The 10 Common Practices of Highly Successful Independent Restaurants

Source: Jim Laube While working with literally hundreds of independent restaurants over the past 25-plus years, one of the most profound things I've learned is that there are very few absolutes in this business. By that I mean there always seem to be exceptions to the conventional wisdom of what it takes to create and then sustain a successful restaurant business.

For example, I've seen restaurants thrive with much less than a prime location, no marketing, undercapitalization, using what I would call poor management practices and more. However, particularly in the past five years or so, I've observed definite patterns in what highly successful restaurants and their operators do in the areas of marketing, operations and business management. It's almost as if their operations have a genetic predisposition toward success.

The following is a brief description of those common practices and characteristics. The goal of this article is not to give you a checklist of things you must do to create a thriving restaurant business, but rather provide you with some real-world practices that many operators use to achieve impressive results. We hope this list gets you thinking and moves you to do a few things differently to realize more sales, profit and success.

1. Successful Independents... Work 'ON', Not 'IN' their Business

Almost without exception, highly successful independent restaurants today are owned by people who spend most of their time managing their business versus running the restaurant.

One of the most successful operators I've met lately told me "I don't cook. It's my job to work on the systems." By this statement it's obvious he has a very specific view of his role as the owner and what he should and should not be doing in his restaurant. It's not his job to be working in the restaurant but rather it's his job to create and refine the systems that will enable his employees to create the results he wants.

Without good systems, restaurants are unorganized, produce inconsistent results and the owner functions most of the time as another employee, not an owner. Examples of restaurant systems include the use of checklists for opening, closing and cleaning, written steps for selecting and hiring new employees, using standard recipes in the kitchen and having procedures for handling guest complaints, ordering products and doing a physical inventory.

There are several reasons why systems are so important in a restaurant. First and foremost, systems give you a much better shot at providing consistent dining experiences to your guests. Why do people come back to any restaurant? It's usually because they liked what they had the last time they visited. When they return and either the food or service isn't as good, they notice, and with so many other dining choices available, they often don't return.

Having good systems in place dramatically increases the odds for a restaurant to function the way it should without the owner having to be there working in the restaurant all the time. When owners are free from the day-in, day-out operational duties, they have the time and presence of mind to think and act more strategically and do things that pave the way to move the business to the next level of success.

Strategies of many successful owners include developing new marketing initiatives, creating new lines of business (like catering or delivery) and adapting to constantly changing local market conditions. When owners are totally involved in operations there isn't time for strategic activities, and restaurants tend to stagnate, lose their edge and eventually decline.

2. Successful Independents... Revolve Their Marketing Around a Customer Database

Today, friendly service, good food and a pleasant atmosphere aren't always enough. There's just too much competition. Restaurants nowadays, even ones with outstanding food and service, must actively market their restaurants to be successful. Many highly successful restaurants don't employ traditional advertising to keep their restaurants full. Instead they focus their marketing efforts on the people most likely to pay them a visit, the folks who have already been there.

The first step to employing a customer database is to obtain the names, addresses and other information from existing customers. This can be collected on customer comment cards and through invitations to join a birthday or VIP club. Some restaurants conduct sign-up contests among servers to build their customer databases quickly.

Although many operators use their customer database to promote many different types of events and offers to their guests, a particularly valuable application of this and a good place to begin is with a simple birthday club. According to consumer surveys, birthdays are the No. 1 occasion that people celebrate in restaurants, and many independents have reported that a birthday club is a very effective way to increase sales and profit year-round.

According to numerous threads in our "Discussion Forum," it's common for operators to see response rates of 40 percent to 60 percent on their customer database birthday mailings. Popular offers range from a free dessert or appetizer to a free entrée for the person being honored. Many provide a free dinner up to a certain dollar amount.

One huge advantage of marketing to a customer database is that it's possible to track the relative success of each promotion or marketing activity. For example, it's easy to track responses by calculating redemption rates and even calculating an individual promotion's ROI (return on investment) by accounting for its incremental sales and costs.

3. Successful Independents... Mail a Customer Newsletter Every Month

This marketing activity is related to the use of a customer database discussed above; however, we felt it deserved to be discussed in a separate category.

We've had many readers claim that the most effective way to consistently increase their guest counts, sales and profit has been through a monthly, mailed customer newsletter. One of our members said they missed mailing their newsletter one month and were shocked to see a sizable drop in business. They haven't missed a month since.

One of the most important benefits of a monthly customer newsletter is that it keeps your restaurant's name in front of the people most likely to be future guests, the ones who know who you are and have been there before.

I know that in our family, even though there are scores of dining options in our area, when we think about going out, it seems that only three or four restaurants get mentioned and those are the ones we keep going to over and over again. It's not that we don't like any other restaurants; it's just that we tend to remember only certain ones.

