May 10, 2020
“Income is not as important as the remaining balance,” said Mr. Akkharat “Kong” Nitiphon, tracker of hundred million-baht businesses who is familiar with owners of big-brand and small-brand food businesses, from standalone restaurants to restaurant franchises with up to hundreds or thousands of branches nationwide, when we asked him how restaurants can survive during the Covid-19 outbreak. This made us look back at our restaurant to see what our remaining balance was.
Mr. Kong explained more about the 100% rule, which is the heart of restaurant management, and shared his experience with many food-related businesses that have had to turn a crisis into an opportunity to inspire restaurant owners affected by the Covid-19 crisis to power through it together.
- See an Opportunity When Covid-19 Has Made Everyone Equal
- Understand Yourself and the 100% Rule Basics to Increase Your Chances of Success
- You Have to Understand Your Customers and New Information That Arise Suddenly
- Case Study of Adaptations by Famous Brands
See an Opportunity When Covid-19 Has Made Everyone Equal
In the midst of the virus situation which has impacted our normal ways of life and has had a domino effect on various sectors, such as restaurant businesses, regardless of brand size, that cannot avoid it, storefronts can still be open with limitations, including take-home orders and deliveries. They’ve had to change their processes like never before and every shop has had to experiment with new things.
“For positive-thinking business people, one good thing about Covid-19 is the equalization of restaurants. All brands are affected, regardless of size. But if you look deeper, you’ll find that the severity of the impact varies. Buffet, suki and shabu restaurants are severely affected because they are not suitable for delivery. This includes Japanese cuisine. However, some restaurants have had good results, particularly fast food restaurants.”
“First, I have to admit that this Covid-19 has put business owners, particularly restaurants, in a war-like situation. All anyone knows is that the situation before and after Covid-19 will not be the same. This has to be emphasized because the people’s behavior has changed, due to food delivery or the fact that people have learned how to cook at home and life outside the home won’t be the same anymore.”
Everyone is affected by this crisis. Right now, a storefront may not matter as much as being online and being known on social media. That means that anyone who can make themselves more interesting and understand their own community base has a better chance. People eat three meals a day and they might not eat the same thing every meal. That means everyone has the chance to present themselves at any time. New restaurants have the same chance as old restaurants. It depends on who can find their customers first. Whoever can make a better connection with their customers wins.
Understand Yourself and the 100% Rule Basics to Increase Your Chances of Success
For the core of conducting a restaurant business during Covid-19, Mr. Kong shares three thinking principles that will help businesses to survive the crisis and increase chances of success.
- Understand yourself. You have to erase any negative attitude you have and bring out your strength. You can feel sad, discouraged and confused, but you have to keep searching until you find your way.
- Understand the 100% rule. The basics of the restaurant business include the following:
- Cost of goods (COG), meaning the cost of ingredients, or food costs: 35%
- Cost of Labor (COL): 15%
- Cost of rent: 15%
- Miscellaneous costs: 15%
“A restaurant business with a 100% rule means that the COG should not exceed 35% of the sales total. As for the COL, it should be at 15%. The cost of rent should not exceed 10-15% and the rest is 10% of miscellaneous things that can’t be categorized as COG. All of this combined sets the cost at 75% (with the profit at 25%).”
“If your monthly sales total is 100,000 baht, apply the formula and you’ll get the following:
COG or food costs: 700,000 baht
Cost of rent at 15%: 30,000 baht
COL at 15%: 30,000 baht. This means you can have two employees. Anymore and you will drain yourself.
If the COG is cheaper, you can increase the COL. If your rent is cheap, you can increase the COG or COL. Everything has to be controlled. That’s the basic rule in restaurant management.”
Cost of rent at 15%: 30,000 baht
COL at 15%: 30,000 baht. This means you can have two employees. Anymore and you will drain yourself.
If the COG is cheaper, you can increase the COL. If your rent is cheap, you can increase the COG or COL. Everything has to be controlled. That’s the basic rule in restaurant management.”
However, the current situation created something new, a 30% delivery cost, although you might be able to request a 30% reduction on the normal rental cost. In addition, the new situation has made it so that only one-third of customers can be serviced compared to the total number of seats in the restaurant. The aforementioned conditions require the 100% rule to be re-balancedand you have to understand new information that will arise after this.
