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How 3 Independent Restaurant Operators Stayed Alive in 2020

When Frank Mendoza, operator of El Sushi Loco, a Mexican-style sushi fusion concept with four locations in Southern California, first joined RestaurantOwner.com eight years ago, he discovered how important tracking prime cost is to running a profitable restaurant.

For three operators, post-pandemic success means letting numbers, rather than feelings, drive decision-making; making the customer experience as positive as can be; being generous when and where you can; learning from mistakes; and finding novel ways to promote their businesses.

Mendoza tracks his prime cost every week. In the restaurant business, you need to know your financial position on a continual basis. A lost week can turn into a lost month. A lost month can result in a lost quarter. And a lost quarter can result in a lost year. As Mendoza says, "you can't make adjustments if you don't know your numbers."

In that regard, he puts his trust in his numbers rather than his gut. If you've been following RestaurantOwner.com and this magazine since the beginning of the pandemic, controlling costs was the first order of business to keep in business. The rule of thumb for prime cost traditionally is about 60-65 percent of sales for tableservice operations and a few percentage points less for fast casual and quick service.

Mendoza's been able to maintain his Prime Cost at an astounding 48 percent! Says Mendoza, "that is unheard of in Southern California." We would dare say, anywhere.

When restaurants closed earlier this year, all of Mendoza's inventory, about $15,000 worth of food, spoiled. His sales went from zero at the beginning of the pandemic, and under the gun of an SBA-loan mortgage on an SBA loan, to $400,000 revenue a month across his three locations.

Consider, pre-pandemic, the restaurants were doing $520,000 a month. He emphasizes his path out of the proverbial woods, not bringing in a dime, was to let the numbers drive his decisions.

"Running numbers" weekly allows him to look at the food cost and identify where to make cuts -- usually to portion size, menu offerings, or labor, including overtime. Mendoza says he's been able to keep more money during tough times from the labor shortage. He has also adjusted hours of operation, closing earlier and opening later to economize on labor and other expenses.

"If we can shed a couple points [percentage of expenses] here and there, at the end of the day we're keeping more money," Mendoza explains.

We're in the middle of a hurricane and we're on a cruise ship, Mendoza says, summing up 2020, extending the metaphor to his role as captain of the ship to keep everyone safe and calm until the storm passes. By remembering the essentials of hospitality, tracking his numbers, and being generous where he can, Mendoza believes he can 'keep the faith'.

After reining in food costs and reducing hours, Mendoza looked to see where else he might be able to save. Among the "low-hanging fruit" was third-party delivery fees.

Delivery partners like Uber Eats have been critical to El Sushi Loco's continued operations; but, as other operators have experienced, the fees are excessive. Six months ago, Mendoza dropped Uber Eats, the most popular delivery service in his Los Angeles market. He switched to ChowNow because it is commission-free for restaurants (customers pay delivery fees). "Out of $100, you keep $100 [with Chownow]," he explains. "Out of $5,000 in delivery, [Uber Eats] was keeping $1,500."

Mendoza says that he's seen other operators fail when they haven't had access to capital to keep the doors open, pay employees, or pay the mortgage. He believes that other operators aren't as focused on prime costs and just don't know their numbers to make smart decisions. While his restaurants went from doing $100,000 of business a week to $40,000 due to restrictions, his careful management of prime costs allowed the business to save money, as did his careful approach to spending a PPP loan of $439,000.

Of course, as we say during the pandemic, we are all in this together. Mendoza also relied on a little extra help from the mortgage company that financed his SBA loan, which deferred payments.

Says Thomas Martin, "My dad is a numbers guy, so he's tracked daily sales since we opened" in 1970. Martin, took over operations of Taco Box, a Mexican concept with two locations in Clovis and Portales, New Mexico, from his father. While they've always paid attention to the data using software like Restaurant Systems Pro, which integrates with their Micros POS, Martin says it's really helped them make stronger business decisions throughout the pandemic. "In the past, there were things we thought we would do and we were scared to do it," he admits. "Decisions that last year we would not have made, we easily made this year [because] we started relying on our systems versus our feelings."

