Blog

  • How To Present Your Products to Meijer

    Saddleback recently had a meeting with Meijer to discuss selling our BBQ Sauce in their stores. Retailers want your product to make strong business sense and to feel an emotional connection with your product before putting it on their shelves. A strong pitch can help deliver on both counts, and it is important to remember a few key strategies to incorporate into your presentation. 

    As Meijer did with Saddleback, It is likely that the retailer will send you a number of different requirements to meet, and probably some spreadsheets and/or documents for you to fill out and bring to the meeting. It is imperative that you complete any documentation the retailer asks for, and to forget any would put you at a strong disadvantage up front. After you assemble what the retailer asks for, it is time to start filling out the rest of your presentation. 

    The more data you compile the better, and the numbers are critically important. At the end of the day, even if the retailer loves the story of your business, connects with the presenter and appreciates your product, if the numbers don’t work then your product isn’t going into their stores. The data sets that will likely be of utmost importance in this presentation are the following:

    • Those in connection with velocity and productivity (see What You Need to Know To Get Your Products Into Meijer).
    • Data concerning the price comparison to other similar products in the retailer’s stores.
    • Gross margins for the retailer.
    • If your product has connections with popular consumer trends, this should be presented as well.

    While there certainly might be other numbers the retailer will want to see, those mentioned above should always be included.

    The retailer should walk away from the presentation knowing the identity of your business and how that identity is expressed through the product you’re selling. Have slides covering the following background information in connection with your business:

    • Information about your product that demonstrates it is unique.
    • Any notable marketing campaigns or public recognition.
    • Successful promotions you have ran and any you plan to run with the retailer.
    • Space to sales, or the amount of space your product will take up on their shelves and the reasoning behind your product’s packaging size.
    • If you can do so honestly, a statement about limited debt of the company and ability to meet any increasing production demands.

    How to order the information included in this blog is an interesting question, with arguments running both ways. For Saddleback, we believe the numbers should be the last thing the presenter sees as it will ultimately make or break the deal. The retailer should walk away from the meeting with a strong understanding of why your product makes sound business sense. However, everyone’s business is different, and exactly how you deliver the final presentation should be adjusted to fit your style. Whatever has you presenting in a smooth and confident manner while effectively covering accurate information is the strategic path you should pursue.

  • What You Need to Know To Get Your Products Into Meijer

    Here at Saddleback, we sell our BBQ sauce locally and have had discussions with Meijer to get our products into their stores. Many local businesses have similar desires, but getting into such a retailer comes with challenges. Meijer is concerned with two critical factors in determining whether to take on a new product: velocity and productivity. 

     

    Velocity:

    Velocity in a retail setting is generally defined as the rate of sales that a brand or SKU achieves through a store, group of stores or market area over a defined period of time: 

    V = Sales per Time Period / Unit-of-Distribution

    Velocity is all about how fast your product sells, which is of major importance to a large retailer like Meijer.  A strong velocity shows a retailer that your existing base of stores is experiencing growth, and instills confidence that your product will sell similarly in their store. Here’s an example of how it works: 

    Let’s say a particular retailer is interested in your weekly velocity, or number of units sold per week per store.  Assume further that you have sold 12,500 units over 6 months across 25 stores.  

    1. Start by calculating units per year: 2 * (12,500 units) = 25,000 units per year
    2. Next, get your weekly sales: 25,000 units / 52 weeks = 480.77 units per week
    3. Finally, divide this number by the total number of stores: 480.77 / 25 =19.23
    4. Velocity = 19.23 units per week per store

    A high and increasing velocity is a sign of brand strength, and demonstrates to a retailer that you’re gaining new customers, obtaining repeat purchases, and that your product makes overall business sense.

     

    Productivity:

    Productivity in a retail setting is generally measured by multiplying the total sales of a particular product by that product’s price:

    P = Total Sales * Retail Price

    Productivity is all about the value of the product you're selling - customers want it and will pay a high price for it. From a retailer’s perspective, while they want your product to have a high velocity and sell quickly, they also want to maximize their margins and profits. Combine a high rate of productivity with a high velocity and you are a large retailer’s dream come true.  Building off the example above, here is how productivity can make or break your product: 

    Let’s assume, as above, we have a product with a velocity of 19 units per week per store. At 25 stores, this is 475 total units per week on average. The weekly productivity of these total sales will depend on price: 

    1. The product retail price is $1.99: P = 475 * $2.50 = $945.25
    2. The product retail price is $24.99: P = 475 * $24.99 = $11,870.25
    3. The product retail price is $99.99: P = 475 * $99.99 = $47,495.25

    One sees quickly how pricing can significantly affect the productivity rate. That is why it is important to be thinking not only about selling quickly, but selling a high-quality product that is going to bring in meaningful dollars to the retailer. 

