— By John Moody —
Insights for boosting profit margin with technology.
According to the USDA, the level of food price inflation for restaurant food purchases rose 7.4% from May 2021 to May 2022. While some operators are forced to increase menu prices to accommodate this remarkable spike in food costs, others are trying desperately to find other ways to remain profitable without passing the additional burden on to their customers.
There are three primary controls that restaurant operators need to pay careful attention to when trying to boost profitability. One can increase sales, lower costs or improve margins. Historically, successful operators learn how to carefully balance the three, finding what works best for their unique business situation.
Luckily, with the rapid expansion of restaurant technology initiated by the pandemic, operators no longer need to rely on their gut instincts while learning to juggle sales, costs and margins. Below are examples of how using smart technologies can boost a restaurant’s profitability.
Create a More Profitable Menu
Restaurant menu engineering leverages data regarding the profitability versus popularity of individual restaurant menu items. Using restaurant operations software to automate data collection for the menu engineering process makes trends easy to visualize. Automating the process also allows a business to see detailed sales analysis, and even track it through to server performance. Menu engineering is most effective when the restaurant has an accurate, up-to-date picture of each menu item’s contribution margin and sales record.
Invest in Customer-Facing Technologies
Today’s restaurant customers are technologically savvy, connected and have lofty expectations. They want seamless and engaging technology experiences. Consequently, savvy restaurant operators are adopting customer-facing technology such as kiosks, mobile-ordering apps, SMS marketing and loyalty software to meet those demands. Restaurant brands who understand their customers and capitalize on digital/technology investments can drive increased dining frequency, check size, customer conversion and loyalty.
Increase Customer Retention with a Loyalty Program
A loyalty program can be valuable to create a deeper connection with customers. Such a program can reward regular customers through points or discounts, increasing sales volume and visits to the restaurant. A customer loyalty program can also help operators keep track and understand essential data about customers, helping to drive menu changes and informed business adjustments.
Some low-margin recipes can become more profitable by using similar but less expensive ingredients. These items can be determined by looking at a PMix. For example, if a restaurant uses expensive Parmesan Reggiano cheese for pasta, they can consider switching to Pecorino, which is half the price. While it may be slightly saltier, kitchens can adjust the level of salt in the recipe so that the flavor profile is minimally impacted.
Studying historic usage provides the visibility needed to order only what will be used in between deliveries. A restaurant owner receiving a quantity-based discount should talk to a vendor about storing the product in their space and only delivering it as needed. To reduce the amount of spoilage in a restaurant, use the first-in/first-out method. It may take a little longer to unload shipments but moving the older stock to the front of the shelves and putting the new stock behind it will ensure that product is not wasted. Also, be sure to mandate date labeling on all perishable products to help with storage and rotation.
Eliminate Specialty Items
A product mix report will help to determine which items have the highest sales velocity and the highest margin. One can harness that knowledge to create new menu items by incorporating more of these items. Restaurant operators can save by finding ingredients that are used in only a few recipes and reworking those recipes to taste great without that specific item or by using a replacement ingredient. If a restaurant purchases saffron but only uses it in one dish on the menu, they should find a way to substitute it for another herb that is used in numerous other menu items.
Employee vs. guest count shows the number of staff members that are working compared to the customers served during a specific period. Combined with sales forecasting, this report can be essential for store-level scheduling. Examining the labor peaks of previous weeks enables managers to create more precise schedules.
A central labor dashboard can empower scheduling managers to make schedules faster with templates and centralized shift request information from employees. Restaurant owners and operators can add custom labor models and labor metric goals by location. A labor tool can also provide solutions like overtime monitoring or actual-vs.-scheduled labor cost restaurant reporting.
Taking a good look at a comp analysis report can help in understanding where a restaurant is losing money. For example, if there are too many kitchen comps for long wait times, a restaurant needs to focus on forecasting those shifts more accurately to ensure they are staffed correctly. If one finds that there is an issue with service comps, it may be time to revisit FOH staffing levels. While adding additional staff may seem counterproductive to improving margins, losing customers and money to comps could hurt a business more overall.
Tying it All Together
Utilizing restaurant technologies is the best way to get a detailed look at operations to know which area needs attention. Finding the right balance of how (and when) to increase sales, lower costs or improve margins helps to operate a more efficient and profitable business.
— John Moody is the chief strategist and co-founder of Restaurant365, an enterprise accounting, back-office and reporting solution specific to the restaurant industry. Visit www.Restaurant365.com.