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7 Critical Factors to Maximize Brand Value
Catering to Dietary Preferences
4 Steps to Deliver Hospitality
7 Critical Factors to Maximize Brand Value
Restaurant businesses can be valued between zero times and 100 times their annual EBITDA. When potential investors or buyers perform due diligence they zoom in on the factors below. Every year, hundreds of deals are made in the restaurant industry, and these factors are what will drive shareholder value.
Use these concepts as cornerstones for your company's strategic planning process. Set guidelines that will define your path. When considering a new opportunity, you will either check all the boxes or move on to the next one. Saying "no" to a project that only gets through 60% of the stress test will add value to your business. Directing your resources and time only towards the opportunities that add maximum value is a key element of success.
1. HIGH CASH ON CASH RETURN
Buyers will look at total cash invested (hard cost and soft cost) and how quickly it is returned. If your cash-on-cash return exceeds 33%, meaning that it would take less than three years for capital to be paid back, your business will command a high multiple.
An example: If the total investment in one unit is $300,000 and your annual free cash flow is $100,000, then your cash on cash return is 33%.
Hard cost + soft cost (including pre-opening expenses) = total cash invested (including debt).
Operating yearly profit - yearly capex = yearly free cash flow.
Free cash flow / total cash invested = cash on cash return %.
2. PROOF OF CONCEPT
The market wants to know that the business model has been successful in multiple locations. The more successful locations, the stronger the concept. More than five states and multiple applications will increase the multiple.
- Has the concept been successful in multiple states?
- Has the concept been successful in multiple settings, such as urban, suburban, transportation hubs, hotels/resorts, entertainment venues, etc.?
3. GROWTH POTENTIAL
When looking at growth, the buyer will be looking at the pipeline of newly secured locations, as well as the "white space".
Pipeline: The acquirer will be looking at the quality of the leases, a realistic development plan, and projections that reflect existing stores.
White space: This is an evaluation of how much the brand can grow considering how crowded the segment is with competition. If you are competing in the fast food hamburger space, there isn't a lot of "white space".
This would also include how easy it would be to replicate the same business model. The cupcake and frozen yogurt industries were highly prized for a short period, but the price of entry and ease of growth made many brands worthless, as competition increased quickly.
4. REAL ESTATE
A potential buyer will evaluate the real estate assets based upon the term left on each lease, as well as the value of the lease compared to the market. National real estate brokerage firms will typically assist in evaluating the leases against a market specific competitive set.
Term: The term left on the lease, including the options, will be very critical in the multiple. For example, in order to validate a multiple of 8 or 10, the average term left on the leases should be higher than 10 years. "Core" leading stores that generate significant cash-flow will certainly be an important focus. If 5 stores out of 20 generate 60% of the company's cash flow, the term of these leases is going to play a significant role in the valuation of the business.
Market: Each lease will be evaluated against market rent. The variance between current rent and market rent, multiplied by the years left on the lease, will determine the value of the lease. For example, if market rent is $20 higher per foot than current rent, and there are 10 years left on the lease, and the property is 10,000 square feet, then the lease would be considered having a value added of $2,000,000. If market rent is lower by $10 per foot, the same property would have a negative value of $1,000,000.
The real estate portfolio will play a significant role in the validation and valuation of the business.
5. EFFECTIVE MANAGEMENT TEAM
While potential buyers will value the management team differently from one another, a strong team with a successful track record will play an important role in the valuation of the company.
A pure financial buyer will value a team who can keep the business running and can execute the contemplated growth plan. Businesses that depend upon one particular person, chef, or restaurateur, may be deemed less valuable, because of the risk of losing that key person.
A strategic buyer may plan on acquiring the business and creating economy of scale by eliminating senior positions, then merging companies together. In this case, the strategic buyer will focus upon store level talent and operational middle management. Showing low turnover and retention will be key to keeping the valuation high.
6. SAME STORE PERFORMANCE
The market will analyze year over year store performances that are a year or older. Sales and bottom line results of same stores will be one of the most important factors in valuing a business. These are a reflection of brand loyalty, competitive landscape, and operational performance.
When Chipotle experienced health safety issues and traffic to their stores softened, the valuation of the business took a significant hit, based on lower same store sales performance. As soon as same store performance showed improvement, Chipotle's market cap steadily grew back.