The new 100% rule. If all of the previous costs are the same, when combined with the delivery cost, your balance would come out at negative 5%. Therefore, you have to reduce your costs by 30% to make room for the delivery cost. That means you have to reduce the rental cost and COL to be able to put your restaurant on the delivery platform.
Furthermore, there’s the challenge of people. What do you do with your old employees when you need to set up some new skills? In the majority of Thai restaurants, one person does one thing, whereas one Japanese restaurant uses two employees and a European restaurant uses four employees. That’s because each person can perform many duties. Therefore, what needs to change is each person needs to have a variety of skills.
You Have to Understand Your Customers and New Information That Arise Suddenly
The times of Covid-19 have changed the people’s way of life. Some things have to change to be consistent with the current situation until they are the “new normal”. That means everybody has to learn to adapt and understand new information. Restaurant also have to constantly seek new information and adapt them under the basic rules and that’s the third principle: Understand your customers and new information that arise.
Every restaurant needs to offer a delivery service. You have to put yourself on the delivery platform and understand that, once you’re on it, your costs will go up. Otherwise, you have to find a way to deliver yourself.
First, you have to understand your customers. Doing business means understanding the customers’ nature. You have to understand who your customers are and understand that expectations from restaurant businesses are different from other businesses because restaurants are expected to be the same in every aspect, from taste to quality and how the food looks. One aspect of deliver that needs to be managed is the customers’ expectation that everything will be same as at the restaurant. One way to deal with this is to create a new menu especially for delivery.
Online Presence - Naturally, people can’t order food to be delivered for every meal and when they do order, there are many restaurants to choose from. In addition, there’s the home cooking, another incoming trend. Therefore, restaurants need to be memorable. If they want to eat this dish, it has to be this restaurant. How can you build a connection so your customers always order from you? What can you do to make sure you’re always on their feed page? And, more importantly, how do you make yourself memorable and make people think of you?
What do you do when you can only receive a third of your customers?Since the seats need to be at least 1.5 meters apart, restaurants’ seating capacity is reduced. Plus, customers’ confidence in using the restaurants’ services is also reduced. “Life after Covid-19 will not be the same because the people’s behavior has changed. We have to understand our customers, new information, delivery that uses a platform and delivery that doesn’t use a platform as well as change the 100% rule.”
Case Study of Adaptations by Famous Brands
Due to his familiarity with owners of big- and small-brand food businesses, from standalone restaurants to restaurant franchises with up to hundreds or thousands of branches nationwide, and his role as a producer and host of the “Ayu Noi Roi Lan” show and founder and executive of Production House Co., Ltd., Mr. Kong has come across ideas belonging to food-related business owners. Many brands are able to adapt in time during the current Covid-19 situation. Examples of brands that adapted quickly include Kouen Sushi Bar, Kub Kao' Kub Pla and Khiang.
“Kouen Sushi Bar is a Japanese restaurant and people are not used to ordering some Japanese dishes to be delivered. While some restaurants with over ten branches have to stock up their ingredients up to weeks or a month in advance, Kouen Sushi Bar understands that, other than having food delivered, many people are also turning to home cooking. That’s why they’re selling raw ingredients, such as beef for cooking steaks or shabu at home, in order to generate cash flow and make their business survive. This helped support them and I heard they’ve stopped bleeding out.”
“Khiang is a new restaurant in the Zen Group created for delivery. People don’t have to dine in. This is called the Delco format. The restaurant has a strict hygiene standard and understands the 100% rule and new consumer behavior. They are located in gas stations and commercial buildings where delivery is possible, not in malls. They have low rents and a reduced number of employees.”
“Other than making their menu easier for delivery, Kub Kao' Kub Pla also makes frozen food that can be stocked and has created a new brand called Charoen Gang to produce a wider variety of dishes that people can eat for every meal. Or, for example, shabu and suki restaurants have promotions where people get pots for freebies when they buy food from them. That’s adaptation.”
“Right now everybody wishes and prays for Covid-19 to disappear. On the day everything returns to normal, we have to still be here. Without us, there is no business to operate. The father of the leading man in the series Itaewon Class said, “As long as you are alive, no matter what happens, it’s no big deal.” So, we have to survive.”
