Beating the Recession - Food (and Wine) for Thought

How small restaurants can survive and thrive: By Mark Hix
My observations in italics

Everyone in the industry is feeling the pinch at the moment, so it’s at times like this you have to keep your head down and really keep your customers happy. If they’re going to survive, restaurants have got to raise their game, look more closely at what they’re doing, and give better value. The most damaging expense for restaurateurs isn’t wages, rent or even food – it’s losing customers.

Raising the game is about being seen to be generous. What distinguishes one restaurant from another is the attention paid to detail. It is about recognizing the individual needs of the customers; it is about those little gestures and intimate acknowledgements that transform the eating out experience from a quotidian one into something special – and memorable. It is about being adaptable without jeopardising the principles upon which the restaurant is built.

To me service is one of the most significant areas where restaurants need to improve their offering. Customers will not put up with laziness or arrogance any more. There is an amazing choice of places to eat out, but it is also difficult to escape for less than £40 a head. Second-rate service consequently leaves more of a bad taste in the mouth than poor food or wine and is the result of a lack of passion. Passion cannot be instilled by people who have no experience of the hospitality industry, who see customers merely in terms of covers and “spend per head.”

Value is key, and that doesn’t just mean a cheaper menu, it means being more careful about what you’re spending, yet still giving your customers quality food. When I opened my Oyster & Chop House last April, we put lots of lesser-known cuts of meat on the menu. Things like flank cuts, cheeks and shins, which might usually end up in the butcher’s mincer but, with skilful cooking, are delicious. Better still, they’re cheaper than an expensive fillet that doesn’t taste of anything. It’s the same with cheaper fish. I’m a big fan of gurnard, herring and mackerel.

Too many restaurateurs believe that they have to compromise standards to retain business. By sacrificing quality it is evident to their customers that they are running scared. Mark Hix suggests some creative options on the food front: buy, cook and serve cheap, tasty cuts of meat or less fashionable types of fish, for example. I deal with people who rant and rave over a 50p price wine increase. They should overcome their meanspiritedness, examine their own business and find the solution there. Rice, eggs, flour – these and many other staples have increased in the last year by as much as 300%. Have menu prices increased commensurately? Of course not. There is a sense that wine should be completely recession-proof, that suppliers should take it on the chin and absorb everything.

Some more enterprising restaurants run half price wine promotions to get customers through the door, for example. Others include a half bottle of wine in the cost of a set meal.

Restaurants are constantly courted, primped and pampered by their wine suppliers. So competitive is the wine trade that there is an assumption that freebies are available at all times. Often they don’t work to build the trust in the first place; they expect the wine merchant to front up with big discounts, free stock and extended payment plans.

The good restaurateur understands the process from the farm to the plate and from the vine to the wine glass. They understand the financial implications of duty, tax, raw material cost, transport, storage, vintage quality (and thus the vagaries of supply and demand), growers’ margins, wine buyers’ margins, break even point, just in time. Many restaurateurs, however, see wine as a product and a fixed bottom line cost. These people have a narrow view of the business; quality is secondary; they confuse consistency with inflexibility.

You’ve also got to give your customers choice. A lot of restaurateurs think they have to have every starter under £10 and every main under £20, but it’s more sensible to have a range. We might have a mackerel main course on the menu for £10 and then something like a sea bass for £25. If you don’t give people the option to spend more, they’re not going to.

Yes, there is an abiding notion that restaurants have to conform to models. I have one account that refuses to have any wines above £25 on the list and all those wines at an unswerving margin of 70% gp. This means, almost by definition, that the list gets poorer every year. Meanwhile, where’s the choice for the customer who would like to spend more?

The gross profit margin, as I have argued elsewhere, was probably invented by someone who spent too much time with spreadsheets. If you want to live in la-la land examine a graph. Graphs are about constants; they can’t map human psychology or cope with the unexpected. Restaurateurs, however, deal with real people paying real money for a complete experience.