7. BRAND LOYALTY
Buyers will evaluate “raving fans” and in some cases “cult following”. Database, repeat customers, digital presence, and demographics will be analyzed to evaluate how strong the brand is and how likely it is for the brand to continue to perform at that level. Who is your customer? How well-known is your brand? Is your brand memorable?
When Shake Shack went public, it was valued at over 100 times EBITDA. The brand awareness and reputation played a significant role in Wall Street’s valuation of the company. The association of Shake Shack's founder and acclaimed restauranteur, Danny Meyer, brought a new level of recognition for the Brand.
Catering to Dietary Preferences
Diners are more discerning than ever. They look for quality, traceability, and whether particular foods fit their life choices. One’s eating lifestyle is built around a belief system that will determine what he or she deems to be “healthy”. The media provides us with so much information (sometimes conflicting) that can sometimes be confusing. Restaurant professionals are challenged to cater to people’s response to this information which results in various dietary preferences. This is an important paradigm shift in consumer behavior that needs to be considered by food professionals in order to stay competitive. While mass food producers have used eating preferences as an opportunity to market new products and are often ahead of setting the trend, restaurants are slower to embrace the concept.
Why is “healthy” in quotation marks? Quotation marks are used because the word “healthy” is highly subjective. What is healthy for one is not healthy for all. For many years it has been common knowledge that a diet heavy in fried food and sugar will result in unhealthy consequences. However, because of advanced public awareness, today’s dietary preferences come in many different shades: Vegan, Vegetarian, Gluten Free, Dairy Free, Paleo, Low Carb, Ketogenic, Organic, Non GMO and more…
While we may not be able to accommodate everyone, there are a few steps that will make your establishment’s dietary preference friendly. Vegan (VG), Vegetarian (V), Gluten free (GF), and Dairy free (DF) are the most requested preferences. One of the steps in delivering hospitality is anticipating guests’ needs. Making dietary preferences a priority will gain guests’ confidence and increase their visit frequency.
INGREDIENTS
As a general rule, we avoid the use of prepared and processed foods. This avoidance includes, but is not limited to, pre-made dressings, condiments, and lunchmeat. We source organic and GMO-free ingredients whenever possible. In addition, we enhance our pantry by sourcing the following ingredients to accommodate requests and or elevate our food preparation:
- gluten-free soy sauce
- high quality vegan and gluten-free pasta
- gluten-free all-purpose flour
- non-dairy milk and creamer alternatives: almond; cashew; soy; oat
- high temperature cooking oils, such as coconut and avocado
- high quality finishing oils: extra virgin olive; sesame; walnut; grape seed
- expanded spice selection
We organize our ingredient list in a way that will help sort out dietary preferences in order to build and adjust recipes. This practice will also assist us when training our team. We mark items that contain gluten, animal product, dairy, and others.
We conceptualize bolder food, meaning more flavorful, fresher, and ultimately more pleasing food. We expand our spice selection to include citruses, herbs, and finishing oils that (work together, mingle together, combine) to excite the taste buds. It is easy to fall into the bland zone when preparing vegan food or “health food”. We are curious and experiment with flavor associations. Serving a bland plate of steamed vegetables to a vegan guest is not going to bring him or her back. A few well-selected spices, some chopped herbs, and a squeeze of lemon will bring simply prepared vegetables to new heights.
2. COOKING
Stay true to who you are as a concept. Our goal is to accommodate more dietary preferences. If your restaurant’s best-selling dish has contained gluten for 20 years, we would not suggest changing it. Some items should stay exactly as they are. If you have enough gluten free options on the menu, we protect the integrity of the dishes that use gluten.
As we focus upon preparing lighter food, we consider cooking methods that require less fat. Baking, roasting, steaming, broiling, and dehydrating will concentrate flavors of the items being cooked. When designing recipes, consider removing ingredients that will unnecessarily disqualify a dish from fitting into a preferred category. For example using flour in sauces or butter for cooking could be avoided and allows us to list more dishes as GF, DF, or VG.
We think about ways to substitute items that will help accommodate more guests and make our food more interesting. Toasted chickpeas or rice cakes, for example, could replace the crispiness of croutons in a salad.
We train our cooks to think about what ingredients they use and how they cook with them. We correct old habits by setting up stations with the correct ingredients and continually educating the team. We taste the food with team members.
With respect to special orders during service, the expeditor and the cooks in each station review special notes on orders. They must mark tickets and pay particular attention to the preferences. Once the dish is dressed, we mark the plate with a sticker. It will be easy to recognize the dish being altered. We only remove the sticker at the table so our guests will see that we followed through by accommodating their requests.
