10 Ways Restaurant CEO Priorities are Evolving
By: Aaron Allen
Restaurant CEO priorities are shifting, and it makes sense given how quickly the consumer and competitive landscape are shifting as well as the introduction of new forces impacting the industry. Here, we round up ten factors influencing how leaders are evolving their views and approaches.
- Traditional Cost-Cutting Isn’t Cutting It AnyMore
The low-hanging fruit has already been harvested across many restaurant systems (think reducing food waste, cutting labor hours, etc.), so implementing other purely cost-cutting strategies would lead to cutting bone and ultimately undermining both the guest and employee experience.
In our experience, we’ve seen that many investors believe the value comes from stripping out expenses — but sometimes this can lead to pulling the soul right out of the business in attempts to exorcise out the costs. Reinventing and reimagining cost optimization strategies can help to find non-obvious areas to improve upon.
- Look at the Business Through the Eyes of Operational Diligence to Optimize Margins
An objective analysis of the business — ranging from policies, procedures, processes, and applying theories of industrial engineering — to pressure-test the P&L can help identify the potential for opportunity via optimization strategies across functional areas of the business.
A business need not be for sale to look at it through the lens of a potential investor and apply the kind of thought process employed by high-performance advisors who prestigious private equity firms turn to when diligencing businesses on the buy-side.
- Outsourcing and Rationalizing Corporate Headcount
The C-suite is not recalculating or computing as fast as the variables of the calculus are changing. While it may cost more on a unit-by-unit basis, outsourcing efforts can be far more efficient than traditional models.
And a lot more factors are in play in this era of the gig economy as more and more companies (and individuals) are becoming accustomed to the fast, flexible, and outcomes-focused environment where it’s easier to scale and replace roles as needed. In some cases, this can help to optimize resources and shift risks (pensions, labor unions, taxes, insurance, administrative burden).
- Smart Captains Have Set Sail for Foreign Shores
The bulk of all foodservice industry growth over the next five years will come from international markets, and a significant share of top growth brands derive an increasing percentage of revenue from outside their home markets.
- New CEO? Probably a New HQ
The easiest way to clear a forest is a controlled brush fire. Companies taking an “out with the old” mentality and growing are often moving headquarters to support scalability and long-term growth, housing all functional areas under one roof, as well as looking to attract the best talent.
- “We’re On Top Of It” Is Catching Up with Us
There’s a Jedi mind trick happening, with operators hearing about advanced analytics, or the influence of automation, the impact of delivery, or the intensity of challenger brands.
Many executives are seemingly calm on the outside, with an “uh-huh, we’re on it” response. This demeanor is starting to catch up with CEOs who staked their credibility on guiding the company into the future now working with antiquated anecdotes and antidotes of managing the business of yesterday.
- “Everything Important Is Measurable” Takes on a New Meaning
With digital footprints now able to track nearly everything we do or say, transparency, accountability, historical analytical capabilities, and more intense corporate governance and expectations of the fiduciary very well may lead to rolling heads and executive compensation clawbacks. Golden parachutes increasingly have a tendency to be revoked after the CEO has already jumped (or been thrown) out of the plane.
Improved back-office systems can give leaders a meaningful and real-time view of the metrics that matter most. Paired with diagnostic systems that continually find and fix performance drains, these dashboards can become the most powerful weapon in the executive’s armory.
- Killed or Catapulted by Labor Models and Modernization
Once the low-hanging fruit has been harvested, like a centrifuge the G-force is going to separate out those companies optimizing labor and those that don’t. For the foodservice industry, this is going to be the biggest brick of all; the net that’s going to catch the most companies hoping to swim to success.
For now, ahead of the sharp rise in labor costs, restaurants have maintained some degree of normalized EBITDA through price increases and been helped greatly by lower food costs, stabilized occupancy costs, low cost of capital (until mid-2023), and some early wins with delivery and technology initiatives. However, looking into the future, labor optimization and modernization require reinvention, reimagining, and dramatically different thinking.
- Restaurant Chains Are Thinking About IPOs Across the Globe
Debt is more expensive these days, which enforces the case for raising capital in public markets. Investors have many reasons to have faith in restaurant chains. And restaurant IPOs have clear cycles. We think 2024-2025 are going to be a big years for restaurant IPOs. And these companies start preparing years in advance.
- Activist Investors Hungry for Weak Prey
Like a crocodile preparing to go after an antelope in the wild, activist investors are looking at the restaurant space with hunger in their eyes.
Foodservice has significant growth potential and is relatively “recession-proof” (after all, people will always eat), though increased saturation and ensuing consumer trends have resulted in plenty of companies — particularly casual dining operators — struggling.
So What Can CEOs Do in the Face of Evolution?
- Be Your Own Activist, or find one to help you identify vulnerabilities before someone else does
- Share the Loadof the strategy-shaping diagnostic and analytical work, knowing that better questions get better answers
- Realize that Asking for an Objective Opinion isn’t a Sign of Weakness, that’s just the style of thinking yesterday’s leaders were indoctrinated with
Relying primarily on the corporate intelligence that resides solely within your own organization is like relying on a radar system that tracks only your planes and troupe movements. And it’s a strength to recognize you’re too busy to spend much time on any of these factors: hire someone else to.
About Aaron Allen & Associates
Aaron Allen & Associates works alongside senior executives of the world’s leading foodservice and hospitality companies to help them solve their most complex challenges and achieve their most ambitious aims, specializing in brand strategy, turnarounds, commercial due diligence and value enhancement for leading hospitality companies and private equity firms.
Our clients span six continents and 100+ countries, collectively posting more than $300b in revenue. Across 2,000+ engagements, we’ve worked in nearly every geography, category, cuisine, segment, operating model, ownership type, and phase of the business life cycle.
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