During the COVID-19 pandemic, running smooth restaurant operations has become harder than ever
By Travis Traini
More than ever, it is important that restaurateurs both maximize their revenues and manage the middle of the income statement. Those that are able to successfully navigate the challenges of the COVID-19 pandemic will emerge with more profitable restaurant operations as they will have controlled all key expenses.
fsSTRATEGY has completed operations reviews for numerous restaurants. Time and time again, the same operating mistakes are seen that affect the profitability of businesses. Here, the focus is on areas where your restaurant may be leaving money on the table.
These areas include:
- Production planning
- Labour management
- Inventory tracking
- Physical controls
- Actual and theoretical food and beverage cost controls
- Kitchen/production controls
- Financial management.
Overall, effective control systems are equally as important to your success as great food and customer service.
Forecasting, production planning, and labour management
Forecasting should be a formalized process wherein current and historical sales are used to estimate upcoming demand. These forecasts should be tracked against actual results and continually updated. Forecasts are used for ordering, preparing prep lists, par sheets (a list with minimum order and prep amounts), and scheduling.
Slow-moving menu items should be reviewed on a continual basis to update production and order sheets. Production and sales should be tracked to identify instances when too little or too much was prepared, and the reason why should be recorded. Tracking will help you further improve production planning and this should have a positive impact on food costs and customer satisfaction.
Labour is one of the most significant expenses for restaurant operations. Labour scheduling and efficiency should be a point of management focus. Schedules should not be routine and the same each week, month over month.
An underutilized tool in labour management is a labour matrix. A labour matrix is used to schedule the ideal number of staff (based on the number of forecasted guests per hour) in each station that is required to meet predetermined service standards. A labour matrix may be compared to forecasted covers and historical hourly covers to adjust scheduling as demand shifts.
Purchasing and receiving
Purchasing decisions should be linked to forecasting and continually updated based on actual sales results. If purchasing is not conducted by an owner, ensure a separation of duties so a manager or staff member is not able to place orders, receive orders, pay invoices, and count inventory. That would essentially enable them to make additional purchases for themselves or others without anyone becoming aware.
Supplier and, especially, broadline distributor contracts should be tendered annually to determine who is offering the best prices (or discounts and rebates) for the products you order. Not doing so may result in a distributor getting comfortable with your business and not providing competitive prices and service.
When receiving, all items should be counted and inspected. Items purchased by weight should be weighed — many restaurants either do not have a scale or do not consistently take the time to check items sold by weight). Errors in delivery almost always benefit the distributor at the expense of the restaurant.
“Blind” receiving is also a good practice to check for accuracy. Here, counts are done without the invoice or receiving counts/weights so they can be compared to the invoice after. This helps identify errors rather than quickly check-marking a list. If any items are incorrect, damaged, below standards, not ordered, not delivered, etc., the driver should be informed and the supplier should be contacted immediately. All expected credit notes should be tracked and checked to ensure they have been applied to the account. Similarly, any expected product replacements should be tracked until the replacement is received. All invoices should be checked against the ordered quantity and price list for accuracy.
Counting inventory is often overlooked or left undone for long periods of time in some restaurant operations. Inventory is a simple but valuable tool in tracking food costs and is the first step in identifying unnecessary shrinkage. Inventory should be fully counted at least monthly and extended with current costs from the most recent invoices to determine the inventory cost/value. Inventory costing is used to calculate the actual food cost/cost of sales monthly. The formula for the actual cost of sales is opening inventory value, plus purchases, less closing inventory value. Food cost and alcoholic beverage costs should be calculated separately.
Waste and spill sheets are another commonly missed or inconsistently used tool in restaurant controls. All food items must be recorded in one way or another (through sales, promotions, waste/spillage, etc.) so you are able to accurately track your food costs and identify where variances may be occurring. Ensure you are tracking waste in the bar and kitchen, including spoilage, spills and dropped items, menu items remade or sent back, etc. Details should include the item, quantity, date (all details to help cost tracking the waste) and a description of what occurred and who was involved. This helps identify patterns in people or processes, where training may need to be reinforced. Waste and spill sheets should be costed each period (along with monthly inventory) and assessed in terms of percentage impact on the total cost of sales to help when reviewing your food costs.
Employee meals need to be entered into the POS. No food should be made in the kitchen without being entered into the POS or recorded on a waste sheet if food is sent back to be remade. Restaurants that prepare a group staff or “family” meal should list ingredients and quantities used on a tracking sheet or the waste sheet so all costs may be reconciled and analyzed by management.