Our culinary team prepares detailed food notes that include pictures, ingredients (including their sourcing), and cooking preparations. In order to ease the process of preparing special orders, we train with the use of readiness alternatives. We make that part of the training and the food descriptions.
3. MENU MERCHANDISING
In order to avoid much back and forth between guests and our servers, we mark menu items with little icons. We focus upon clear directions and clean presentation. Because our cooking methods have helped us to identify more items within dietary categories, our menu will read in a friendlier fashion to patrons who are ingredient sensitive. We understand that our guests will review menus online and visit social media platforms before deciding to join us for a meal. Our dietary and preference-friendly menu will be noticed and recommended through word-of-mouth.
Pictures and videos are great ways by which to merchandise our menu items and communicate about the quality of the ingredients and cooking preparation. Beautiful images that are accompanied by clear descriptions will naturally communicate to our customers information about the various dietary preferences offered.
4. SERVICE TRAINING
We are not nutritionists. The menu is built to cater to preferences in a convenient way. We allow guests who care about their food choices to have a seamless experience. We teach our staff to cater to preferences the same way as they cater to allergies. We don’t question the guests, but accommodate whenever possible.
We keep the messages positive by using dietary preferences as opposed to dietary restrictions. We treat preferences as if they were specific allergies. The front of house team must be accommodating, and they absolutely must follow through and execute. When a ticket is rung, the dietary preference is indicated with the position number as a general comment, and then items that need substitution are notated below. Communication among team members is key. If a guest mentions he or she is GF, we must ensure that all items going to that person are GF. This is especially true for items that are gifted to the guests, such as a small amuse-bouche, bread, or dessert.
We keep copious notes on our guests and their dietary preferences. This way, we are able to anticipate for their next experience with us. We are specific as to who in the party has communicated specific preferences. We know that with consistency we will create repeat guests who will become regulars and, in time, raving fans.
4 Steps to Deliver Hospitality at Every Interaction
"Hug the Guests!"
- Stephen Hanson, founder of BR GUEST Restaurants.
When it comes to hospitality, there is nothing more effective than a warm hug. We have broken down the concept of hugging the guest here. We are not talking about a physical hug, unless our guests have become so close to us that is appropriate, but a way of interacting with guests that will bring forth the same warm and comforting feeling as a genuine squeeze from a loved one.
When visiting a restaurant, a hotel, or any other service-driven establishment, guests experience interactions with team members. Each interaction prompts feelings within guests. These feelings may range from warm to very cold. A restaurant experience is composed of dozens of interactions. Think about how many interactions one guest may have with team members - making a reservation, handing a car to the valet, checking-in with the host, leaving items with the coat check, being seated, receiving menus, selecting a water choice, ordering a drink, receiving the drink, hearing the food presentation, ordering food, receiving bread, receiving an appetizer, refilling water, clearing the appetizer, ordering a second drink, receiving a second drink, receiving the main course, clearing the main course, ordering desserts, ordering a warm beverage, receiving dessert, receiving a hot beverage, clearing dessert, asking for the check, receiving the check, paying the check, asking for directions to the bathroom, leaving the table, collecting items in coat check, leaving the restaurant, retrieving a car from the valet, driving away. The key is that during each of these interactions, the guests feel like they have been hugged.
Each position in an establishment supports the bigger purpose of providing hospitality. Just as it takes place on a sports team, all members contribute to the win. When recruiting new team members who will interact directly with patrons, we select candidates who demonstrate a natural ability toward providing hospitality. These individuals usually thrive on human interaction and look forward to making the interaction memorable.
Raw hospitality potential alone will not guarantee that guests will be “hugged" during every single interaction. Hospitality habits must be built like muscle memory, otherwise during a very busy service while the staff experiences significant stress, the perfectly hospitable team member might behave in a way that will deliver cold showers to our guests. It is about repetition, training, follow-through, and reward.
1. OFFER A WARM WELCOME
Make eye contact and smile!
It is that simple. Whatever the task, we train our team to look guests in the eye, and smile at every interaction.
Serving water: Make eye contact and smile.
Clearing the table: Make eye contact and smile.
Serving a dish: Make eye contact and smile.
...Any interaction with a guest: Make eye contact and smile.
Some interactions, such as the issuing of formal greetings, will include pleasantries and additional steps that will enhance the warm welcome.