As nearby office workers transitioned to remote work earlier this year, stopping breakfast service was a no-brainer. So was streamlining the menu for efficiency, a best practice employed by many operators. In recent months, Martin says he's heard from customers who wanted breakfast back, as well as regulars who missed their favorite menu items. Where he once might've caved to the pressure, now Martin let the numbers make the right call for him.

"Those voices are your friends and people in the community, [but] when the numbers don't justify those being on your #1 marketing tool, which is your menu," then the decision becomes simple. "If we're putting something on there that doesn't have a return, it's not worth it," Martin adds.

Martin says they used to rely on profit and loss statements the accountant sent over three weeks after the end of the month. At that point, "you've already done well or lost money," says Martin.

He's been holding weekly meetings with GMs to review food and labor costs, then uses the data to make corrections. Thus far, they've reduced labor to economize and adjusted their hours two times -- opening earlier to reach Texas diners (located ten miles away but in a different time zone) and closing earlier, since people tend not to be out late.

For Mendoza and Martin, being ahead of the curve requires staying on top of their numbers. Without accurate, timely numbers, nothing else matters.

Novel Promos

To make it this far in the pandemic, Mark McDonnell, founder of LaSalle Grill in South Bend, Indiana, is doing things they never thought they'd have to do. For McDonnell, the biggest "pivot" was finding a way to make takeout work for his fine dining restaurant.

Constantly changing regulations have meant that operators like McDonnell have had to reinvent their business models more than once, learning lessons and adapting on the fly. Inspiration and actionable advice came from three independent operators who've made it through a supremely challenging year while continuing to serve not only their customers, but their communities.

When McDonnell learned that 10-12 percent of restaurant gift cards go unredeemed, he had an "aha moment", thinking of the cards as "an interest-bearing loan to me, since you have a gain on the ones that are never redeemed."

That said, operators should be aware gift card redemption is typically within three to six months of purchase. Operators should be sure they have ample cash flow to handle it.

While he's always offered gift cards, McDonnell's turned to running flash sales in the pandemic. Limiting the opportunity to a short time window creates FOMO (fear of missing out) and gives customers an extra incentive to buy now, since there's no telling when the next offer will be.

In April, "when we were desperate," they ran a flash gift card sale that brought in "$100 grand in a week," says McDonnell. "The gift card was good for dine-in only, which meant customers couldn't use it right away. The extra cash was critical in a time when many operators were hurting."

A recent flash sale only returned $25,000, so McDonnell changed up the offer to $20 off of $80, hoping to entice Black Friday - Cyber Monday purchases. "It was steady and gradual," he says, figuring it was perhaps what operators might expect as consumers tighten their belts awaiting relief. After learning that a competitor would be running bonus cards through the end of the year, McDonnell extended his sale. As of this writing, McDonnell planned another flash sale for Christmas Eve.

McDonnell also had an SBA loan; he was able to cut expenses by $12,000 a month while the SBA paid the principal and interest on his mortgage and improvement loans.

Learning from Mistakes

While the data helps operators analyze trends and make decisions, these operators emphasized the importance of continuously learning from mistakes.

When New Mexico first introduced dine-in capacity restrictions in March, Taco Box shut down its dining room. The dining area was small, and Martin didn't want cashiers to become mask police.

The restaurant had a drive-thru, which "saved us," Martin says; they also offer takeout, delivery, and curbside. Once things calmed down, they opened the lobby back up, but soon noticed that it was actually eating into the drive-thru business. Operating in drive-thru only, the restaurant was more efficient: fewer workers could serve as many people as they served pre-COVID-19. Looking at the data and being willing to walk back their decision to open the lobby helped Taco Box operate more efficiently.

