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Recession Lessons

As the economic consequences of the COVID-19 outbreak continue to unfold, many operators are understandably looking back to the Great Recession to understand what factors influenced restaurant performance throughout this time.

The Great Recession came up in several of our conversations with season one guests, who touched on two different types of challenges faced: investing in the future and dealing with the unintended consequences of past actions.

In the case of The Columbia Restaurant, Richard Gonzmart recalled a family lesson about how to deal with tough times: paint the walls to instill confidence in staff and customers. And the history of The Columbia Restaurant shows that the brand did much more than paint the walls during tough times. They built Tampa’s first air-conditioned dining room after the Great Depression, for instance. And in the Great Recession, Richard revisited the recipe for the classic Cuban sandwich to improve its quality. He also refused to reduce 401K benefits for employees. And it worked.

“One of the things I learned from my grandfather, during the difficult times you paint the walls. It gives your staff confidence and your customers confidence that you’re doing well.”
-Richard Gonzmart

Meanwhile, Beef ‘O’ Brady’s was reeling from the unintended consequences of its rapid growth in the early 2000s. Franchisees had taken on larger debt loads courtesy of easy money from the SBA, which became a significant challenge during the recession. This hampered the brand’s ability to ‘paint the walls’, so to speak, as it needed to first address the challenges of franchisee debt.

“The economy was good, and the banks were opening up their lending…We’d send these potential franchisees to the SBA and the SBA started giving them too much money…We found franchisees, instead of opening stores for $200-250,000, were opening stores for $400, $450, $500,000…and later when the downturn hit, that’s too much debt…Easy money usually comes with deleterious consequences.”
-Chuck Winship

If there’s something else we can add about lessons from the last recession, its that many changes will be temporary. Strategies that work during the recession will likely run their course and eventually be disbanded. Take, for instance, Subway’s $5 footlong. This was a historically successful product launch in March 2008 – the same month Bear Sterns collapsed. But returns of the deal, both recently and a few years ago, have caused uproar among franchisees, with some lamenting that the chain kept the deal around too long anyway.

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