The Upside In a Downturn

Everyday, the economic news both domestically and abroad continues to be gloomy. To say that we have moved into uncharted economic territory, is an understatement. Central banks and governments getting directly involved in propping up financial institutions with ridiculously large amounts of cash injections to keep the credit market afloat. Concerted and co-operative interest rate cuts on a global scale have been unprecedented. Everyone is rightly concerned about the future of their own household and business finances, and how the daily market changes are going to affect them.

In the hospitality industry, small and large businesses alike will revisit and rethink capital expenditures, carefully scrutinize payroll costs and put on hold opportunities to expand into new markets. Instead, the focus will be on cost cutting initiatives that will positively impact their bottom line. These initiatives will range from passing on added costs to consumers, to reducing advertising and branding expenditures, to perhaps cutting corners on value added products. Employers will create employee focus groups designed wholly to save money in all areas of the business.

While this type of cost cutting approach is well intentioned and to be expected, it is a path fraught with peril, and should be the last step a company takes in times of economic hardship. Instead of focusing on cost savings, businesses should instead be focusing on revenue enhancement. The reasoning behind this is twofold.

First, any changes you make to your product in order to save money, from how you package it, to how you service it or how you market it, will be noticed by your consumers. If it is a significant change, your business runs the risk of being viewed as inconsistent or erratic. Further, questions may come into play regarding the quality of your product. The thoughts of "what did else did they do to cut corners?" - will creep into the consciousness of your customers. These questions may continue to persist and haunt a company or franchise, long after domestic econonmic conditions have improved.

The second reason to focus on revenue enhancement, is to take advantage of your competitors that are turtling in tough economic times. It is much easier for businesses to hunker down and wait for the storm to pass, than it is to get out and get aggressive. While your competitors focus their attention and resources to save money internally, you can eat their proverbial lunch externally. By allocating greater resources to do everything from investigating new product markets, to stealing the competition's customers while they hide in their shell, you will have successfully positioned your company for far greater prosperity when financial conditions improve. There are many ways to do this without a great deal of added expense - you just have to do the work!

Take for example, the Toronto Travelodge Airport hotel. During the SARS crisis, they were the only Toronto property to actually increase occupancy during a time that thousands of area businesses were devastated. Their approach was simple - we can either fold our tents and slash services, or we can get extremely aggressive to bring business in. Another great example is Windsor's Just Jeff's Gourmet Express - a Home Meal Replacement company whose concept was recently chosen by CBC's Dragon's Den for filming for Season 3. Just Jeff's annual revenues have increased five fold in five years, in a region that has the highest unemployment rate in the province, along with drastically reduced business in both the tourism and auto sectors. Just Jeff's identified a unique product niche that addressed consumer's needs to eat well, but without the work!

What can your business do to take advantage of tough times in the market? Sit down with your employees and put everything on the table. Try to pinpoint cost effective initiatives that have a relatively high revenue upside. Identify consumer needs and explore ways to modify your business to take advantage of it. Do you look for ways to save money at the same time? Of course you do, but not at the expense of your brand, and not at the expense of losing market share to your competitors. If you focus on finding solutions to your guests' needs, you will be able to take advantage of a better economic climate when that time eventually comes around.