Contact Me
Menu Close

More Strategic Notes For Dealing With Business Issues During The Coronavirus Crisis

SBA


• Current SBA program – check qualifications to see if you qualify
• Closely monitor news for changes to SBA relief programs

Liquidity Management


• Be proactive/constructive with lenders – seek any relief you can work out (deferrals, accruals, suspensions, interest only, potential to add abated payments to end of the loan, etc.)
• Consider draw down on any available lines of credit to fortify balance sheet with cash
• If you have floating rate debt, extend LIBOR contracts/payment frequency from 1 month to 3 months or more
• Be proactive/constructive with franchisors on royalty and ad fund contributions – seek any relief you can work out (deferrals, accruals, suspensions, etc.)

Augment working capital
o Reach out to service providers, vendors and landlords to extend payment terms and seek other support
o Broadliners: Reduce number of deliveries (for lower volumes), get out of minimum purchase contracts

Rent
Some jurisdictions have passed legislation abating rent/late charges and other penalties – check online)
Analyze leases as it will impact the approach you take with landlords
▪ Is your rent below market? If so, landlords may be less willing to offer concessions
▪ Highest and best use real estate (is your property more valuable as condominiums?)
▪ Do you have a force majeure clause for rent abatement or extended closing?

Is your landlord relationship already strained?
Decide if you want to take a partnership approach or if you are forced to play hardball
▪ Partnership – offer percentage rent for a time, or add abated rent to back end of lease
▪ Hardball – don’t pay, negotiate . . . but be aware of the above analysis
If you have to close your restaurant, it may be a default under your lease

Repairs and maintenance (“R&M”) and capex
o Set strict approval processes for R&M and maintenance capex – only critical items allowed
o Pause or cancel all development/remodel capex
o Seek potential refund of new development fees from franchisor with intent to repay later when new development restarts

Create a weekly (or daily) cash flow forecast that is as detailed as possible
o Run sales sensitivities at various sales loss levels to understand break-even point and staffing levels

Prime Cost Management


COGS
o Some broadliners are offering concessions like extended payables
o If possible, reduce menu items
▪ Think about higher mix, easy to execute, higher margin, minimizing skews, cross utilization
▪ Determine prep labor reductions, food waste, and other cost reductions from these decisions
▪ Correspondingly work with your GMs to reset par levels and prep schedules for lower volumes
▪ Work with suppliers/distributors to anticipate any product shortages; adjust menu in advance
o Deplete inventory, keep the minimum needed to manage your business
▪ Work with distributors and suppliers to waive fees on minimum drop sizes and orders; Fewer deliveries means lower distribution costs as well
▪ Remember to have enough packaging and condiments for increased off-premise business
▪ Offer to donate ingredients that could be expiring to foodbanks or offer to employees on leave
o Negotiate with vendors for improved payment terms
o If you have several units in the same region, move inventory (particularly anything that can spoil) from fully closed units to units that remain open
o Check with broadliner if you can return excess inventory for full refund

Labor
o Reduce labor schedules to reflect lower volumes; consider shortening overall hours of operations to reflect only higher revenue dayparts
o Think about day-on / day-off laboring to keep critical staff on payroll
o Look to deploy team members in other ways (be careful of dual employment – check with legal counsel)
▪ In-house delivery, window cleaning/landscaping/etc. (and cut back outsourced services for these expense line items), local marketing (shaker boards)

Philanthropic activities such as delivering food to those in need
o Before terminating, laying off or furloughing seek legal/HR advice and assess WARN Act impact (discussed next section)
▪ Consider payments to furloughed staff (e.g., 25%-75%)
▪ Consider offering free meals to furloughed/terminated staff for a period of time
▪ Note from a cash flow perspective, reimbursement will take time (tax credits)
o Careful of treatment of “exempt” employees – if GMs are working hourly shifts ensure they still pass the “rules test”; you may need to move them to hourly in order to comply with DOL rules – consult labor counsel
o Consider any benefits that can be postponed (competitive dining cards, etc.)
o Consider creating an employee hotline or blog to maintain open communication

Other Operating Expenses


Dust off your GL and go through every single expenditure – what can be paused or canceled?
o For example, you don’t need audio or tv programing subscriptions if no one is dining in
o Challenge your departments to identify cost saving opportunities
• Try to get fees waived: Banks, subscriptions, etc.
• Reduce services: Trash, window cleaning, linens, preventative maintenance, and others

Utilities
o Try paying on a credit card to extend payments (especially a cash back card)
o Make sure all utilities are shut off for any closed units
o Ensure unnecessary heat/ac in dining rooms is shut off

