It's not just the pandemic...
Updated: Jun 30, 2020
Case Study of Local Restaurant using Pandemic as a catalyst to modernize, increase efficiency – and be in position for increased sales.
This event has been a massive earthquake – in a broader tectonic shift in the small business landscape. The change in our local business models started with WalMart and globalization many decades ago. But the pace of disruption has been ever more rapid since the corporate tech titans arrived at center stage of the economy.
Nobody wants small business to disappear.
But the winner-take-all nature of the networked world is destroying margins and competitiveness for small businesses without venture capital backing. Across categories – from real estate to retail – large tech firms have put themselves directly between the small business and the consumer. Many consumers are oblivious to the fact that technology firms have effectively positioned themselves as intermediaries and margin stealers between small businesses and their customers.
However, there is no denying the consumer benefit. We are in an era where the consumer is more empowered than ever before. With instant, perfect information, frictionless transactions and low prices for high quality goods.
Capitalism is working for the consumer. So how can small businesses compete?
Small business owners must do a two-handed dance.
On the one hand they must integrate and adapt those technologies and perks their customers have come to expect – to make their transactions seamless and competitive.
On the other hand, they must fend off the most obvious attempts by corporate tech intermediaries to steal their margins – and direct their marketing efforts towards establishing more direct connections to their customer base.
For a new business this is difficult. For a legacy business this can be backbreaking.
But now the pandemic has forced business owner’s hands – and has created the conditions for change.
Opportunity in Disaster
In one example from our network – the older generation founders of a local restaurant were forced into retirement by the pandemic. Due to the possibility of infection, they could no longer come into the restaurant they had run for 30 years.
Their sons immediately took over a business that was, frankly, old-school. No Quickbooks. No Point-Of-Sale (POS) computer system. They had a small dependable clientele who walked in and ate lunch – but mostly they relied upon phoned-in catering orders to the local office buildings.
In March 2020 that catering business dried up overnight. The office buildings were vacant. Business fell down a cliff. They closed for a few weeks to regroup. That is the point when the sons took over the business. The parents were not coming back.
The sons had worked in the business on-and-off for the last 8 years. Learning the ropes, yes, but also quarreling with their parents over their old-school ways of doing things.
Their Mom was known for sitting behind the counter, conversating with each customer who walked in, and taking orders by phone. Customers loved her. But for the business she was a bottleneck. She spent every weekend manually reconciling the books –on her pad and pencil.
For years, the sons had talked about integrating computer systems. Building a website. Doing a little marketing. But the conversations had mainly gone nowhere.
Now, overnight – their sons had full control. And within just 8 weeks, they turned the business into an e-commerce enabled takeout and delivery machine.
GrubHub as Margin Stealer
GrubHub takes 30% of restaurant sales. To the sons, the rate felt extortionary. Yet, with their catering business dried up, and the virus scaring away customers, it seemed a necessary evil.
At the same time, they began work on an e-commerce website. The website integrated with a new computer POS system. If clients ordered through their website – instead of GrubHub – they would keep 100% of the revenue.
But how to gain website traffic?
They began sticking fliers into every bag delivered through GrubHub and the others, informing customers that next time they could save 20% if they ordered through the website and picked up instead. Using GrubHub, they were bringing new customers in-house.
They gave the same 20% off message to anyone who called in with a phone order. Some people hung up the phone and immediately used the website system to get the discount right then and there. Now, when these customers return, it will be a far efficient transaction.
And their efforts began to pay off.
The Two-Handed Dance
It is pointless to fight upstream against the incredible value tech companies provide to consumers. Likewise, it is pointless to fight against consumer trends.
This pandemic has merely ushered in changes that have been knocking on the door for years. And –if you believe the Wall Street Journal analysis1 (as I do) – as the pandemic subsides, the lasting changes will be those that consumers were expecting from companies anyhow.
Large fast food corporations – such as McDonalds – have turned this crisis into opportunity. They have closed their dining rooms, streamlined their menu, increased their order efficiency – and sales are up.
The same is true for our local restaurant in San Leandro, CA.
The overnight adaptations made by McDonalds have been nearly mirrored by the younger generation sons (coincidentally of course – they did not intend to copy McDonalds). They have closed the dining room, and increased order efficiency. And so far, the results have been great.
Daily individual meal orders are up, because they are now receiving orders from new customers who want to try the “new restaurant in the area”. Can you believe it? These are people who live only a few miles away – but never had a reason to drive past the 30 year-old storefront.
Now with a digital presence on the food delivery platforms, these customers know they exist. They are effectively using GrubHub as their marketing vehicle.
The catering business has been slow to come back, of course, so sales are still down from last year. However, the first catering orders (in single-serve packaging) and have begun to trickle in.
Once catering is back, the business is ready to emerge, stronger than ever.
America is nothing without Main Street.
None of us (including venture capitalists and technology leaders) want to live in a world without community gathering places, locally made food, artisan goods – and the creativity that comes from entrepreneurial thought.
However, the competition and margin-stealing by tech entrepreneurs and corporate giants will not stop. It is innovation on a global scale. The rewards are too rich. The consumer benefit is too great.
Change can be painful. And six months ago, nobody predicted this catastrophe. But perhaps there is a way to turn it into opportunity.
There is obviously no one-size-fits all solution. Every business and every industry will face their own unique challenges.
But drawing from the case study above – it may be a good start (if you haven’t already) to perform a detached analysis of customer expectations. Think broadly about the service and value customers will expect in the next 10 years. Look from top to bottom across your industry.
Free yourself from legacy ideas and “what has always worked” (or perhaps what has never worked…). Find a way to incorporate consumer technology benefits, while simultaneously training your customers with rewards for cutting out the middleman.
The system has changed. How will you fit into the new paradigm?
Reuben B. Ly - Business Owner Strategy
Our work is not from a broad trends perspective. Through our small business owner network, our podcast, and our consultancy, we examine the issues facing entrepreneurs at a micro-detail, boots-on-the-ground, actual-practical survival level.
We specialize in complicated, real-world problem solving.