Sending out a physical newsletter each month appears to increase the odds that a restaurant stays "top of mind" and gets remembered and therefore chosen more often. Customer newsletters not only keep a restaurant's name in front of its customers but it can help create personal connections with them, too.

Many operators make a point of including personal stories of their family and staff and say its common for customers to comment or ask about them when they come in. This can be a good way for independent restaurants to take advantage of their local "independent" status that a chain operator would be hard-pressed to duplicate.

4. Successful Independents... Know Their 'Numbers'

Almost without exception, the most successful independent operators we see today not only deliver a quality dining experience for their customers, but also keep a constant watch on the financial performance of their restaurant. As one of our readers recently said, "If you don't know your numbers, you don't know your business."

In a low-margin business in which sales can fluctuate and controlling costs requires constant vigilance, operators of consistently profitable restaurants don't wait until the end of the month to learn how their restaurant performed. While their monthly or four-week financial statements are important, they're used mainly to confirm what they already know. As another operator said, "If I waited until the end of the month to know how my restaurant was doing, it would be too late."

To get meaningful, timely information on how their restaurant is doing, many get a daily "Flash Report" of key numbers and a "Prime Cost" report at the end of each week.

A Prime Cost Report includes cost of sales (food, beverage and paper goods in quick-serve restaurants) and all payroll costs, including the gross wages of management and hourly staff plus payroll taxes and employee benefits such as workers' compensation and employee insurance.

The goal in most table-service restaurants is to keep Prime Cost, as a percentage of total sales, at 65 percent or less. Quick-serve restaurants often shoot for a Prime Cost at or below 60 percent of sales. The reason Prime Cost is such an important number is that it provides feedback on how well a restaurant manages its largest and most volatile costs: food, beverage and hourly labor. These three costs often represent 90 percent of the costs in most restaurants that are actually controllable in the short term.

Calculating prime cost weekly, 52 times a year, versus monthly gives operators a good shot at nipping any problems in these areas quickly.

Many smart operators also know their sales break-even point based on monthly and weekly sales volumes. Knowing their sales break-even and understanding the relationship between sales volume and their restaurant's operating costs, they can quite accurately peg how much profit their restaurant should make per week or month based solely on the amount of sales generated.

These operators develop profit expectations based on knowing just their sales volume. If the actual numbers on their Profit & Loss Statement (P&L) differ from this by much it usually means either their P&L contains errors or they have an operational problem to deal with.

5. Successful Independents... Are Good Bosses

While operating a restaurant is about dealing with food, finances, marketing and a host of other factors, fundamentally, this business is about people.

In restaurants, people -- by and large the frontline staff -- have 99 percent of the customer contacts and perform 99 percent of the functions that cause a guest to either have a great dining experience or a lousy one. At some level, it's not the concept, the food or even you, the owner, it's the employees who make the restaurant, and the restaurants with the best employees have the best shot at success.

Sharp operators recognize this fact and many go out of their way to create a positive working environment in which everyone is respected and employees feel good not just about their jobs but about the people they work for, too.

Last year I had the opportunity to meet a RestaurantOwner.com member while conducting a seminar in Norfolk, Virginia. This operator told me her 100-seat restaurant will do more than $2 million this year, up from $1.2 million just three years ago.

What she was most proud of, though, was not her very impressive sales volume but the fact that her employee turnover was less than 10 percent a year with a staff consisting mainly of young people, many still in high school.

She credited much of their success to a staff that works very hard in taking excellent care of their customers, who keep coming back (in greater numbers). She explained how important it was for their entire management team, which included herself, husband as well as two assistant managers, to act more like coaches than bosses and to constantly work to create a place where their employees felt they were "in on things" and were an important part of the restaurant.

While I don't recall all of the specifics of our conversation, here is a shortlist of traits of good managers that came to mind as she explained to me the things they do to create a restaurant where high morale and low employee turnover has become the norm:

1. Show a personal interest in each employee.

2. Work hard yourself.

3. Have a sense of humor and know how to laugh at yourself.

4. Don't look down on anyone.

5. Be positive, ALWAYS be positive.

6. Be consistent and fair, never play favorites.

7. Don't be a know-it-all; ask for employees' input.

8. Lead by example.

9. Take care of problem employees quickly and fairly.

10. When you make a mistake, admit it and apologize.

11. If appropriate, praise in public, but ALWAYS criticize in private.

12. Do everything possible to accommodate requests for time off for school functions or events.

Today, your restaurant needs good people, more than they need a job in your restaurant. Don't jeopardize your success by being or having anyone on your management staff that your employees could refer to as anything but a "good boss."

6. Successful Independents... Grow Profit Before Growing Units

One of the most seductive occupational hazards of owning one successful restaurant is to assume that the easiest way to double your income is to simply open a second one. While this isn't always the case, premature or ill-conceived growth has led to the downfall of many successful single-unit independent restaurants that began to struggle or even fail after opening a second restaurant.