For McDonnell, "being forced to embrace takeout" meant having to make a lot of decisions about online ordering, food packaging, and delivery without insight into the consequences until things went off the rails. He recalls how a take-home Thanksgiving offering soon became "disastrous" on multiple fronts: they offered food they didn't normally cook (roast turkey with sides like mac 'n cheese), priced it too low, sold too many (220 kits that fed six people), and didn't accurately communicate what customers were getting. "People thought it would be something they would get out of the box and put on the table; but they had to reheat it," says McDonnell.

They didn't pace out order pickup, so too many customers wanted to come and get their Thanksgiving order at the same time. The packaging was another issue: they'd used material they had on hand, rather than ordering something new, but the packaging was far larger than it needed to be. "It had plenty of food but didn't look full," McDonnell summarized. He later learned from a Chicago Tribune article that he wasn't alone in his errors.

There was a silver lining: a local real estate agency noticed the Thanksgiving offering and asked whether LaSalle Grill could do something similar for their 200 agents in lieu of a company Christmas party. McDonnell quickly agreed, then sourced appropriate containers to make the portions seem bountiful.

"Thanksgiving brought in 220 times $125, and the [real estate agent] order was similar," McDonnell says. Plus, he got press out of it, too when local media promoted the story of a company doing something unique for the holidays for their employees.

The take-home meals can be profitable, especially now that McDonnell's learned from his previous mistakes with packaging, pricing, and pickup. He's offering a similar Christmas kit, and he's set the order cutoff for two days in advance, so his crew will have enough time to cook and wrap food.

He's even going the extra step to make the Christmas meals look festive by wrapping them in red and green cellophane and making custom labels using Avery labels and his color copier -- a trick McDonnell says he learned from a customer.

Generosity Where You Can Afford It

While a company's generosity led to good PR for LaSalle Grill, McDonnell has also found ways to be generous with staff. He instituted a 20-percent service charge, which is "distributed every two weeks in lieu of pay" to laid-off staff. He received a PPP loan and says "we made everyone who was short whole out of that." While they haven't been able to bring back all employees, a beloved staff member who was let go is returning for a couple of shifts over the holidays. McDonnell plans to promote the popular employee's return on social media in the hopes of driving volume to the restaurant and "[creating] a lot of cash going into the first of the year."

Among operators who are faring well in these times, generosity -- extended both to their employees and the community at large -- seems to be a common thread. At Taco Box, seeing the community in need led to a BOGO burrito promotion, where the restaurant gave one free burrito to a local food bank for every burrito that was purchased. "[Food banks] were getting an influx in people in need and a decrease in donations" when supply chains were impacted, says Martin.

There was a silver lining: a local real estate agency noticed the Thanksgiving offering and asked whether LaSalle Grill could do something similar for their 200 agents in lieu of a company Christmas party. McDonnell quickly agreed, then sourced appropriate containers to make the portions seem bountiful.

Rather than give out actual burritos, Martin gave the food banks credit representing the cash value of the donation, then let the food banks order groceries through the restaurant's supplier with their credits. The promotion ran for six weeks and was promoted via Facebook video. The promotion was feel-good news for impacted communities, and it made for a fairly viral video: 20,000 views for a town of 40,000.

Mendoza is being generous with his employees because he thinks it's the right thing to do--but he also knows it makes for a good story. He had to let go of over 100 employees when restaurants shut down, although he's been able to hire back 66 workers since then.

El Sushi Loco's workers were so loyal that they agreed to come back at $13 an hour, the minimum wage, rather than the $18-$20 some were making pre-pandemic. Mendoza told the employees he'd increase salaries when the restaurant began to make money; in the meantime, he says he's been able to give employees bonuses based on prime cost savings. So, if the restaurant has an extra $3,000 one week, that money is divided by the number of workers and distributed as bonuses.