Turn off all automatic payments (if any)
• Use of cash will likely decrease and credit card volumes will likely increase
o Do you need less register cash? If so, deposit excess into bank to increase liquidity
o Reduce or eliminate any expenses related to the management/storage of cash
o Proactively negotiate better rates for credit card processors in anticipation of bigger volumes

Revenue Management and Guest Perception Through Off-Premise Sales


• Constant communication via E-Club, loyalty, exterior banners notifying of delivery and curbside pick-up
• Promote family type meals and meal replacement item
• Consider pre-fixed meals for pick up between certain hours (pre-ordered)
• Community support menu – kids eat free and other affordable offering to make the menu more assessible

Third Party Delivery
o Consider all delivery services/marketplaces; some operators ignoring delivery service exclusives
o Place bounce-backs and other coupons in the delivery bags to drive additional orders
o Take advantage of incentives: Free delivery, no commission fees on pickup orders, $200 in marketing, sign up concessions, etc. (all different/evolving, check with each)
• Look to execute your own delivery: Opportunity to re-purpose servers to drivers
o Check insurance liability – depending on company owned vehicle vs employee
o Likely need for standard operating procedures
• NY, TX, CA and a few other states are temporally allowing for businesses with liquor Licenses to delivery alcohol – check your local laws

Curbside
o Use gloves (masks where appropriate) to give guests comfort
o Think of ways for Guests to communicate from car and vice-versa: Flashlights, honk horn, text, call
o Position team members outside during peak periods
o Communicate this option through marketing channels

Drive thru
o Cashiers should also be wearing gloves (masks where appropriate)
o Speed is king: Develop strategies to improve speed
o Adjust and enforce upselling scripts
o Offer sanitizing wipes with every order and to wipe off credit cards/machines
• Offer “scarce” goods with certain delivery orders above a certain size (e.g., toilet paper, canned food, etc.)

Marketing


• Be proactive about health safety steps being taken at your restaurants – notes on doors, email, social media
• Communicate restaurant safety relative to grocery visit and cooking at home
o Very strict safety standards that individuals may not follow in supermarkets or households
o Delivery orders go from high temperature oven/fryer directly to packaging without hand touching
• Paid social ads that are targeted to a 3-mile radius of your units
• Target elderly where possible for delivery (try to get media engaged in your community events for free PR)
• Potential opportunities to secure short term contracts (or for charity/community service with PR) to provide meals for children who relied on schools for daily meals (often both breakfast and lunch)
• Target marketing to families with delivery/curb pick-up for bundled family meals for 4-6 people
• Gift certificates or dinner bonds to drive near term revenue
• Offer discounts to medical personnel and first responders
• Pivot from outdoor media to digital campaigns to promote off-premise: Ask team members to “like” social media post and pass them on to friends and family
• Market to your internal Guests (team members): Employee meals for both active and temporally laid off employees (set certain times for meal pick-up)

Safety Mitigation


• Enforce stricter standards around safety and sanitation
• Constant communication on updated safety and sanitation – email, webinars, daily calls, team meetings, etc.
• Strict rules around social media posts: No joking about COVID, absolutely no naming of restaurants/employees that may have come into contact with the virus
• Have team members sign documents before each shift that they don’t feel sick nor have been exposed to anyone who feels sick (that they are aware of) – must be consistent with every team member signing
• Deploy timers that go off every 15 minutes for sanitizing stations, hand washing, temperature checks, etc.
• Hand washing and drying using a single use cloth
• Sanitizing tape for stations that have been sanitized with time and date stamps
• Soda – no refills without new cup
• Anti-tamper packaging/stickers on delivery packaging
• Long term heightened awareness is good to get team members to abide by strict standards

Supply Chain


• Increase communication with your suppliers, ensure you know if any of the products you order from them have potential shortages and adjust menu/ordering in advance to get in front of any issues
• Where possible buy ahead on items believed to fluctuate, or in short supply
• Confirm with suppliers that they are taking the same safety precautions

Insurance


• Business Interruption (“BI”) Insurance – while most policies trigger is physical damage and virus excluded, several states considering mandating BI policies to cover pandemic
• Check with your insurance provider on potential coverage related to contingent business interruption, supply chain insurance, business interruption on PLL policy
• Workman’s comp – contact your insurance agent or representative as these coverage vary
• Despite lack of clarity on coverage for BI, go ahead and file claims as insurance companies will process on a first come first serve basis and it is important to get in the queue
• Some states are suspending insurance premium payments for a period of time