As Restaurant Chains Close Locations, Examining Profit Drivers

fast food favorites sbarro, taco bell, burger king among those shuttering locations

By Jonny Lupsha, Wondrium Staff Writer

Many top chain restaurants are closing scores of locations across the country, Money Pop reported. Reducing open branches in 2020 continues a 12-year trend that began with the 2008 financial crisis. It’s time to brush up on what makes a profit.

Shutdown restaurant that used to be an Olive Garden chain restaurant, closed due to the recession
In 2020, several chain restaurants will continue to close under-performing restaurant locations nationwide. Photo by CJM Grafx / Shutterstock

According to the Money Pop article, the number of companies closing down under-performing restaurant locations through next year is staggering. Familiar franchises like T.G.I.Friday’s, Taco Bell, Burger King, Sbarro, and Applebee’s will be shuttering a number of locations—investors have even recommended Red Robin close down entirely. For many companies, turning a comfortable profit is a goal that has gone from a one-time given to an elusive feat. Here are some of the factors corporations consider in the struggling economy.

Seeing the Bigger Picture with SERVQUAL

Listening to customer feedback is an important way for companies to determine how best to drive business operations, and one universal tool has arisen to help companies do that.

“One of the most significant developments in modern service operations was the establishment of the service quality scale, or SERVQUAL for short,” said Dr. Thomas Goldsby, the Harry T. Mangurian Jr. Foundation Professor of Business and Professor of Logistics at The Ohio State University’s Fisher College of Business. “SERVQUAL is a measurement system dedicated to assessing customer satisfaction with services.”

How does it work? “SERVQUAL’s basic premise for discerning customer satisfaction is simple: It compares the customer’s perception of the service rendering against the expectations the customer had going into the service arrangement,” Dr. Goldsby said. “If the perceived service exceeds expectations, then the customer is satisfied. Should expectations not be met, the customer is said to be dissatisfied.”

Dr. Goldsby said that SERVQUAL measures customer service based on five different factors: responsiveness, assurance, tangibles, empathy, and reliability (RATER). Responsiveness refers to service promptness, while assurance denotes how at ease a customer is that the service will be performed to their expectations. Tangibles deal with physical and ambient experiences the customer experiences during the service, such as the facility itself. Empathy means how much the customer feels the server cares about their needs or situation. Finally, reliability gauges the ability of the server to provide an effective and accurate service.

The SERVQUAL/RATER system lets corporations know how and where they need to adjust their promise and delivery of the services they provide.

Heijunka and the Mid-Week Slump

Another dilemma that retailers and restaurants often face is the tremendous uptick of business on certain days or hours. For example, it’s often far more difficult to get a table at a restaurant on a Friday or Saturday night than on a Tuesday lunch hour. Why is this so harmful? To provide an answer, let’s look at a brick-and-mortar retailer.

“The thing about a physical shop is that it doesn’t expand or contract with the volume of business; it’s a fixed size,” Dr. Goldsby said. “You’re paying rent on the full space, regardless of the number of customers, and paying staff to sit idle can get very expensive.”

To stagger out business throughout the week, he said, businesses often drive sales, coupons, and other incentives to lessen the weight of the load on weekends. If you’ve ever been to a restaurant, you’re likely familiar with weekday specials like Taco Tuesdays, half-priced burgers on Thursdays, and so on.

“Doing the same would allow you to serve more customers over the course of the week, and reduce the frustration and disappointment faced by customers who are left waiting or turned away during the peak times,” Dr. Goldsby said. This idea of the “smoothing out of business” is a Japanese concept known as heijunka.

Any number of factors is affecting the service industry at large in the United States, such as increasing recession concerns leading to penny-pinching on the customer’s end. However, by paying close attention to both quality and demand of service, many corporations can soften the blow while sailing the choppy waters.

Dr. Thomas J. Goldsby contributed to this article. Dr. Goldsby is the Harry T. Mangurian Jr. Foundation Professor of Business and Professor of Logistics at The Ohio State University’s Fisher College of Business. He holds an M.B.A. from the University of Kentucky and a Ph.D. in Marketing and Logistics from Michigan State University.