Many restauranteurs leave at least some high-value inventory and, in some cases, cash unsecured including: unlocked storage areas (or storing in open, accessible areas), poor key and combination control, and a lack of protocols to impede theft. A lack of physical controls may undermine careful inventory tracking.
Back doors should be kept locked and not be used as staff entrances and exits. Staff should generally not be allowed to bring personal bags or belongings into production, storage, or front-of-house areas. Personal bags and belongings should be secured in lockers or a designated area only to be accessed when not on shift or when on a break. This will reduce the possibility of items being easily removed from the premises either in personal bags or quickly out the back door.
Keys and combination codes, if improperly managed, may defeat their entire purpose. Keys should be controlled only by owners/managers or those who are responsible for ensuring the accuracy of storage areas. If a key is hanging (or even hidden) in the kitchen, this defeats the purpose of having a lock at all. Alcohol storage should be secured with a lock and requisitioned by the bartender and delivered by the manager or an owner. Draft tap locks will also increase control over alcohol. Refrigerators and freezers should be locked when the kitchen is closed, especially those with high-value items.
Actual vs. theoretical food costs
Cost of sales is the other most significant expense for restaurant operations and has the greatest potential for unnecessary waste. Actual food and beverage costs (calculated when taking physical inventory) should be compared to theoretical food and beverage costs (calculating what your food or beverage cost should be based on itemized sales, waste sheets, and costed recipes).
Theoretical cost of sales allows managers to know what their cost of sales should have been based on sales, rather than relying solely on their budgeted or historical cost of sales percentages. This is one of the most valuable management tools to control food and beverage costs but, unfortunately, is not practiced by a significant proportion of restaurants. Before a theoretical cost of sales can be calculated, all recipes must be fully costed and up to date.
Costing recipes is time-consuming to set up but easy to maintain by updating current ingredient costs. When costing a recipe, you must determine ingredients’ yields (the percentage of usable product or edible portion from the purchased weight) to ensure accuracy when costing ingredients sold by weight. Costed recipes (with a total cost per portion) should then be multiplied by units sold for each menu item during the period and totalled for all menu items to determine the total theoretical cost of sales.
The theoretical cost of sales should be compared to the actual cost of sales monthly. The actual cost of sales should be marginally greater, generally by between one to 1.5 points, than the theoretical cost of sales, reflecting normal waste. This range may vary, depending on the types of ingredients and menu items in your restaurant. The variance should be compared to costed waste and spill sheets. These variances should be tracked and anything greater than the acceptable range will indicate a potential control issue.
Having properly costed recipes will not help if portion controls and recipe accuracy is not being practiced in the kitchen. Too often, portion cups and weights are abandoned by staff who feel they are proficient enough to do without. This is an issue from a new employee training perspective, from an intended product quality perspective, and from a cost perspective. The proper utensils for portioning should be provided (ladles, cups, spoons, etc.) and training and reinforcement should be a constant point of focus for managers. Scales should be used for pre-prepared and portioned items (by weight) and spot checks can be done to ensure accuracy of portions.
All food leaving the kitchen (including staff meals) should either be entered into the POS and have a chit/ticket, or be recorded on the waste sheet (if an order sent back from a guest and is remade). This is essential to ensure accuracy for your theoretical food cost but, again, is often not done consistently. Before leaving the kitchen, orders should be checked for accuracy against the chit by an expediter or the last cook and server to handle the order before delivering to the customer.
On the bar, usage of bottles should be compared to itemized sales each shift. Draft counters should be used to reconcile sales to usage. Free pouring of alcohol should be discouraged.
Budgets and financial management
As mentioned, the two greatest costs in restaurant operations are the cost of sales and labour costs. To be profitable, a restaurant’s combined food and labour costs should not exceed 60 to 65 per cent of revenue. These targets can be used, along with a labour matrix, when scheduling (target a 30 per cent labour cost) and for recipe costing (target a 30 per cent food cost). Occupancy expenses (including rent and utilities) should not exceed 16 per cent of sales if a restaurant is to be profitable.
Call to action
To give back to the restaurant community, fsSTRATEGY is offering a limited number of complimentary restaurant Operations Review consultations. More details on these consultations can be found HERE.
To book your complimentary operations review consultation, please contact Travis Traini at firstname.lastname@example.org.
Travis Traini is a Principal at fsSTRATEGY, a consulting firm specializing in strategic advisory services for the hospitality industry, with an emphasis on food and beverage.