     

    The bottom line is that both factors are of equal importance.  If you are a business trying to grow a product, your goal should be to get into as many retailers as you can, with an end goal of getting into a large-scale retailer.  Any major retailer is going to care deeply about velocity and productivity, so understand these factors well and prepare substantial data on them in advance of any meeting with a retailer.

  • Management Strategies for Small Restaurants

    Delegation is one of the most difficult aspects of running a small restaurant, and often managers run into the common problems of either abdicating too much responsibility or micromanaging the employee. A couple of tools managers can use to more effectively delegate are the “Ladder of Leadership” and “Task Relevant Maturity.”

    The Ladder of Leadership is the idea that employees should communicate differently as their skills advance. An entry level employee might communicate with “tell me what to do”, while a more senior employee should communicate with “I have done the following.” This image represents the idea: 

    Managers and employees alike should be thinking about where they rank on the leadership ladder, and should try to move up the rungs. For employees, try to challenge yourself to advance beyond simply following orders to a point where you can make well-educated recommendations about how to solve problems or how to complete tasks. For managers, be actively thinking about where employees are on the ladder when assigning tasks. You should not expect communication at a 5 from an employee operating at a 1-2 level. Managers should also be openly discussing this idea with employees, and working with them to develop their skills and move them up the ladder.

    Hand in hand with this idea is Task Relevant Maturity, or how effectively someone can complete a specific task. Every person has different TRM for each task, and is not necessarily connected with seniority: very senior people within the company can have low TRM for a given task. This image represents the general idea:


    Employees with low TRM need more structured, task oriented management at the 1 - 2 levels.  Managers should not expect these employees to efficiently complete tasks without strong guidance. Employees with a medium TRM are more individually oriented, but still require manager support and open communication consistent with the 3-6 levels. Employees with high TRM should be managed at the 7 level: they require only minimal involvement by the manager and have the capacity to set objectives and meet them.

     

    To conclude with some high level overview, it is important to remember that the Ladder of Leadership works hand in hand with Task Relevant Maturity. For any given task, the manager and employee should discuss these concepts. Work together and learn at the assigning of the task what the employee’s TRM is and agree on where you both want to be on the Ladder, and communicate on the basis of that agreement. Finally, always encourage people to move up the ladder, even if this makes them uncomfortable. Advancing these skills is important for personal growth and development, and applicable to any workplace environment.

  • Inflation the Silent Tax

    How a $0.61 increase in the cost of production leads to a nearly $2.50 increase for consumers. 


    The company that manufactures our BBQ Sauce is raising our costs by over 20%. Why? Inflationary pressures: prices are rapidly rising for shipping, ingredients, plastics, and glass. We do not fault our manufacturer. We are experiencing the same forces in our restaurants. BUT If something doesn’t change, it could mean our BBQ sauces are too expensive for retailers. 


    Each time a retail product changes hands, the price goes up. We’ll use actual costs from our experiences to demonstrate how this works. 


    Old Pricing - We purchase the sauce for $1.93/Bottle (including Shipping and Label) > We sell it to a Distributor for $3.38  > The Distributor sells it to the Retailer for $4.19 > The Retailer sells it on their shelves for $5.99


    New Pricing (same margins) - We purchase the sauce for $2.54/Bottle > We sell to the Distributor for $4.45 > the Distributor sells to Retailer for $5.52 > the Retailer sells it on their shelves for $8.49!!


    This $0.61 increase at production leads to a $2.50 increase for you, the consumer. 


    We hope this demonstrates how fragile pricing is, and how rapidly prices can change. A seemingly insignificant rise in the cost of production leads to a dramatic increase in the final price for the consumer. 


    We’re currently working to figure out solutions. Any tips, information, or ideas are encouraged.

