#restaurantprofitability

[kitxens]

Menu Engineering in 2026: Using AI and Data to Optimize Your Menu for Profit http://dlvr.it/TTZHYc

[restaurantology]

Restaurant Profitability: 101

If there was one key area of our industry that contributes more to its collective failure and poor profitability it is this; the fundamental misunderstanding of our key operational control numbers; essentially COGs and Labour.

Despite our terrible performance as an industry; 92%+ operations making 2.5% profit, 50% of operations not surviving to see 4 candles on their birthday cakes our great industry is irrationally devoted to very narrowly defined COGs and Labour targets.

In FY16 40% of Restaurants did not make money!!

We continue to do what we have always done, yet strangely hope to achieve a different result!

So let’s change, change the way we view these numbers and understand how to manage them to your operations greatest success.

Firstly, let’s be clear; these numbers are critical to your success.

You cannot achieve your true potential without them.

BUT, they must be your numbers; you can’t use those that belong to anyone else.

These critical control numbers are inward focusing; they reflect your own unique operation, with your own unique expense distribution. You cannot use the standard rule of thirds!

Let’s look at these 2 critical numbers, and their fellows, in a little more detail.

We have 4 components that make up our collective operations;

Expenses - made up of fixed and variable costs. Fixed costs are well fixed (rent for example), and variable costs in general increase and decrease in relation to revenue (the more food you cook and sell, the higher your kitchen gas bill for example). Every cost to the business that does not relate to Labour or COGs lives here.

COGs - a familiar thing to all, it is made up collectively of wastage, free bees, staff meals etc and the cost of goods sold ( the price you purchased that steak for that you sold for $35). It is the total cost of the food that is used, divided by the revenue collected due to its sale.

Labour - both fixed and variable (full-time with guaranteed hours, and casual without) and includes all add-on costs such as workers compensation fees, annual leave, super entitlements etc.

Profit - the bit that is left (all too often it has a minus sign before it)

On the other side of the equation, we have Sales.

Of these, we have 2 key operational controls; labour and COGs.

These are 2 of the 3 things we have control over that influence our daily operations. The 3rd is Price.

SO

Expenses + COGs + Labour +/- profit = Sales

Now we as an industry are largely a slave to a very narrow and prescriptive range of 'KPI' targets.

Expenses (30%) + COGs (30%) + Labour (30%) + profit (10%) = Sales.

For anyone in business, the Profit = 10% is a bit of a laugh (the industry averages around 3% and lower).

Yep, you could make more money by putting your money in the bank and accruing interest than owning a restaurant.

The best way to explain this is to think of your total revenue as, say the number 100. The industry has us believe that the only way to arrive at 100 is by 30+30+30+10.

Which of course is crazy; we can arrive at 100 with 40+15+15+30, or 30+50+10+10, or any number of possibilities.

We have only one collective limitation, or what we call, 1 degree of freedom. 3 of these for numbers can equal almost anything, but that fourth number must make up the difference to equal 100.

So what does this mean?

It means you have to understand your operation, and then lay a plan for how to make money, as the collective industry average may say a convenient 30+30+30+10, but it is no reflection of your own operation.

And not only do individual operations vary but so do different segments.

A cafe or QSR can have counter service (reduces labour costs by pushing the labour onto the customer), lower prices (higher frequency of sales), high table turnover and menu based upon throughput.

You can buy in food pre-made (higher COGs, lower labour), or add value to it through labour ( lower COGs).

The Key is to start by understanding the nature of your expenses, and then the operational design and the segment through which you will leverage your expenses. You then design your controls.

Rent in AUS is CRAZY high. This means that you need to adapt your operation to suit. And the higher that expense bit, you must adjust your labour and COGs models to suit, or the only place the difference is made up is out of your profit!

Your positioning may be Italian food, with lower costs of goods, and BYO with lower labour and inventory costs for example.

You may be a Quick service style where you have higher COGs, but low labour costs, and low prices that promote high turnover. You may have guests order at the counter, reducing your labour costs.

Your menu and service, and indeed your very floor plan and layout and kitchen design can be designed for minimising your fixed costs and linking those costs to revenue.

What that means is that on slower days you simply don't need much staff to operate, and as you get busy, you add labour, which is, of course, paid for by increased revenue.

Australian operations are very inefficient from a productivity perspective - output in relation to input. We are simply not big enough in the scale of our operations, and our intra-week fluctuations are extreme.

In my experience, 45-50% of revenues come from 2 days trade; Friday and Saturday. That's great.

But what are your fixed operating costs (this includes baseline daily labour) on the quiet days? Routinely operators run 50%+ labour cost days on the Monday to Wednesday trading.

This is insane. You have lost money each and every week running up to the weekend in the hope that you will break-even and get ahead over the weekend. And if one of those key revenue days tanks??

We as operators have complete control over our operations. Smart, and contemporary thinking can revolutionise your operation, and your bank account. So think, and look with fresh eyes, and never be a slave to the out dated 'conventional' thought you have barked at you every day.

[restaurantology]

What’s the Most Important Aspect of Doing Your Bar Inventory?

What are the steps you do when you manage your bar inventory? Count it? Determine your sales? How about selling prices? Find out the most important aspect...

Just like a diet and exercise program, the only important aspect of inventory management is actually doing it!

Charles Deilbel outlines a key aspect that can often be overlooked - comparing your actual stocktake results to the theoretical one.

It's another great article from Charles, and adds a new dimension to the value of the stocktake, as a control process, and reflects what can be done better at an operational level.

For example - portioning, wastage and discounts (staff meals, errors, comps etc)

There is also a different reason - COGs is a fluid thing. It varies every day.

