| 4. Menus Engineered to Yield Optimum Gross Margin Restaurant operators often talk about controlling food cost. However, we often only examine the food cost as a percentage of sales. Restaurants bank dollars – not percentages. Would you rather sell a steak dinner at $40 with a 40 per cent food cost ($26 gross margin) or a chicken dinner at $12 with a 20 per cent food cost ($9.60 gross margin)? The most important marketing tool a restaurant has is its menu and it should be engineered to steer customers to select the menu items that yield the highest gross margins. In our experience, restaurants increase margins by at least three per cent (and often by a greater amount) the first time the menu is properly engineered. 5. Maximum Buying Leverage A dollar saved in purchasing goes right to the bottom line of the income statement. Often a big difference exists between “street price” and the price paid for food and supplies when restaurants maximize their purchasing leverage. Attention should be paid to purchasing, and every restaurant should consider one-stop shopping, buying groups and volume management. 6. Labour Balanced to Demand What is the staffing requirement to open the restaurant’s doors. This is the fixed component of the restaurant’s labour cost. Profits are often squandered through poor scheduling of the variable component of labour costs – the additional labour you need to meet anticipated demand. Accurately forecasting demand is important in controlling labour cost. Determining the labour requirements per hour and scheduling staff accordingly will help ensure a profitable restaurant.
7. Effective Capitalization The life cycle of a restaurant is typically five years. In year one, the business is built. In years two and three, the business is fine tuned. In years four and five, earnings are maximized. After that, the business must be re-invented to create new excitement for customers. Many operators forget that in the first year, up to six months of working capital may be required to build the business. 8. Market Effectively and According to Your Restaura nt’s Demand Drivers Is your demand destination, generative or impulse? What is your trade area? How are your customers segmented? You must know your customers – their demographic profile, needs, preferences and buying behaviours and then market accordingly. Find ways to measure the success of each marketing program, so you are able to focus on successful initiatives in the future. Here’s a hint – if all your restaurant needs to do to fill up on Mother’s Day or Valentine’s Day is unlock the doors, don’t agree to advertise in “special” sections of the local paper. Instead, ask for the same advertising rates during a slow time for your restaurant. 9. Experience It’s relatively easy to get into the restaurant industry. Sign a lease. Buy some food. Hire some staff. It’s what happens after you open the doors that makes the difference between success and failure. What you
don’t know WILL hurt you! If you don’t have experience, get it – through school, through working in the business, or through a trusted adviser. Make your mistakes on somebody else’s dollar before inves t ing in your own restaurant. 10. Participative management You can’t effectively run a restaurant from your office or from your desk at another business. The owner must be present, involved and leading. Absentee ownership has resulted in failure, time after time. While no one can guarantee success in the restaurant industry, if these factors are taken into consideration, the financial risk for your restaurant will be greatly reduced.
About the authors: Geoff Wilson and Jeff Dover are members of fsSTRATEGY, an alliance of senior consultants specializing in the foodservice industry. Jeff Dover may be reached at (647) 701-6656 or [email protected]. Geoff Wilson may be reached at (905) 814-6610 or [email protected]. | 