The owner of one of the most successful independent restaurants in the country was asked why he never expanded beyond one location. His reply: "Every time I considered opening another restaurant, I always thought of something else I could be doing to make more money at this one."

When you consider the time, resources and financial exposure that comes with opening a second restaurant, many operators should first ask themselves if they are already doing all they can to maximize the sales and profitability in their existing operation.

We've found that many of our most profitable and successful readers own and operate just one restaurant or they were very patient and waited many years for exactly the "right" opportunity before taking that big step of opening a second restaurant.

Here's a shortlist of activities that have provided our members with as much or more profit potential than a second restaurant at a fraction of the investment and risk -

The addition of a new dining room for banquets and overflow seating. Still a sizable investment but much less than a new location with substantially less risk.

Grow sales through outside catering and delivery. Many restaurants do catering but don't do all they can to maximize its potential. Here are a few examples of what's possible. A casual upscale restaurant in Reno, Nevada, started delivery in 1994 and has grown it into a $1-million-a-year business. A barbecue restaurant in Nashville, Tennessee, does nearly $1 million, more than 30 percent of its annual sales, in catering.

In adding delivery and catering, these restaurants leveraged their existing assets and saw only a slight increase in their fixed costs. This resulted in the increment sales from delivery and catering activities to be "very" profitable.

Gift certificates. Many independents have been very effective at using creative gift certificate promotions to dramatically boost their cash flow, profit and attract new customers. Some have reported selling tens of thousands of dollars of gift cards around the holiday season alone. Worth noting is that it's no secret that a good portion, usually around 20 percent, of gift certificates sold are never redeemed.

Before they bet the farm on another restaurant, many highly successful independents have focused instead on maximizing the sales and profit on what they already have.

7. Successful Independents... Keep a Running Inventory on Key Products

There are endless ways to lose money in the restaurant business and one of the most vulnerable areas for squandering big dollars is in dealing with food. Potential profits are lost due to spoilage, theft, over-portioning, waste, unrecorded sales and a host of other reasons.

Most highly successful restaurants recognize this and are very deliberate and diligent in making the most of their food cost dollars, and one of the best ways to do this is by maintaining a perpetual, running inventory of certain, key products. It is one of the most fundamental and, in my opinion, effective of all food cost controls, yet I'm constantly amazed at how many independent operators don't do it.

It works like this: Going back to my barbecue restaurant days, we had 10 products that basically drove our food cost. These products made up the biggest slice of our total food cost and were items we felt were most susceptible to theft as well. We kept a running or perpetual inventory on these 10 products each and every day.

We had a running inventory worksheet that helped us keep track of how much inventory we should have on hand for each of these 10 key products at the end of the p.m. shift. Each day our opening inventory was the ending inventory the night before. We added in deliveries, subtracted quantities sold as per our point of sale, and we also accounted for waste or non-salable items. This allowed us to calculate an "ideal" ending inventory, which we compared with "actual" based on a physical count.

One huge benefit of tracking certain inventory items daily comes from the psychological and behavioral effect it has on employees. Do employees notice management counting things? You bet they notice and it affects their behavior and what they think they can get away with.

Let's say someone is contemplating walking out the back door with a case of New York strips. Do you think the fact that management counts New York strips every day and will know any are missing has any effect on that person's decision to steal or not? Most of the time, yes, as opposed to employees knowing managers won't have a clue if a case or two of New York strips are missing.

This might sound like a lot of extra work having to count some products every day, but how often do you count your cash? How much cash do you think you'd have if you only counted it once a month? What's inventory? ... Inventory is CASH!

Does it make any difference if your cashier pockets a $20 bill out of the register or someone makes off with, say, a $20 box of product? Not to your bottom line it doesn't.

If you're not keeping a running inventory, don't go in tomorrow thinking you're going to start off with 10-12 products. Start with just one product, then after a few days add another, then another. The people involved will soon get very efficient at it and you'll quickly work up to a sufficient number of products.

This is one of those "high impact" controls that smart operators use to control their food cost and push their profits as high as possible.

8. Successful Independents... Engage in a Prime Vendor Relationship

In working with our readers and RestaurantOwner.com members, we've noticed that prime vendor programs, the practice of buying a large portion of food and certain supplies from one broadline supplier, is much more common in more highly profitable restaurants than it is in marginally successful ones.

While one-stop shopping, as it's sometimes referred to, is no panacea, in most cases consolidating the majority of purchases with one supplier tends to offer the opportunity to lower 'overall' food prices and costs.

In addition to lower food cost, independents who engage in prime vendor arrangements often cite other benefits as well:

Less time spent on purchasing activities. Owners have told us they were spending several hours a week comparing bids and were able to cut their purchasing time to virtually nothing by going to prime vendor.

