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Hospitality: 2013: What Will the New Year Bring?


Key Takeaways

  • Hospitality companies may want to consider implementing an operations improvement program aimed at driving revenue through staff training, table optimization, and social media marketing plans.
  • Implementing compensation plans aimed at attracting, retaining, and rewarding key members of management are becoming commonplace with leading restaurant groups.

CohnReznick’s Hospitality Industry Practice interviewed leading restaurateurs about their concerns for 2013. While many shared a sense of guarded optimism supported by a Same Store Sales increase in 2012, they fear the economy may be taking a step back. With expectations for rising commodity and labor costs, operators could be looking at a drop in profits and cash flow for 2013. Overcoming these challenges to grow the brand, create opportunities, and protect cash flow were all top-of-mind for restaurateurs.

The major issues raised by restaurateurs for 2013 include:

Issue #1: The Economy: Are We Going Back into Recession? With ongoing doubt about the strength of the economy, operators are watching their cover counts and average check with a vigilant eye. Are we gaining market share, maintaining it, or losing it? 

Strategies to Consider: Consider implementing an operations improvement program aimed at driving revenue through staff training, table optimization, and social media marketing plans. Develop management reports and cash flow models to help run the business with timely relevant data.

Issue #2: Rising Healthcare Costs: What does the Affordable Care Act (the Act) mean to restaurants and what strategies can be implemented to control what restaurateurs fear is going to be a large hit to their operating profits

Strategies to Consider: There are numerous strategies to consider as to how to best comply with the Act while controlling costs, including: modifying hours, trimming staff, modifying existing benefit programs, and possibly self insuring. Conduct an analysis now and review options with the help of expert advisors.

Issue #3: Impact of Tax Legislation: Do the provisions of the recent American Tax Relief Act (ATRA) help or hurt restaurateurs?   

Strategies to Consider: There are opportunities in ATRA, from new tax credits to new depreciation regulations. Through proper tax planning, operators can implement strategies to minimize their tax burden while taking into account the tax rate increases.  Click here to read CohnReznick’s recent communication on the impact of ATRA on the hospitality industry.

Issue #4: Rising Commodity Costs. Beef shortages, Ethanol credits, and rising gas prices all point to a spike in commodity costs for operators. Controlling these costs will become increasingly difficult for operators.

Strategies to Consider: Controlling rising commodity costs can be achieved with menu management and vendor evaluation. Analyze what each menu item contributes to the gross margin, and how popular it is, to create insight into when to adjust prices or when to eliminate an item. Examining alternative sources for products and looking at ways to negotiate prices with vendors can have a significant impact on cost reduction efforts. Great technologies are available that can provide operators real-time data on their cost of goods so they can implement changes timely.  Consider reducing serving portions if the volume of food served is out-of-line with the market and for the price charged.

Issue #5: Rising Labor Costs: Wage hour regulations and minimum wage pressures have operators concerned about attracting and retaining staff without degrading margins.

Strategies to Consider: Operators are implementing strategies to monitor labor hours and costs while not undermining team morale. Benchmarking to industry standards and implementing win-win incentive programs for increasing check revenue or decreasing costs help operators attract and retain staff in a competitive market. 

Issue #6: Access to Debt: With all the talk about the debt ceiling, where will operators find the necessary financing to grow? Will banks lend to the industry or pull back?

Strategies to Consider: Retaining advisors that know the financing industry and which institutions are lending to the hospitality sector is paramount for success. The right advisors should also help an operator best position the company to obtaining financing.

Issue #7: Management Succession: As businesses continue to grow, smart operators are looking ahead and finding the next great leaders for their company.

Strategies to Consider: Implementing compensation plans aimed at attracting, retaining, and rewarding key members of management are becoming commonplace with leading restaurant groups. 

Issue #8: Access to Equity Capital:  2012 was a record year for investments in the restaurant industry and everyone from two-unit emerging concepts to some of the largest restaurant companies in the nation benefitted from private equity and strategic investments. How should operators best position their companies for an equity investment?

Strategies to Consider: Understanding the leading investment bankers and private equity firms in the hospitality sector is time consuming but imperative for companies seeking equity capital. Organizational structure, governance, and transparency can have a tremendous impact on maximizing brand value as well as increasing the success of closing a transaction.  A starting point for finding the right equity partner is for operators to clearly understand their objectives. Do they want to retain control? How much money do they want to take off-the-table? Are they looking for two bites of the apple, or do they want a complete sale?

Gary Levy, CPA, is a CohnReznick Partner and Hospitality Industry Practice Leader. He can be reached at gary.levy@cohnreznick.com or 646-254-7403.

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