The restaurant's extra PPP money, which hasn't been spent, will be used to give workers holiday bonuses of $100 each "just to give employees that hope they need," says Mendoza. He's also offering no-interest loans of up to $1,500 to employees who are struggling to pay the rent and other bills.

Mendoza sees generosity as push back to the despair caused by the pandemic. "COVID-19 is taking things from us, so to counter that we need to give," says Mendoza. "Employees need leadership and hope," he says.

A Positive Guest Experience

"People are having a tough time," says Mendoza. "Hospitality is probably the biggest factor because people come in stressed out and being kind" really helps.

As El Sushi Loco has reinvented its business model during the pandemic, Mendoza has always found ways to give diners a positive customer experience by going above and beyond guest expectations.

When dining rooms closed, he immediately purchased fake grass and tents to create a pleasing outdoor dining area. He brought his restaurant's booths, tables, and chairs outside--a big risk in a city where restaurant furniture was being stolen. For Mendoza, it was a no-brainer: the furniture would help diners be more comfortable outside and might convince someone to dine at El Sushi Loco over another restaurant. One good day of business could easily cover the costs of replacing stolen furniture. With unpredictable weather, from heatwaves to cold spells, he's had to bring in both fans and portable heaters to keep diners comfortable.

"We're in the middle of a hurricane and we're on a cruise ship," he says, summing up 2020, extending the metaphor to his role as captain of the ship "to keep everyone safe and calm until the storm passes." By remembering the essentials of hospitality, tracking his numbers, and being generous where he can, Mendoza believes he can "keep the faith".

When Taco Box became drive-thru only, Martin realized the only part of the restaurant diners would see was the outside. The team revamped both locations with fresh exterior paint, new landscaping, and all-new rock. They also revamped the ordering and payment processes for efficiency and contactless service.

Martin adopted the approach of Chick-fil-A in using "line-breaker tablets" so employees can move diners through the line more quickly (and the kitchen can get a head start on orders). The restaurant had avoided accepting pay-by-phone technologies like Apple Pay or Samsung Pay, because they didn't want the liability of taking someone's phone from them. Now, cashiers use two-foot extension wands to hold credit card readers out to guests for a contactless payment method.

Rebuilding on a Foundation of Hospitality

By investing in their businesses, their employees, and their communities, operators like Martin, Mendoza, and McDonnell are using the foundations of hospitality to cope with unprecedented difficulties.

While none of these operators could have predicted the unique challenges of 2020, including windstorms, wildfires, rain clouds of ash, and another round of shutdowns, they're all examples of success through adaptability, willingness to take risks, and careful attention to the numbers.

Homegrown Social Media

Thomas Martin, owner of Taco Box, a Mexican concept with two locations in Clovis and Portales, New Mexico has been having success with homegrown social media promotions. For Martin and his team, videos shared on the restaurant's Facebook page started as a way to stay in touch with the community and cultivate a sense of engagement across distance. "[Videos] gave us the ability to explain, to relate, to tell people why we were doing things--a picture does a little bit, but we can show them [in a video]."

The new social media focus also provided an escape hatch for Martin's father, who is in his seventies and "still at work every day," though he promised to retire. Again, we are all in this together, and has relied on family to get through the new normal. Martin's dad works from home, handling the restaurant's Facebook page.

Social media and videos help Martin stay connected to customers during these times while also providing a new way to promote special deals to their regular customers: When they offered a "survival kit" promotion of some of their most popular menu items (taco kits, take-home enchiladas, green chili stew, bulk rice and beans, and gallon jugs of sweet tea), they made a video and posted it to social media. Even if in a small way, Martin felt like these videos "[facilitated] something positive for people who were being impacted" and allowed the restaurant to express their community appreciation.

Social media videos provide a quick connection and an easy way to promote new offerings to those regular customers who are following their favorite concepts online. Limited-time deals, like the flash sales on gift cards, make promotions feel less like a sale and more like a game. These ideas may seem simple, but they're small ways to brighten a customer's day while also driving business.