By David Hopkins

While the restaurant industry has always been challenging, it is particularly difficult for restaurants to make money in today’s economic climate. Food costs are up, tariffs are making supply chains more complicated, and consumer spending is down. That being said, there are three main things that restaurant owners can do to maximize profits in today’s economy.

The guest experience

One of the most important elements of restaurant success is guest experience. A recent survey found that 64 per cent of people who rated their recent restaurant experience a seven or eight out of 10 would return to that spot, compared to 93 per cent who would only return to a restaurant where they rate their experience a nine or 10. If your guests have a great experience, they are more likely to come back and refer your restaurant to their friends, all of which drives revenue.

Revenue is the most critical thing in a restaurant operation. Once you’re up and running and covering operational costs, between 40 and 50 per cent of any additional incremental revenue goes directly to the bottom line, specifically incremental guest traffic revenue. The next thing to understand is the value proposition, which is the difference between what you get and what you pay. At a restaurant, the value proposition is the experience you had vs. how much it cost you. Restaurateurs often decrease prices to improve the value proposition (with happy hours, promotions, and more), but that’s not the only way.

Instead, improve the guest experience to boost the value proposition, so you can continue driving revenue. Providing an excellent guest experience also allows you to raise prices more easily. How do you do this? Adopt the mindset that “pretty good” or “not bad” isn’t good enough. Develop an organizational culture of exceptional guest experience, with a system of shared values which governs how people behave in organizations. These values have a strong influence on people and dictate how they dress, act, and perform their jobs. This mindset will ensure that your team will always be thinking of what can be done to elevate guest experience.

Menu engineering

Menu engineering is critical to restaurant profitability, yet most operators aren’t doing it – only about 10 per cent of restaurants have properly engineered their menu. Menu engineering is a strategic review of your menu that identifies popular and profitable items to make the most of your offerings and capitalize on incremental revenues. Proper menu engineering allows operators to maximize menu profits, improve the guest experience, and streamline inventory. In the current climate, with restaurants facing labour shortages and inflation – just to name a few challenges – menu engineering should become a common practice. If you’re not focusing on menu engineering, you’re leaving money on the table.

Menu engineering is sometimes conflated with menu development in the industry. While the two share a lot of common ground, there are key differences between them. Menu development involves building and writing recipes that will be successful in your concept and appeal to guests, then naming them, and creating physical or digital copies that align with your brand.

Menu engineering is the process of determining the profitability of each item and pricing accordingly to optimize your bottom line. This is often achieved by using margin menu pricing, starting by costing the whole menu, then plotting dishes on a Quantity vs Margin (QuaM) graph. A QuaM graph visually depicts a menu item’s popularity relative to its profitability over time. This helps operators to understand how each menu item contributes to the restaurant’s profit.

Completing this exercise allows restaurants to expand menu profit, improve guest experience, and streamline inventory. Experience has shown that, generally, a menu that is engineered for profit maximization using these techniques will add three to four per cent of sales to the bottom line. For an operation with $2 million in sales, that equals up to $80,000 per year of additional profit.

Fiscal responsibility

Knowing where you’re at financially, and where you’re going, with checks and balances along the way to ensure your operation is profitable, is critical, as 70 per cent of restaurant expenses are variable. A lot of this comes down to product cost control and labour cost control.

In terms of product control, restaurant owners must accept the fact that staff steal and over-portion. 75 per cent of employees have confessed to stealing from their employer, according to the U.S. Chamber of Commerce. Most of the time, they see it as “scamming,” or just “taking a bit extra” instead of stealing, but it can have a significant impact on bottom-line profitability. Over-portioning also often comes from a good place – being generous – but is critical to get under control.

To prevent these issues, work on fostering an environment of respect and communication in your restaurant, which will make your team feel less compelled to steal. Installing cameras and being present on the floor as much as possible will also work to rectify the issue. Providing your staff with scales, pre-portioning tools, and ongoing training are great strategies to curb over-portioning.

Tightening up your product control will go a long way to improving fiscal responsibility and increasing profits. Where labour is concerned, it may be tempting to cut labour to save money and increase margins, but this can lead to negative guest experiences and decreased sales. Instead, improve labour management with sales forecasting and scheduling to a budgeted amount. There are great tools available that can facilitate and streamline this process. It is also critical to track labour daily to ensure you’re aligned with your budget. This will allow you to reduce labour costs without compromising guest experience, helping to boost the bottom line and maximize your restaurant’s profits.

David Hopkins, President of The Fifteen Group, has over 30 years of experience in the restaurant industry. With offices in Toronto and Vancouver, they have over 30 industry experts who cover all aspects of restaurant operations, from developing new restaurant concepts to maximizing restaurant profits through effective sales generation and disciplined cost control management. The Fifteen Group’s clients range from owner/operated establishments to multi-unit restaurant corporations.