Find Ian’s articles on Forbes.com
One of the toughest industries in the world is the restaurant business. While top restaurants can deliver incredible financial results, 103% fail within three years (only a slight exaggeration). If you want to improve the financial performance of a business like a restaurant, there are several approaches you can take. I was curious about how one successful restaurant group drove profits, in hopes of a great lesson for any business.
My curiosity piqued when my wife and I were having dinner at Fogo De Chão. As a devout carnivore, I get all excited in any restaurant where gauchos walk around serving skewers of meat, carved tableside.
Busy restaurants might serve 500 guests in a day. When I asked the hostess, she shared that they had served over 1,200 guests that day (for the vegetarians in the audience, just assume that they all ate from the salad bar).
Always trying to understand the business model, I tried to guess at the strategies employed to increase profits. I asked to speak to the manager, Eleandro. I explained that everything was great, and I was intrigued about their strategy for growing their profit and driving success.
I’m not referencing an Adele song; I was curious to see if they served guests quickly to fill them up faster. If they have 80 tables, then by speeding guests through dinner they could accommodate one additional seating at each table. That could drive increased business.
Did they have a strategy to serve the more expensive cuts of meats less frequently? Did they start by serving the low-cost items, hoping that when the more expensive cuts arrived, the guest would already have filled up their stomach and would take less of the high-cost item?
Encouraging Low-Cost Options?
Did they try to persuade the guest to eat the low-cost items on the salad bar to drive less consumption of the high-cost items?
Eleandro smiled and said, “I guess we don’t think like that. Our goal is to just treat our guests like we would if they were in our home in Brazil. If we deliver an exceptional experience each and every time, then we’ll always be fully booked.” They realize that they cannot try to squeeze their guests to increase margins one guest at a time. If their restaurant is busy, then their fixed costs are spread across a larger client base. This means that their cost per diner drops as volume increases.
How refreshing. Though based on their volume, I’m sure they have some purchasing power to help with food costs. Fogo De Chão is focused on delivering an exceptional experience. Clearly, this culture has been pushed down into each location.
You Can’t Save Your Way to Prosperity
Our family used to frequent a local Thai restaurant. At some point, we noticed that menu prices were increased, portion sizes were reduced, and quality fell. Clearly someone in management was trying to increase profits by compromising the customer experience. We stopped going to the restaurant, and we used to dine there more than fifty times per year. The restaurant no longer exists.
Lesson For Your Business
Fogo De Chão offers a great lesson for any business. Are you trying to figure out how to cut costs and squeeze your clients, or are you focused on delivering an exceptional experience? You can’t cut your way to prosperity. Sure, managing your expenses responsibly is important, but your clients will always be willing to pay a bit more for exceptional results and a stellar experience.
If you cut quality, or try to extract nuisance fees, then you’ll bring value into question. If you follow Fogo’s model to treat your clients like you would treat a guest in your home, then you’ll likely have a model for success.
It’s Your Turn
Where have you seen service convince you to pay a bit more and earn more loyalty? Where have you seen cost-savings have the opposite result? Share your thoughts in the comments below or on Twitter or LinkedIn.