Optimize the Financial Impact of a New Store Opening

Written by: David McClaskey, President, Pal's Business Excellence Institute

I recently had a very interesting conversation with a Pal’s Business Excellence Institute (BEI) “Achieving World-Class Results” class attendee. This conversation related to how to best use the “extraordinary thinking” taught in the class to optimize the operations decisions related to the rate of opening of new restaurants.

Whenever a new restaurant, or series of new restaurants, are opened, the owner has to decide, among other decisions, on each of the three factors below. Usually this is done using “ordinary (conventional) thinking” that makes trade-offs between the three factors resulting in sub-optimizing the new restaurants’ short and long-term financial performance. This sub-optimization is usually due to opening new restaurants with operations at a lower than optimum operations level. However, using “extraordinary thinking” results in different decisions regarding the levels of the three factors that optimizes the operations and short and long-term financial performance of the future restaurants.

Below are examples of ordinary thinking and extraordinary thinking related to each of the three factors:

  1. Quality Level of Operations at New Restaurant Opening: The percent of products and services that are 100 percent to brand standard when the new restaurant opens
  • Ordinary (conventional) thinking: That the best can you can achieve is to enable a staff to open a new restaurant so it gets its products and services 75 to 85 percent to brand standard.
  • Extraordinary thinking: It is possible to enable your staff to meet 100 percent to brand standard product and services every time starting when the restaurant first opens. Note whenever I write 100 percent, you should think of 99.X percent. That’s because achieving 100 percent to brand standard all the time would be perfection forever, and in operations, even when perfection is targeted for, it is probably not possible to achieve over a long period of time.
  1. The Rate of New Restaurant Openings: The number of restaurants the owner wants to open over the next twelve months
  • Ordinary (conventional) thinking: You make the most money if you open as many restaurants as you have funding for as fast as you can.
  • Extraordinary thinking: You make the most money over the life of the restaurants if you open as many restaurants as you have 100% aligned and committed world-class leaders (General Managers) who can open and operate the restaurants 100 percent to the brand standard products and services, 100 percent of the time. The improved economics is due to a higher level of repeat business and higher level of positive recommendations during the first weeks of operation as well as during the life of the restaurant.
  1. Level of Staffing/Training Investment Prior to Opening: The investment in money and time an owner is willing to spend, prior to the restaurant opening, to hire, train, and enable the new restaurant staff to achieve, at opening, the quality level of operations stated in Factor 1 above
  • Ordinary (conventional) thinking: Staff the store with the required number of people even if the people hired are not necessarily a good fit for the brand. Then train them to the extent you training budget allows. This includes trying to minimize out-of-pocket staff and managerial training expenses prior to the store opening, relying on experience, after the store opens, to be the best teacher.
  • Extraordinary thinking: It is a great investment in both time and money to use an effective and efficient process for hiring staff that are a good fit and training them so they can achieve 100 percent to brand standard, every time, prior to the store opening.

There is no universal right answer that fits all companies, but there is a right answer for each company.

Impact: In many cases, due to ordinary thinking, these three factors are sub-optimized and the investment in the new restaurants, and the brand overall, never reaches its potential. In some cases, organizations that use extraordinary thinking when establishing the operations levels of their new restaurants are enabled to get as much as three times the revenue from a single restaurant when compared to new restaurants whose operations were designed around ordinary thinking. When owners use extraordinary thinking versus ordinary thinking to determine the right level of the three factors related to restaurant openings for their company, it will optimize the short and long-term financial outcomes for opening each new restaurant and will help of to optimize the brand’s overall profitability.

To see an example of a very successful, 60-year old restaurant brand, Pal’s Sudden Service, that uses extraordinary thinking outlined above to make new store opening decisions and all operations decisions, attend the Pal’s BEI class “Achieving World-Class Results.” The class not only includes many examples of extraordinary thinking around operations, but also features a restaurant tour so you can see first-hand world-class operations that was started right from the opening.

What are your thoughts on the topic?