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Finance
Top 6 Fallacies of Restaurant Profitability
 1. The most important part of pricing a menu is determining each items Food Cost.
Understanding the cost of an item is very important, more important however is knowing the sales mix popularity of an item and its contribution to profit. To often Restaurateurs price their menu in relation to their competitors rather than to their environment. Try to design your menu so that you do not compete directly with your competitors, and value add to your menu items.
2. Keeping Food Cost percentages low means larger profit margins.
The fact of the matter is that you bank Dollars not percentages, Food Cost %’s are there to benchmark results, the most important aspect of any business is to build sales. Turnover or the potential for turnover is one of the most important aspects of determining how a business can grow. Look at the food Cost of some of the large Fast Food Chains, and ask would you like a Food cost of 30% on sales of $10 or a Food Cost of 50% on sales of $1Mill.
3. A Managers job is on the floor with the customers not in the kitchen with the Staff.
Attention to the customers is a primary responsibility of management. However the old adage “You only get what you inspect not what you expect”, has the greatest economy of scale in managing a restaurant.
The fastest way to manage both front of house and back of house is to spend some time over the rubbish Bin. We may trust the chef to provide a great meal on a plate at the right price, but the evidence at the rubbish bin is the greatest test of evidence. If the guest indicates that they love the food but we check on table 7’s empty plates and there is substantial food left on them, then the customer is not being entirely truthful, or we are over portioning, either way we have a potential problem. The Rubbish bin is also another “moment of truth” to identify food quality in preparation, identify the trim and waste. The Rubbish Bin is a common training ground for all staff.
4. Training is simply a cost that we cannot afford with our turnover.
Now lets think about this, if we talk to any sales and marketing team member they will tell you that in a restaurant we are selling an experience not just a meal. The experience is built on ambience, interaction with the staff, the quality and quantity of the meal, personal recognition in meeting and fare welling guests, all these make a restaurant a destination to experience a meal. If we don’t train our staff then we run the risk of minimizing this experience or even eliminating it altogether. Immediately we think that we have to take time out to spend with new staff to bring them up to speed, they are not productive, its down time for two staff not one.
With today’s technology you can have a complete training package on line. Yes it does take time to set up and organize however once in place enables you to complete a continuous training program available to all.
Have a look at this website to see what I mean;
http://www.techsmith.com/default.asp
5. Profit and Loss Statements should be prepared and reviewed Monthly
A Profit and loss Statement is a management tool used to analyze business over a period of time. It seems curious to me why a manager would only require a tool once a month. The P&L in essence benchmarks our results against our budget and industry averages. In the food and beverage industry we are affected every trading period by the news, Sporting Fixtures, the weather, and the calendar. The dynamics of this situation means that we need to track results on a weekly or even daily basis. P&L’s should be constructed on a 28 day cycle, as the busiest days are normally Friday and Saturday we need to capture the effect of these two days on a regular basis. Normally the pay period should also parallel the trading cycle. Can this be done on a daily basis? Well yes it can, even if we were to capture the major costs of Food beverage and Labour.
See Source Restaurant Management Program RMS ©
6. Buying larger quantities to get volume discounts saves money
Food Cost, Beverage Cost, Cost of goods sold, it doesn’t matter what you call it, what you are buying in to sell, is your cost of sales. If you elect to put it on a shelf for a month or two then it is money on the shelf this is stock that you have bought in to store.
We often talk about labour productivity and we measure this against sales per man hour. Stock of Food and Beverages can be measured in a similar manner by stock turn over, but because we have so many items many operators don’t bother measuring this productivity level.
Turnover = Cost of goods Sold divided by the Av Stock (holding.)
Av Stock = Opening stock + Closing stock divided by 2. The cost of Stock on the shelf can be compared to the savings received by the discount. Stock should be able to be turned over at least once a week.
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