  • Lease Terms Restaurant Tenants Need to Understand

    Standard commercial leases are generally 25-35 pages, and can be over 50 if a complex deal. As a restaurant tenant, you want to get into the center and start making money as soon as possible, but this is no reason to rush the negotiation process. Landlords want security in the deal, and the less negotiating power you have as a tenant the more likely it is a landlord will reserve extensive protections in the lease that could end up severely financially harming tenants who perform poorly. This blog highlights important lease terms in connection to commercial restaurant leases. Tenants should strongly consider hiring a lawyer and going over the entire lease with them, with specific attention paid to the below terms.

    Delivery Date
    Receiving the building from the landlord is obviously a critical component to being able to start operating your restaurant. The typical lease will present this as a specific date of time, but tenants need to be wary of things going wrong. Old tenants might not be out in time, the landlord might not finish their work in the building by the delivery date, construction might not be completed, permits not obtained, and so on. As a tenant, you should have the goal of negotiating termination rights if the building is not delivered on time, as well as commitments by the landlord to reimburse out-of-pocket expenses that may occur due to late delivery, including the return of any security deposit.

    Permits
    Opening a new restaurant requires several levels of government approvals, licenses and permits. What can really hurt a restaurant tenant is not having the necessary permits to start selling food on the first day of your lease term. To avoid this, tenants should focus on negotiating a right to terminate the lease if they are unable to obtain needed licenses or permits. This contingency will have a variety of factors, including the length of the contingency period, a list of necessary approvals, whether additional time can be granted to seek the license/permit, and any fees in the event of termination.

    Gross Sales Termination Rights
    If you’re opening a restaurant, you should already have an idea of what your annual sales need to be to make a profit, and you should negotiate around this number before signing a lease. Typically referred to as a “gross sales kick-out clause”, this provision allows a tenant to terminate the lease if sales do not reach a breakpoint number. This is an exit strategy that obviously benefits the tenant, but you should be able to convince a landlord of its benefit to them as well. A landlord doesn’t want a failing tenant, and is almost exclusively concerned with collecting rent. If sales aren’t on track to meet the annual breakpoint, both parties have benefits in ending the lease. Important pieces of this provision should include the breakpoint number itself, the measuring period, lead-time before termination, and any fees associated with termination. As a tenant, you want to be able to exercise this right as early as possible, so you can terminate with as little lost money as possible.

    Assignments and Subleases
    A tenant’s ability to assign (transfer the lease interest to a new tenant) and sublease (lease out a portion of your space to another tenant) are important provisions because it allows for greater control of a tenant’s ability to exit the lease. Tenants should try to negotiate in a way that limits to the furthest extent possible a landlord’s ability to deny or delay assignments/subleases. Moreover, Tenants should try to carve out requirements that would not require landlord consent to transfer. Often, landlords allow tenants to transfer to subsidiary or affiliate companies under tenant’s control. If a landlord demands that their consent is required, tenants should focus on negotiating more specific rules for when a landlord may or may not withhold consent. These clauses should revolve around the financial situation and management/operating experience of the prospective transferee,

    Exclusive Uses
    An exclusive use clause restricts the landlord from bringing in business that competes with the tenant. For a restaurant tenant, how much you’ll reasonably be able to restrict the landlord in this way will depend on how national of a brand the tenant’s business is, how big the center is, and the landlord’s reputation. However, it’s very unlikely that you’ll be able to prevent other restaurants from operating in the center. However, a tenant should strongly negotiate for the right to be the only restaurant of their type in the shopping center, and prevent similar restaurants from coming into the center for the duration of the tenant’s lease. Other things to consider include the scope of the landlord’s obligation to protect exclusive use rights, and any termination rights in connection to exclusive uses.

    Sampling
    If your restaurant is located in a mall, or if free samples is a critical component of your business, then it’s important to get rights to sample food in the lease. Tenants who adopt this business model should request the right to offer free samples, and define in the lease the areas where they can offer such samples.

    Relocation
    Landlord’s often will have provisions in the lease giving them the right to relocate you if they wish, and this is often a restaurant’s tenant’s worst nightmare, as we can assume a tenant wants a specific space for good reasons. Your first goal as a tenant should be to remove this clause altogether, but this isn’t always possible. If you cannot convince a landlord to eliminate a provision like this, then you should have the following goals: restrict how often landlord can do this to once during the term; require advance notice; require the landlord to pay for everything relating to the relocation to the fullest extent possible; require that the new site be as similar as possible; and obtain the right to terminate in the event of relocation.

