What's the risk of closing your restaurant early?

Right now, it’s difficult to hire, operating costs are high, and foot traffic is down. But shortening open hours probably won’t help.

January 11, 2024
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What's the risk of closing your restaurant early?
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What's the risk of closing your restaurant early?

For much of 2023, the unemployment rate was historically low — as of December 2023, it sat at 3.7%. That’s a great thing, right? Not necessarily. 

It’s been more challenging than ever for business owners to hire new employees, and that’s especially true in the restaurant industry. In light of that challenge, many restaurateurs are reducing their open hours. 

In some cases, restaurants simply don’t have the staff to make it through normal shifts, and cutting back on open hours is truly necessary. But other times, business owners reduce hours just to cut costs, a defensive strategy that forfeits critical revenue in the process. New data shows that when restaurants actually invest to bring in additional customers during slower hours, they are better off than if they close their doors.

Read on for more.

Sorry, we’re closed… more often than you think  

Using transaction data from over 2,000 restaurant partners, Upside uncovered startling changes in how long restaurants stay open over the past few years. 

Restaurant visits peak in the middle of summer; however, in July 2023, the average restaurant was open for 5.7% fewer hours compared to July 2021. Broken down, that’s equal to 35 fewer minutes per day, or about four fewer hours per week. This reflects larger trends reported elsewhere, like this Datassential report that states restaurants nationwide have cut their hours by 7.5% since the beginning of the pandemic.

And remember when we said that it gets harder to hire when unemployment is low? The two graphs below show that the month-over-month decrease in hours open corresponds to what economists call a “tightening labor market” of lower unemployment.

The macro challenges facing restaurateurs aren’t limited to low unemployment and hiring woes. Costs for restaurants and bars have increased by 30.3% over the past four years. 

Outside of reducing open hours, we see many restaurant operators passing costs onto customers by raising menu prices. That strategy has been backfiring on restaurant owners because there’s a limit on what consumers will bear, and restaurants have likely already reached it. In light of these price increases, foot traffic has been decreasing at full-service restaurants. 

So what’s a restaurant owner to do?

Offset rising costs by dayparting 

Using 2023 values, Upside estimates that a restaurant open just one fewer hour a week will lose 50.4 transactions and $1,922 in revenue over the course of a month. 

So instead of closing your doors to cut costs, we recommend dayparting. 

Dayparting is the practice of dividing the business day (or week, or both) into several parts, and making the best possible use of those available resources during specific times.  If you know that your restaurant is least busy between 2:00 and 4:00 p.m., for example, you can tweak the menu or formulate incentives to bring more customers in during the afternoon.   

This is important because restaurants that aren’t full 100% of the time have spare resources: tables that sit open, servers that stand idle, burners or ovens that aren’t actively cooking food. 

How Upside fits in

Upside uses dayparting to drive more transactions to your business when you need it — not just at peak times when your kitchen is already slammed. That makes the best use of scarce labor resources. 

The average restaurant operator on Upside wins an additional 30 transactions per month, nearly making up for the 50.4 transactions per month drop from one fewer open hour that we described earlier. Over half of those transactions come from new customers, and the rest come from existing customers that begin transacting more frequently. That means Upside drives customer acquisition and retention.

Crucially, Upside delivers these transactions when you need them most. Dayparting dynamically adjusts Upside’s personalized promotions to incentivize customers to visit during off-peak hours. Consider the following case study, which illustrates how dayparting with Upside can drive new revenue during slower hours. 

An Upside success story

To measure the benefits of dayparting, we conducted a test with a pizzeria franchise on the Upside platform. The restaurant brand has 80+ locations, and like most pizza shops around the country, it experiences its highest demand on weekends. We wanted to see if boosting Upside offers on weekdays, during which demand for pizza is relatively lower, would bring more transactions to their locations.  

Prior to the test, the pizzeria earned 61% of its Upside transactions on weekends and just under 40% of its Upside transactions on weekdays. By boosting cash back offers for customers from Monday through Thursday, Upside increased its share of weekday transactions at the pizzeria to 44%, smoothing out customer demand and bringing more customers into the business’ locations during relatively slower hours. 

Going on the offensive

Cutting back open hours is a move meant to help a restaurant merely survive. But as the industry finds its groove in this digital-first “new normal,” restaurants should instead be looking for ways to thrive. 

When shortening open hours is truly necessary due to staffing shortages, partnering with Upside can serve as a way to earn back additional revenue that would have otherwise been lost during the extra time closed. And in other instances, where restaurant owners play defense by reducing hours to limit costs, Upside can increase customer visits and negate the need to close early at all. 

Looking for ways to offset higher costs with more profit? 

Get in touch with the Upside team.

What's the risk of closing your restaurant early?

Dr. Thomas Weinandy

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Dr. Weinandy is a Research Economist at Upside, providing valuable insights into consumer spending behavior and macroeconomic trends for the fuel, grocery, and restaurant industries. With a Ph.D. in Applied Economics, his academic research is in digital economics and brick-and-mortar retail. He is currently writing a book on leveraging AI for business intelligence.

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