What is one of the most common mistakes new restaurant start ups fail to do? BENCHMARKING!
Within the past two weeks, I have been approached by three different investor groups wanting to start new restaurant chains within the next 12 months. Their first question is, where do we begin – a business plan? While a business plan is a great place to start, it might not be the first step to take. I submit to you the best place to begin prior to even beginning a business plan is with some strategic benchmarking.
The Merriam-Webster Online Dictionary defines 'benchmarking' as: to study (as a competitor's product or business practices) in order to improve the performance of one's own company. David Stauffer, Harvard Business School, describes benchmarking as a systematic comparison of the processes and practices of two or more companies or two or more units of a company, and gauging the performance of an organization or unit relative to a peer. When executed well, benchmarking prominently reveals gaps between the performance of the benchmarker and the performance of a benchmarked "best practices" leader, and often suggests the means by which the benchmarker might close those gaps. He further states that "Benchmarkers must be careful, though, to analyze the best practices of others in light of their own culture and circumstances, or they may find that their efforts do more harm than good. They also must precisely determine at the outset of any benchmarking exercise what they are seeking to learn about, why they want to learn it, and what they'll do with the information to make their own processes work better.
No. 1 New Restaurant Benchmarks: Menu Benchmarking
Most new restaurant entrepreneurs always have an idea about the food they want to serve. The menu may reflect grandma's generational recipes, or their own personal recipes. Those recipes represent the "emotional" side of decision making, but it isn't always the best business step. Remember benchmarking always considers 'best practices.' So what does that mean? Well it means that if I want to start a Vietnamese restaurant, then I need to understand the best practices for executing a Vietnamese menu. Once I understand the best practices, then I can build my menu strategy, equipment strategy, and operations strategy against the menu benchmark.
No. 2 New Restaurant Benchmarks: Concept Benchmarking
The second benchmark to consider is 'concept benchmarking.' If someone wanted to start a new burger restaurant, then they would be wise to benchmark or identify best practices among burger chains. For example, Wendy's and Whataburger use fresh, never frozen beef. Good Times Restaurants serve "natural" beef, Smashburger sears their hamburgers, and McDonald's – well McDonald's focuses on selling their hamburgers the best way they know how. For many restaurants, McDonald's is the benchmark. By understanding the various differences within the burger industry, a new entrepreneur can use concept benchmarking for refining his/her own business identity.
No. 3 New Restaurant Benchmarks: Customer Service
Customer service can also mean 'customer interfaces.' In the QSR industry, Chick-fil-A is usually the first QSR chain mentioned when customer service is mentioned. But defining their customer service is a more difficult task, because customer service could represent speed-of-service, it could mean service with a smile, it could mean an in-store culture of friendliness and good karma, or it could simply mean an accurate order served out of the drive-thru window. By understanding the scope of customer service venues, a new restaurant innovator can select his/her focus and build best practices around that.
No. 4 New Restaurant Benchmarks: Operational Execution
Operational execution is one of the most difficult things to benchmark. I submit to you that operational execution must be benchmarked with restaurants serving a similar menu. If a restaurant builds its menu around "theme restaurant," its operating costs and performance will be different than other vanilla brands. But don't get distracted by operational costs, so benchmark best operational practices of restaurants that more closely match your concept.
No. 5 New Restaurant Benchmarks: Financial Performance
Last, but not least is financial performance benchmarks. Over my 20 years in the restaurant business, I kept hearing of benchmarked labor costs, food costs, advertising costs, and on and on. But the reality is that apples in one store are oranges in another. A restaurant concept that serves alcoholic beverages will always have food and beverage costs that are significantly different from one that does not. And restaurants that skew heavy toward liquid nonbeverage drinks will have a much different food cost than one that doesn't serve as many drinks.
In summary, make it a priority to benchmark your new business concept or an existing business. And always keep in mind that you are also looking for "best practices" within your concept category. It is always easy to look at your competitor with envy, but resist the urge and stay focused on your own best practices.
In follow-up, Food Technical Consulting (www.foodbevbiz.com) has scheduled a 3-day industry workshop in Denver, from Sept. 10-12, 2012, on "Food Innovation Business Principles and Processes." Please contact me at firstname.lastname@example.org or 303-471-1443. A course manual will be available for sale to international small business operators who cannot attend.
Darrel Suderman, Ph.D., is president of Food Technical Consulting and founder of Food Innovation Institute. He has held senior R&D/QA leadership positions at KFC, Boston Market, Church's Chicken and Quiznos and led KFC’s development team of “Popcorn Chicken”, now a $1B international product –invented by Gene Gagliardi.