restaurant revenues

Increasing restaurant revenues and profitability

By Travis Traini

Restaurant revenues are still in the news as businesses continue to try and recover. After the difficulty of operating through the pandemic, restaurateurs are facing new operating challenges including staff retention and labour shortages (especially skilled labour), significant inflation in food costs, economic effects on customer spending, rising interest rates, and increases in operating costs. Boosting profitability and managing the middle of the income statement has never been more important for restaurant success.

Menu optimization

The best way to manage the income statement is, of course, to increase revenues. Other than external marketing, work can be done within your restaurant to increase revenue and overall profitability through menu optimization.

Menu optimization is a tool used to enhance menu sales based on profitability (margin dollars, rather than margin percentage) and demand. This approach dictates that every low-margin menu item sale is a missed opportunity to sell a more profitable menu item. Further, continuing to offer multiple, less popular items can increase unique inventory costs, reduce labour efficiency, and lower overall throughput capacity. Even if these less popular items have a healthy margin, they can negatively affect the overall profitability of your restaurant.

Managers and owners must continually analyze the menu demand and margin of each item, and evaluate items with unique or high-cost ingredients. Menus and specials should feature and promote the purchase of menu items that are highly popular and highly profitable. Draw attention to these items with bold lettering, boxes around an item, and using other techniques to attract customers to the offers.

Menu items that are found to be low in popularity and profitability should, in most cases, be removed from menus. Items with low profitability but high popularity often perform better when variety is added to the menu. This can include varying portion size, offering alternate versions with unique ingredient variations, and more.

RELATED: How restaurants are adjusting their menus to stay viable

Technology

One way that the pandemic helped the restaurant industry was to accelerate customer acceptance of technology. Mobile order pay is a great example of this, providing restaurants with the opportunity to grow their sales and make kitchens more productive – and it never forgets to upsell! When cheque averages are analyzed, mobile order pay orders are typically 15 to 30 per cent higher than traditional orders. This system allows restaurants to feature photos of the dishes, which can help motivate customers and promote extra items as available additions, rather than pushing an upsell.

Third-party delivery has spawned the advent of ghost kitchens. If you have excess kitchen capacity, why not take advantage of third-party app platforms, and try a ghost kitchen menu line? You don’t have to use your restaurant menu or branding if you want to differentiate for online orders and this could be a way to experiment with different menu items and price points. Further, delivery technology can be turned off when your restaurant is busy, allowing staff to focus on your guests during peak periods.

Cost control systems

There is a reason most chain restaurants are profitable, and it has to do with the control systems they have in place. Inventory should be completed each month by management, and the inventory costs should then be updated to the latest pricing, calculating sales. Each recipe used should be fully costed, with an updated ingredient charge each time. This allows restaurants to use fully costed recipes to determine a theoretical sales total, calculated by using itemized sales reports and costed recipes. Each month, the theoretical cost of sales should be compared to the actual cost of sales. The result should look like the actual cost of sales ranging from one and 1.5 per cent of the theoretical cost of sales, representing typical waste.

A common area of unnecessary waste is portion control. Chefs should follow costed recipes, using determined portions each time. This allows for menu items to be prepared to recipe cost and provides consistency to the customer.

Don’t forget to track your waste. Management must complete waste sheets to track spills, items sent back, dropped items, spoilage, overproduction, and more.  All waste should then be cost-extended, tracked, and reviewed regularly by management. Some waste is to be expected, however, reviewing waste reports can identify opportunities to reduce this expense.

Following food costs, labour is the next most significant expense for your restaurant. As your business changes, creating and updating a labour matrix is recommended. A labour matrix is developed by determining the minimum number of staff required in each position to operate the restaurant. Following this, determine the hourly revenue increment that’s generated when requiring an additional person (per position). These hourly increments can then be compared to hourly sales forecasts to determine the number of staff in each position to be scheduled. Flexibility is key, though; adjustments are often required to meet labour regulations for minimum shift hours.

Cheque, please!

No matter how successful your restaurant is, there is almost always a way to do better. Continue to look for ways to increase revenue and, potentially more importantly, to implement food and beverage cost control systems to keep more of your hard-earned dollars. The management tools discussed in this article are a good starting point, but restaurants need to continue to measure changing demand, examine profitability, and manage costs to increase revenue.

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.