    Percentage Rent Exclusions
    Sometimes a landlord will demand a tenant to pay, in addition to other rent under the lease, “percentage rent.” This is simply a percentage of gross sales or revenue generated at the restaurant. Tenants should try to avoid having to pay percentage rent, but if you’re dealing with a landlord who has a good bit more negotiating leverage, it might be unavoidable. If a tenant has to end up paying percentage rent, try to negotiate the following exclusions:
    • Excise taxes on sales or services where such taxes are paid by the tenant directly to the taxing authority.
    • Any cash or credit refunds from sales that are later returned by the purchaser and accepted by the tenant.
    • Transfers of merchandise between the tenant’s restaurants solely made for the convenient operation of the tenant's business.
    • Any returns to shippers, distributors, or manufacturers.
    • Sales of equipment, fixtures, or other property after they have exhausted their substantial use in the tenant's business, but this does not include any stock sales or transfers.
    • Gift cards before they have been redeemed.
    • Insurance proceeds or other sums/losses received or paid in connection to a settlement or legal claim.
    • Contributions/donations to nonprofit or charitable organizations unless such contributions result in profit to the tenant.
    • The value of any promotional sales.
    • The value of automatic gratuities, tips, service fees and commissions, including any ATM service fees. 

    Common Area Charges
    If a tenant is operating in a shopping center, there are going to be areas designated for common use, and a landlord will almost always charge the tenants to repair and maintain these common areas. In negotiations, a tenant’s goal should be to minimize such charges. A tenant can try to do so by limiting the following expenses:
    • Exclude certain costs from the definition of common area charges.
    • Reduce what is included in the definition of the common areas.
    • Limit the landlord’s ability to exclude certain portions of the shopping center.
    • Implement a cap that prevents a tenant’s share of common area charges from increasing on a year-to-year basis by more than a specific percentage.
      • This might be a fixed percentage.
      • Or, this might be a variable number, based on a consumer price index.
      • Landlords will want to exclude from any cap uncontrollable costs such as taxes, insurance, and utilities.
      • Landlords will also want to apply caps on a cumulative basis, and a tenant should try to avoid this because it allows the landlord to carryover costs from previous years. 

    Personal Guaranty
    Landlords often require tenants to obtain a personal guaranty - someone who will perform the tenant's obligations (mostly its monetary obligations) if the tenant fails to do so. Depending on the bargaining strength of the respective parties, there are a few ways a tenant might be able to limit liability under a personal guaranty.
    Implementing a burn-off clause terminates personal liability of the guarantor if the tenant does not default in a certain amount of time (e.g., the first two years of the lease).
    Implementing a rollover clause that terminates the personal guarantor’s liability after a certain amount of time and only up to a certain amount of rent (e.g., up to two years of rent for the first four years).

    Security Deposit
    While security deposits are often the first month or two of rent, sometimes landlord’s will require large security deposits to feel safe entering into the deal. If a landlord is demanding a tenant to pay a particularly large amount, try to negotiate a provision that requires the landlord to refund the tenant if it does not default on the lease after a certain period of time (e.g., 50% of the security deposit will be refunded after one year of no uncured defaults, with the remaining 50% to be refunded after three years of the same).
  • What Grade of Beef Should a Restaurant Buy?

    When you’re buying food for your restaurant, you need to be thinking about whether that product is a commodity or speciality.  When cooking with specialities, higher grade products are going to have a major impact on the taste of your final dish.  Beef is a prime example of a speciality product, and restaurant owners should strongly consider buying premium beef to enhance the flavor of their red-meat meals.  If you are looking to present high-quality brisket to the customer, spending some extra money on higher-grade beef will go a long way to enhance customer satisfaction. 

    For more on this topic, check out our blog about Why you Should Buy Commodity Pork

  • What Kind of Pork Should a Restaurant Buy?

    When you’re buying food for your restaurant, you need to be thinking about whether that product is a commodity or specialty.  When cooking with commodities, the difference between a cheaper and more expensive quality will be minimal in the taste of the final product.  There is no need to spend money on the highest quality commodities when doing so makes no change to the final product.  Pork is an example of a commodity where moving from mid-to-high grade pork will have little impact on the taste of your final dish.  Restaurant owners should be hunting for the lowest price, mid-grade pork they can find and do not fall into the trap of buying the highest quality pork with expectations it’s going to elevate your dishes. 

