Economists have begun arguing over whether any recession related to the coronavirus shock will be a V-shaped, quick downturn or a more-prolonged U-shaped despond. All Tom Walter knows is that a recession could produce an O-shaped hole in the revenues of his Chicago-based Tasty Catering company.
So over recent weeks—beginning long before the extent of the coronavirus became apparent—Founder and CEO Walter has been exploring the topic, at least with his management team.
“We’re doing refreshers in leadership meetings about steps to take during a recession,” Walter told Chief Executive. “Who’s going to be doing the buying [of our services]? If investment banking is down, will something else be up? The auditing industry? Which sectors will be busier because of the recession?
“What needs and benefits will be important to our customers at this time? What needs must be satisfied now versus later? What incentives will motivate our customers to buy now instead of later? For instance, maybe more will be buying a lunch for their employees to promote unity during a tough time, because that’s a relatively inexpensive gesture. If you want a positive attitude in the workplace, buy your employees a lunch.”
Appealing to the approach employers take is crucial to Tasty because the company depends on corporate events for much of the $10 million in annual revenues that support its 100 full-time and 150 seasonal employees. And some early and decisive actions aimed at its B2B customers helped preserve Tasty more than a decade ago, when the financial-system shocks that began in 2008 plunged the nation into recession.
“Our CFO told me in 2007 that a bad recession was coming, and he was all of 27 years old at the time,” Walter recalled. “I told him that in the past 38 years I’d owned the company, I’d gone through five recessions, and there were things you could take advantage of then. But he said, ‘You’ve never seen anything like’ what was coming. And he was right.”
Fortunately, Walter heeded the warning of his CFO so that when the Lehman Brothers collapse occurred in September, 2008, kicking off the global economic contraction in earnest, Tasty already had been preparing. The wisdom of such early preparations became even more apparent later that fall, when President Obama “said corporations shouldn’t have holiday parties because that would be wasting money,” Walter said. “We’d had an incredible amount of business scheduled but it was all canceled because of the presidential idea that this would save money. That ruined the hospitality industry, the fourth quarter took a dive.”
Yet Walter already had been taking steps “that saved our bacon and made us stronger. We were very proactive about it.”
For one thing, he said, Tasty’s brain trust trimmed the company’s spending precipitously. “We lowered our debt and gathered cash, rented equipment as we needed it instead of buying it,” Walter said.
Second, Walter ramped up communication with all of the company’s constituencies. “We called a meeting of representatives from eight different professional fields to tell us what they thought,” he said. “We communicated with vendors about price incentives, term incentives and extending debt.”
And Walter gathered with Tasty’s employee council to get ideas. His initial thought was that salaried employees should take a 10-percent pay cut and that certain hourly workers would be terminated based on their productivity. But a handful of employees changed Walter’s mind with an appeal to Tasty’s “core values” and the fact that the company had always treated employees “with respect” and like family members. Employees had returned the favor with what Walter said was a 97-percent “engagement” rate.
So they jointly came up with another approach: Employees would cut their hours to 25 a week instead of 40 for the time being so that no worthy employees would have to lose jobs. Tasty would extend benevolence loans to particularly needy employees, “but not for vices,” Walter said. “We were all going to be as diligent as we could and increase productivity.” And within a few days, when some employees had demonstrated that they weren’t going to pitch in, Walter had to fire a couple of them.
But what Walter did wasn’t all about retrenchment to survive the Great Recession—far from it. Tasty Catering also executed a number of proactive and highly optimistic steps to take advantage of the downturn and to emerge better and bigger on the other side of it.
For one thing, Tasty increased its spending on marketing. His young marketing director had urged Walter, “If we’re not visible, we won’t be viable. So we put up ads everywhere. If you advertise, advertise, advertise, the competition just can’t bear the pressure.
“And sure enough, a couple of competitors called us and said, ‘You must be doing well. Do you want to buy us?’ So we bought them at much-reduced prices and came out of the recession much stronger for it,” Walter said.
Tasty also diversified its portfolio by ramping up its wedding business. “We became powerful in the wedding field,” Walter said, “and we are to this day.”
And Tasty’s executives spent a lot of time reaching out to customers and potential customers. “Most owners are thinking about cutting back on expenses during recessions, but we decided to spend 80 percent of our executive time on marketing, because marketing is a marathon, not a sprint,” Walter said. “As the economy rebuilt, we wanted to be ahead of growth.”
This time around, Walter said, Tasty already has been emphasizing relationship marketing —“effective marketing is touching customers and personal relationships”—and understanding the value that customers place on the company through metrics such as net promoter scores.
In fact, Walter kept a log during the Great Recession, amounting to about eight pages, of what the company did—comprising a great starting point for what Tasty will do if a recession develops now. “I’ve got it,” he said, “and I’m using it.”