How Corporate Culture Kills Results
Corporate restaurants have a lot of advantages. They scale their marketing and distribution costs. They create internal leadership pipelines. They have brand awareness with the public. They can afford expertise in IT, marketing, real estate, etc. . . . These advantages allow corporate restaurants to turn in some impressive financial results. Despite these advantages, there are cultural elements of large brands that tend to kill results. To understand this you have to dive into the real life experiences of corporate culture, and management communication. For those of you that haven't been there, I'm here to be your lens into the corporate world. For those of you already there, I'll discuss how to navigate results killing culture.
Corporations are big on reporting. As a numbers guy I think this is great, and gives managers the tools necessary to run their business. This can go sour fast in a high demand world though, where managers begin managing reports rather than their restaurants. What does that mean and how does a restaurant get there?
Corporate expectations are largely dictated in a budget. Your labor, food cost, marketing expenses, repair and maintenance capabilities, etc. . . are decided up front and you will be expected to meet these numbers. But where do these numbers come from? Typically, they come from making an adjustment to your prior actual numbers. For example, let's say last year you ran 17% labor in the month of January. Next January that 17% will be a benchmark you are expected to beat, so your budget will likely be lower than that, say 16.5%. If running 17% was already difficult, you are going to have to really push hard to hit 16.5%. If you hit 16.5%, then the following January your budget will likely be 16%.
This cycle obviously can't continue to forever. If 17% was the best number to staff your restaurant, then 16% labor has you running significantly understaffed. Corporations continue to keep pushing though, year after year demanding better numbers. The logical response to this from the management teams is to not beat your numbers. Running a very efficient restaurant will only lead to an impossibly demanding budget. This essentially incentivizes restaurant managers to do just enough, while consciously preventing themselves from making more money. In fact, this is often communicated from upper management. "Use it or lose it", is essentially the spending motto when dealing with budget concerns, regardless of if you need to use it. For small independent businesses managing cash flow this sounds crazy, because it is.
What happens when budgeting expectations have already moved past reasonable operating goals? A) Restaurant managers lose integrity by breaking standards to get results, and B) Restaurants are run into the ground. Here are some real examples of how this has played out:
Labor Dilemmas
I worked for a company that rolled out a labor management program called Deterministics. This program took guest counts, and told you exactly how many people you needed on the clock for each department, in 15 minute intervals. Anything over this number was considered "waste", and you were held accountable to it. On paper this may make some sense, and I'm sure this system could have benefits if executed well. It wasn't executed well. In solid numbers, this meant two cooks when there were normally five. Five servers when there were normally nine. No dishwasher or prep cook when there has always been one. The labor pressure was primarily directed towards the kitchen. So what did restaurants do? Clock prep cooks and dishwashers in as hosts, moving the hours to a different department. This was in fact encouraged by Area Directors, because they were being held accountable to the same numbers.
Labor budgets based on prior year can make some sense. If you have reasonably managed your restaurant with 17% labor, why couldn't you do it again? But what if 17% labor was significantly understaffed? What if you had a tenured team, and lost some key players? The worst iterations of these scenarios I saw during a long string of taking over failing restaurants and turning them around. When taking over a failing restaurant with poor performance and culture, labor has to go up. You have to invest in training, staffing up to improve operations, and replacing poor performers. You can not turn around a failing restaurant without doing this, but restaurant after restaurant I was expected to lower labor immediately as if that was the problem.
The disconnect here has to do with the budgeting expectations from corporate and the daily experience of the guest and employee. If guests are unhappy due to poor operations, and employees are frustrated due to poor operations, then this is the most pressing problem that needs to be fixed. This reality is hard to capture on a budget that was written six months ago. What do you do when your bonus, raise, and relationship with your boss is at odds with what is best for your restaurant?
Food Cost Games
There are a lot of things involved in managing inventory costs. In corporate restaurants a lot of these factors are handled above store. Bidding, contracts, menu costing, software database management, etc. . . are all typically handled by corporate. This means your primary objectives are to minimize waste through recipe adherence, and keep appropriate purchasing and prepping pars. What happens when you hit results? Similar to labor, the budget is adjusted. As an example, let's say you have a 28% COGS budget, and you hit it. Your next budget will likely be somewhere between 27-27.5%, without any menu or purchase cost changes. This is how some corporations handled this continuous process of reducing the food cost budget:
Sell frozen seafood as fresh, and at a fine dining premium
Reduce portion sizes on everything from wings to rice
Buy smaller beer glasses and switch them out after close, hoping the guests wouldn't notice (they did)
Adjust the soda syrup to water ratio
Continue to sell expired product
To be clear, the above examples were at the direction of upper management, including weekly conference calls that were essentially brainstorming sessions on more ideas to cheat guests. These types of practices damage the integrity of management teams, teaching them to get results by taking short cuts and breaking from procedures. They also cheat the guests out of an experience they are expecting. In fact, they are brand damaging and drive guest counts down.
What can you do when being faced with this culture?
Being asked to sacrifice your integrity and long term results for a short term number on the P&L is a bad position to be in. To combat these issues, it is important that you are very clear on where you stand with getting results. You need to:
Focus on your people first. Any result you get is ultimately a result your people get with their performance.
Know your big rocks. Don't let the focus of the week distract you from the most important issues in your restaurant.
Staff for the sales you want, not for the sales you have. For all the things to push back on, staffing is number one. If this hurts your labor numbers than you have to turn in results elsewhere.
Piggy backing off of the last two points, choose your own results to celebrate. If you know your big rocks and you know you are working on fixing them, than that is your narrative. Smart bosses will give you the room to function.
Have a time frame. Smart bosses will wait for long term results, but not forever. If you aren't making progress on your big rocks than you have no cover from taking heat. Remember, they are answering to someone too.
If you don't have a smart boss, update your resume.
It's possible to survive and thrive in the corporate world, and I'm sure not every company falls into these culture traps. To not fall into the pattern of these bad decisions, you need to recognize when your company has gone astray. Always have a plan for your business, and don't get distracted from your big rocks.