    For more on this, check out our blog about Why the Cheese Melt You Buy Doesn’t Matter

  • What Cheese Melt Should you Buy for a Restaurant?

    When you’re buying food for your restaurant, you need to be thinking about whether that product is a commodity or speciality.  When cooking with commodities, the difference between a cheaper and more expensive quality will be minimal in the taste of the final product.  There is no need to spend money on the highest quality commodities when doing so makes no change to the final product.  

    A cheese melt is an example of a commodity, and one melt to the next will have very little impact on your final dish.  Vendors will get cheese melts and package it differently for different prices, but as a restaurant owner, you should be hunting the lowest price, don’t fall for claims that higher quality will yield better results in your food.

    For more on this, check out our blog about Why you Should Buy Commodity Pork

  • How to Open a BBQ Restaurant in Michigan

    The first thing you need to do is negotiate a contract with a landlord, assuming you don’t already own the building. After your space is secure, the next step will be to order the necessary equipment, remembering to plan at least 2-3 months for delivery. As you wait on your equipment, reach out to a qualified architect to provide you with a drawing. These drawings will lay out the particulars for your space, including where to place your equipment, which permits you will need, and how to properly move any electrical or plumbing lines.

    At this point, you’re ready to move into the final phases. Start by sending over your drawings to the Health, Building and Mechanical Departments and await their approval. As you await approval, reach out to contractors and establish a proper time for them to come and make any necessary changes to your space and install your equipment. Remember that the contractors should only do this after approvals are obtained. After all of this, reach out to the Health Department so they can conduct their initial walkthrough. With their sign off, it is time to order food and open up your restaurant. Once opened, reach out one more time to the Health Department for a second walkthrough. If there are no issues, you are in the clear, and it is time to start selling your delicious food to the masses!

  • Why Do Restaurants Fail so Often? There’s a Silent Killer

    You often see stats like, “80% of Restaurants Fail in Their First Three Years”. There are countless clips of investors saying never to invest in a restaurant. So why do they so often fail?

    Sales Tax. It sounds absurd, but not accounting for it properly can quickly become the kill shot in a company that relies on thin margins. In Michigan the Sales Tax is 6%, the average (successful) restaurant has 3-5% profit margins. This means forgetting to account for sales tax can take what looks like a profitable business and quickly put it in a desperate situation.

  • How to Build a Restaurant Kitchen

    The first step to building a kitchen is determining the equipment needed. To do this, take an honest look at your menu items and decide which pieces of equipment are imperative and which tools will hardly ever be used.

    If all it takes to avoid purchasing an expensive piece of equipment is losing one or two menu items, it may be a great idea to cut those menu items. Especially if you want to expand in the future. It isn’t just saving thousands of dollars one time, it’s saving it that money every time you open another restaurant, it’s saving money and hassle every time the equipment breaks, it’s saving time training every new employee.

    Here is a list of the equipment in our kitchens:

    • 6 Burner Range with Oven
    • Single Door Convection Oven
    • Small Fryer
    • Hot Box
    • Sandwich Cooler
    • Low Boy Cooler
    • Dish Room
    • Undercounter Dishmachine
    • Triple Sink
    • Prep Sink

    The next step in building your kitchen is to plan the flow of the kitchen. You want to minimize unnecessary movement. Every extra step employees have to take leads to longer ticket times, and more chances of bumping, spilling, and injury.

    This step is demonstrated brilliantly by the movie The Founder.

  • How to Pick a Restaurant Location?

    When selecting new locations there are a few key aspects to looks for.

    • Size – Maybe the most crucial step, learn more here.
    • Rent – We like to look at the cost per square foot.
    • Equipment – What is included in the building? What equipment do you need to purchase? MAIN EQUIPMENT TO LOOK FOR – Hood System and Refrigeration.
    • Foot Traffic – How many people are walking by the restaurant (A good practice is to sit outside the property in question and count how many people walk by at lunch and dinner. Try this on weekdays and weekends).
    • Car Traffic – How many people are driving by the restaurant. Use the same tip mentioned above for foot traffic.
    • Demographics – Be sure to check out the most recent census. Does this town look like it’s growing or shrinking? Do your menu items fit in the average person’s price point?
    • Cannibalizing – How far away are you from your other restaurants? You want to make sure that you’re not pulling sales away from other locations.

    After you pick a location, it’s time to plan your kitchen. We discuss that extensively!