Why?

Because the COGs of individual menu items vary.

If you sell more steaks than pasta on a given night, your COGs will go up, because steak is a higher cost item.

What is important to understand is that higher COGs items tend to also hold higher profit. 

You can (and I have, deliberately) fail to meet a COGs target operationally (it's ‘too’ high), but actually, MAKE more money!

Another largely misunderstood aspect, is how we value our inventory in the first place. 

I prefer a weighted average method - so as newly purchased prices fluctuate when compared to previously purchased items, it is averaged out. 

Quite often accountants will adopt FIFO, or LILO, and will change the price of the item on your shelves to that of the item you have just purchased.

Which of course, changes your COGs.

And lastly - just how frequently your inventory sells. 

In general, we have WAY too much stock on hand, and it takes too long to sell.

Better money in your pocket, than sitting on a shelf for weeks and months at a time,

[restaurantology]

Facebook kills culture fit. 4 reasons it's the best move!

Facebook has 'prohibited the term “culture fit” when providing feedback on what interviewers liked or disliked about a candidate, requiring

Still stuck on Culture Fit?? 

Dr.Richard Claydon explains just how silly that is.

The idea of having a designed culture you fit people into is absurd. Why? 

1: People bring external influences and ideas. 

2: If a company wants innovation and creativity, then fitting people to norms, rules and regulations is crazy. 

3: The idea that personality can fit with a culture.  

4: There’s the gap between an espoused organisational culture and the actual organisational culture. 

[restaurantology]

SumoSalad's insolvency strategy works

How SumoSalad successfully forced Westfield shopping centres to negotiate lower rents for its fast food franchisees.

Huge Win for Hospitality in Australia! Well played SumoSalad and Luke Baylis.

Food operators have become the cash-cows with shopping centres enforcing blatantly unsustainable rents, and behaviour bordering upon malice.

[restaurantology]

Instagram post by Kale Thompson • Jun 30, 2017 at 4:31am UTC

195 Likes, 33 Comments - Kale Thompson (@tassie_heights) on Instagram: “The Callington Mill at Oatlands in Tas. My very first crack at a composite! Drove an hour each way…”

What does integrated Experience design look like in a restaurant?

We do after all hear an awful lot about it. Or at least aspects of it.

It is a thing, yes, as much as any service or product is. 

Is it the interior design? Partly, yes. 

For many Restaurants and Hotels, an ‘experience’ is simply a servicescape, a setting or interior design from within which they sell their traditional offerings,

But true experiences are deliberately designed and integrated throughout the business. 

Commodities are exchangeable, goods tangible, services intangible, but experiences are memorable. 

And as restaurants enter into an age of automation, and en masse commoditization, experience is a crucial strategic imperative.

An experience occurs when a Restaurant intentionally incorporates interior design as a backdrop, services as the stage, and goods as props, and staff as actors to engage individual customers in a way that creates a memorable event. 

Restaurants vary to the degree in which the context of the experience is determined by the physical design and features of a restaurant, the backdrop, but this is where many 'practitioners' of experience stop.

True, customers are immersed in the interior design, but the customers themselves are separate from it. They look in from the outside, 

It gives the customer a central context from which to view the experience but more as a witness than being enveloped by it.

So the interior design forms the foundation of the experience, but indelible impressions are the result of greater integration between the service envelope, and the products (menu items) themselves; cues that define and redefine the experience to the guest. 

And have the opportunity to be unique every time.

Let's look at a small, but complex, and crucial aspect of experience design that is typically overlooked, an actual menu item example, and the 'role' it can play in an experience.

Callington Mill, the gorgeous Georgian mill photographed above, was built in 1832. It is the only mill of its type in the Southern Hemisphere.

It's stone grinds ancient grains to produce artisanal organic flour.

Across the road from Callington Mill is Companion Bakery. It is a wood-fired, brick oven, designed and built by the legendary blacksmith and world renowned brick-oven designer, Alan Scott. 

It bakes the bread roll for our restaurant

The bread roll is an organic sourdough roll, with ingredients including the stone-ground flour produced by Callington Mill, and the season's first harvested barley.

The restaurant itself is located on the site of the original homestead built by founder Peter Degraves in 1824, overlooking the imposing, Georgian edifice of one of the world's most beautiful breweries, Cascade.

This is the foundation of our experience design.

The brewery first produced Cascade Pale Ale, Australia's oldest beer brand, in December 1832.

The Barley in the bread was malted in the breweries malt-house, situated opposite the restaurant and is the same Barley used in Cascade First Harvest - Australia's original green hop beer.

By 1852, Peter Degraves, Australias greatest Entrepeneur, had 500 acres under cultivation, and owned a Bakery.

The bread roll is, of course, exquisite, but it is the story of its production and its relevance to the context of the restaurant that truly brings it alive.

Makes it more than just a bread roll, makes it a key element of a memorable experience.

It is but a small cue, a thin thread within a broadly and intricately woven experience tapestry.

But a useful example of the power of supply chain in the story telling and co-creation of truly memorable experiences.

[restaurantology]

Jack Cowin loses $600m of dough at Domino's Pizza as franchisees push for bigger slice of profits

Jack Cowin's extra large slice of Domino's Pizza got cold pretty quickly after peaking at a value of $1.336 billion in August last year. It has now chomped through $600 million of his wealth since the peak.

Maybe they should focus, not on being a tech company, but a Pizza company?

[restaurantology]

Productivity

The #4 Profit Opportunity for Restaurants – Productivity. 

It’s the sum total of everything. 

Every decision you have made, make and will make. 

And it's the reason you aren't making money.