Fewer vendors and invoices to deal with. Instead of dealing with several vendors and getting lots of invoices, the number of suppliers is significantly reduced. This results in fewer companies, salespeople and paperwork to deal with. Also, instead of getting lots of small deliveries, prime vendor results in fewer large deliveries, which translates into less time receiving and restocking functions.

Better vendor service. Sales reps tend to become much more responsive to special requests and to situations that require immediate action when servicing their prime vendor customers than they tend to be with smaller, infrequently ordering ones.

Improved product consistency. Food products are obtained from the same supplier over and over again, not the low bidder of the week. This usually translates into greater consistency and better quality.

Easier to order electronically. When purchases are consolidated with one primary supplier it's easier and more practical to order online. Virtually every operator engaged in online ordering tells me it is extremely efficient and wouldn't think of doing it any other way.

Prime vendor arrangements can be structured in many ways, but most operate on a cost-plus basis. Suppliers agree to sell their products for a fixed percentage or dollar "mark up" over their cost for a certain amount of time, often a year.

Operators may negotiate for the right to audit supplier invoices to verify cost, and product rebates may go directly to the restaurant. Operators agree to purchase certain minimum quantities or the majority of their purchases from the supplier during this time.

While some operators say they have not found prime vendor relationships particularly advantageous, many successful independents have and some even claim that prime vendor purchasing and their close relationship with their main supplier is one of the primary reasons for their success.

9. Successful Independents... Make 'Hospitality'Their Goal , Not Just Good Service

Customer service deals primarily with the mechanical aspects of getting customers what they want. While the timing and procedural aspect of service are important, we've noticed that nearly all of the highly successful operators we've met try to go way beyond getting their staff to execute the correct service steps and techniques.

Instead of just delivering good customer service, their goal is to provide "hospitality." As one RestaurantOwner.com member put it, "... you get service from a vending machine but only caring people can deliver hospitality."

Hospitality is going beyond completing perfunctory tasks to deliberately trying to connect with guests on a personal level. Connecting personally with another human being can take many forms, but it begins with having employees that have a sincere desire to take the best possible care of their guests. When guests sense that their servers are genuinely looking out for them, there is a much greater chance that meaningful interaction between staff and guests will take place and more positive dining experiences will be the result.

Several operators have told us that creating a "hospitality driven" culture starts with hiring people with a built-in desire to serve. Such people are natural caregivers. They enjoy caring for others and are energized and receive a tremendous amount of personal satisfaction when they're able to satisfy and, better yet, do something special for other people.

Here's a series of interview questions some operators use to identify service staff job candidates with a natural, built-in desire to serve others:

Question: Do you enjoy serving and taking care of other people?

Of course they'll know what you want to hear and will reply, "yes." To see if this is really the case, immediately go to the follow-up questions below.

Follow-up Question 1: Describe one or two instances in which you served or cared for someone else that were particularly gratifying.

If the response was genuine, the candidate should be able to provide you with one or more specific instances in which they went out of their way to offer assistance or care to someone else, and the more enthusiastic and animated they are the better. Unless they're a part-time actor and a very quick thinker, this one is tough to fake.

Follow-up Question 2: How did doing that make you feel?

Listen for positive feelings created through the act of taking care of or doing something special for someone else.

Most highly successful independent restaurants got that way because they figured out how to create increasing numbers of loyal, repeat customers. Hiring people who love to take care of others helps many operators create those positive experiences, which gives their guests another reason to come back again and again.

10. Successful Independents... Don't Compete on Price

During the past year, we've visited several members' restaurants who have been able to turn their operations into thriving businesses. The purpose was to learn from what they were doing and to highlight some of their best practices on video.

While many of these profiled restaurants' practices are discussed above, here's the one characteristic we noticed in each. Not one of these independent restaurants tried to be the least expensive dining choice within their dining segment and this was no accident. All but one admitted that their customers paid a bit of a premium to eat at their restaurant.

We noticed that all of these operators were extremely particular, even meticulous in their approach to the people they hired, the quality of the food they served and the cleanliness of their restaurants. Instead of competing on price, their focus was on quality; quality food, quality service in a clean, quality facility.

While they were sensitive to their customers' desire for a good deal and value, they realize that price is rarely the No. 1 criteria people use to choose a restaurant. After customers leave your restaurant, they rarely remember exactly what they spent, but they do remember whether they liked it.

No matter what you charge, someone can always charge less either because they're more efficient or because they don't have a clue what they're doing. We're convinced that highly successful independent restaurants focus on being good, not cheap.

The Proof is in the Results

As I mentioned earlier, there are very few absolutes in the restaurant business. Even though large numbers of successful independents follow many of the above practices, there are some who don't. That said, these 10 characteristics seem to be prevalent among operators who have staying power. Look at your restaurant in light of these traits and see if you could stand to shore up your business in any of these areas.