverage and snack category, and are of course very digitally savvy.
Did you know?Mancini shares insights like this annually at the Canadian Restaurant Leadership and Investment Summit. Hosted by CWB Franchise Finance for over 12 years, the event provides restaurant executives with new insights, timely data, and networking opportunities to help prepare for the future.