During service, we follow through and pay particular attention to server assistants and food runners whose main communication will be through the use of body language. We remind them to make eye contact and smile by extending that same genuine warm welcome to the guests.
2. USE THE GUEST NAME WHENEVER POSSIBLE AND APPROPRIATE
It is gratifying to be welcomed and recognized by name. Whenever possible, team members should address the guests by name. This personal touch will go a long way in making guests feel appreciated. Use last names unless directed otherwise by the guests. Using the name should sound natural. Here are some of the times when using the guest name should flow naturally:
- When taking a reservation
- When an initial greeting is being given by a team member
- When thanking guests as they pay for their meal
- As a fond farewell is extended
While using guests’ names, we keep the following in mind:
- Pronunciation: If we are unsure, we must ask the guests if we are pronouncing their names correctly.
- Repetition: We do not overuse the name. In order to be effective, the use of names needs to flow naturally and be effortless.
Using the guest’s name every time we pour water at the table, would be “over the top” and seem intrusive.
How do we make the process natural? We prepare and focus upon the task. Below are some examples of ways to facilitate using guests’ names.
- During pre-shift, the list of reservations should be reviewed and shared with the team. Giving everyone the opportunity to familiarize with names and recognize repeat guests is a must.
- The lead host should use downtime to memorize and practice saying the names of all guests coming in the following 15 minutes. By the time a regular guest arrives, we might then greet that guest naturally by name, making the person’s arrival memorable to him or her.
- Reservation slips that contain specific information are passed on to servers so that guests’ names are readily available.
3. HANDLE AND ANTICIPATE GUEST REQUESTS
This part requires preparation and attention to detail.
Stock the front door or coat check with reading glasses, shawls, cell phone chargers, care kits, sewing kits, and other useful items.
- After each guest visit, we add permanent notes to his or her folio, so that we are able to memorialize preferences.
- When taking a reservation, we ask questions that will allow us to make visits memorable. Questions about special occasions, table preference, and other details will help us anticipate guests’ needs during their visits. Examples include:
- A couple coming for an anniversary will most likely appreciate a booth.
- Someone coming in a wheel chair will require appropriate seating.
- A business dinner would probably be most appropriate at a table with chairs.
We teach team members to be observant. Examples include:
- If a lady is holding her arms in an uncomfortable way, we may offer a shawl.
- If someone is not touching his or her dish, we will approach and inquire about the meal.
During every interaction we have the ability to anticipate and handle guests’ requests. Following through is key. Do not end the interaction and offer a fond farewell until the job is done, and the guest is satisfied.
4. EXTEND A FOND FAREWELL
Each interaction requires proper closure. The fond farewell does not only take place when guests are departing. It involves the act of completing an interaction between guests and team members. Make eye contact and smile.
The step of issuing the hug, is to make sure that we have satisfied the guest requests and executed the tasks completely.
Pour water, check the table for maintenance, make eye contact and smile, and then move on to the next task. If something is needed at the table, the server assistant will be able to detect it.
Too many times guests will look up after receiving their meal to find that the food runner is already halfway across the room, and the only thing they see is the runner’s back side. When food runners deliver food, we teach them to wait just a few seconds in silence while observing the guests. Then they may offer a kind pleasantry announcing their departure from the able. This will ensure that the food was delivered to the right table, in front of the correct patron, that special requests were executed, and that guests have all the condiments needed. We may also be given another order of wine.
When an interaction doesn’t end with a fond farewell, it feels as if the door is slammed in the face of the guest.
Making eye contact and a smiling for a couple of seconds before ending an interaction is all it takes. We may add a pleasantry when appropriate.
When guests leave our establishment, we thank them for their visit and invite them back. We plant the seed that they should come back.
Here is an effective way to wish a guest a fond farewell:
“Mrs. Jones, thank you for your visit. It was a pleasure looking after you this evening. My name is Peter. Please do not hesitate to ask for me during your next visit or when recommending us to your friends.”
Then Peter should hand over his business card.
General Recommendation: These steps should be used for training all team members on how to treat internal and external guests. Building a cohesive team on the principles of “hugging” each team member is effective. If one doesn’t interact directly with guests, one supports others who do. All tasks in a restaurant lead to delivering hospitality. The first step of extending a warm welcome is presenting an immaculate establishment. We use this concept to train the support team to participate in delivering hospitality excellence.