Wine is always important, and different restaurants mark it up in different ways. You either go big to get maximum profit on each bottle, or you do what we do and give your customers a bit more value on higher end wines to encourage them to buy a second bottle. I’ve also started putting a few magnums on the menu. They’re twice the size of standard bottles and are reasonably priced, from around £40 upwards, but it’s also something a bit special for tables to share.

It is important to rotate your stock, to sell the higher end wines (which are tying up money and therefore constricting cash flow). Clever restaurants will mark up creatively using flat cash margins to promote experimentation and intelligent drinking. The better the perceived value the greater the likelihood that customers will trade up and come back.

Too many restaurants go down the path of gross profit margins rather than focusing on cash generation. As the saying goes: You can’t bank percentages. A half-empty establishment which realizes grotesque gross (operative word) profit margins is a business on the edge of a breakdown; it is alienating its clientele who will surely drift to restaurants that understand the importance of giving value for money. Every empty seat is a visual reproach and a financial drain. In being greedy some restaurateurs effectively sign their own death warrants.

Meat isn’t getting any cheaper, nor is fish, but restaurants can’t afford to fall out with their suppliers. Too many people take advantage by not paying on time, but the industry needs to tighten up on this. You wouldn’t walk into a restaurant as a customer and say, “Do you mind if I pay for my dinner in two months?”

Your suppliers are as important as your staff, and you’ve got to be able to trust each other, especially when times are tough.

Truer words were never spoken. Too many restaurants take liberties with their suppliers. Credit, for example, is about trust. Terms and conditions of sale may be legally specific, but loads of latitude is given by suppliers. Sneaking extra days to pay shows that the restaurant probably doesn’t have the wherewithal to survive on its own legs. Lack of communication is another problem. Many restaurateurs, embarrassed by cash flow problems, deliberately avoid contacting their suppliers to inform them of their difficulties. Less scrupulous operators play off one supplier against another or open new accounts when their account is put on stop. In these straitened times suppliers will start applying the letter of the law with regards to credit control. Wine merchants will, quite rightly, walk away from deals, where they suspect the motives of the restaurateur. This is the problem of one-sided relationships; exploitation breeds mistrust.

Another big mistake is spending too much on design. The Chop House had a very low budget for refit. We kept a lot of the fixtures and fittings that were in the restaurant that used to be in the building, and kept things simple. You can blow a million pounds on a new restaurant and watch it flop. It comes down to having a good business sense. A lot of restaurants start up without any internal financial knowledge, and can go for months on end without knowing where they are. You can’t get away with that – you need to know exactly how much you’ve made, or lost, from week to week.

Several years ago a lot of entrepreneurs started opening restaurants. Not knowing anything about the business they used design consultants who charged them a fortune and made them spend a fortune with the objective of creating iconic design. Who knows what stands the test of time? It was so easy to raise money from investors who saw cash-rich restaurants with their high profit margins as a means of getting rich quickly. Nothing could be further from the truth. Restaurants have to sustain themselves otherwise they will fail in the long term. Mark Hix is correct in saying that restaurateurs must be able to assess where they are financially on a weekly basis.

Nor must they be complacent when things are going well. You are only as good as your last performance and as strong as your weakest link. They must understand what galvanises people to spend money, and appreciate that they are in the business of making those people feel welcome, relaxed and satisfied.

Surviving is about the whole package – there isn’t any one thing you can do to stay strong, but if you’ve got good food and a good atmosphere, you’re halfway there.

It may sounds like karmic vindication, but generally it is the intelligent, passionate, generous, owner-led-and-run restaurants that survive recessions and the overinflated, insensitive, greedy, short-termist projects that go to the wall.

Mark Hix is resident chef for the ‘Independent’ Magazine. He has two restaurants, Hix Oyster & Chop House in Smithfield, London; and Hix Oyster & Fish House in Lyme Regis, Dorset, and was formerly chef director of the Caprice Group