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Sunday, April 29, 2007

Old Fashioned Hospitality

Recently, I received an email from an active reader regarding his unique operation. He described the boarding house style of long tables filled with patrons passing large plates and bowls filled with hot, fresh food. He invited me to visit his operation to help him with a strategic plan.

Michael King is a hands-on operator with a high percentage of repeat customers who love his return to old fashioned American classics. I witnessed tourists, solo business diners, families, and office workers sitting at his long tables and passing plates and bowls to their left. As the food disappeared, an experienced wait staff delivered seconds.

I want to thank Michael King for inviting me to Nashville and for his great Southern hospitality. He generously asked me if he could post his testimonial on the blog. His email is presented in his own words. Thank you!

The best investment I did was have Joe come down and give me a pair of fresh eyes. With 5 locations going and spending more time in the office then walking and talking, I was finding myself to far into the woods and not able to take a step back and review my operations. I called Joe, two weeks later I'm picking him up at the airport. Two days later, he was able to save me $123 K on the bottom line with changing one item. He was "gentle" with me, but firm. He was able to direct me into seeing that my energy was better spent with two of my locations and shutting down 3 others. He not only helped me save my sanity, he also helped me save my business. Thanks Joe!

Michael King
Monell's Dining & Catering, Inc.
Monell's at Franklin's Historic Jail. Franklin
Monell's at FitzGerald Manor, Gallatin
Monell's Take-Out Express: 2309 Franklin Road & 405 31st Ave North
Catering Number: 615-726-4938

Estimating the Opportunity in Take-Out

Americans have less time for cooking hot meals mid-week and they are buying prepared foods from a variety of venues. Take-out dinners are available from restaurants, markets, delis, convenience stores, transit centers and company dining operations.

In New York, the offerings at both Grand Central Station and Penn Station are increasing from the traditional bakery items to include many gourmet dinner options. Union Station in Washington, DC has a complete food court with every popular cuisine represented. I often hit these spots on my Amtrak trips.

Here in my neighborhood, we discuss take-out and delivery options at poker games and parties. Our pool club lets the many local restaurants deliver to the tables around the pool each summer. More and more restaurants are building access lanes and special parking spots for customer pickups.

Does the proliferation of take-out dining help your food cost percentage? I'm not convinced the casual dining restaurants really sell as many appetizers and desserts to the take-out crowd. After dinner coffee and tea sales are zero. If you rely on strong sales of appetizers, desserts and non-alcoholic beverages to hit a decent food cost percentage, take-out activity may not help.

In theory, the take-out operation requires no wait staff. Production costs are comparable to those of meals consumed in the restaurant. Packaging materials, plastic utensils and condiments may raise cost of goods sold in a more visible manner. Very few restaurants treat cleaning chemicals (e.g. dishwasher soap), smallwares, china, flatware, glassware as a cost of sales.

Nevertheless, I strongly recommend promoting take-out sales. Careful accounting can help to isolate the activity and keep the numbers relevant.

Create a separate sales account for take-out activity. Set your POS systems to track this activity in a Take-Out revenue center. Service labor should be charged to all other revenue centers. Likewise, packaging materials and plastic utensils should be charged to the take-out revenue center. Food cost can be allocated based on sales. If your operation has theoretical cost accounting capability, this allocation can be very sophisticated. For example, coffee and tea could be entirely charged to in house food sales.

The best practices for take-out restaurant operations include restricting sales to menu items which travel well and can be easily reheated. Carefully test your side dishes using the travel test. One of my clients found his famous onion loaf was a greasy mess after a five minute car ride in an expensive container.

Pizzas, sandwiches, chinese food, salads, stews, sauces, rice, pasta, mashed potatoes, burritos, samosas, crudites, sliced meats, cheese plates, ribs, fried chicken and many more menu items travel well. Fresh baked items can travel successfully if the container prevents tipping over and damage due to pressure. Even cakes with frosting and pies with meringue may be taken home. Push the dessert sales when your take-out orders come in each night.

As long as your take-out sales cover the costs of food, production, packaging and order costs, your overall profit will improve. Don't rely on your traditional income statement to track this opportunity. Track the operation in a separate revenue center with separate budget targets. These new targets will provide answers for future decisions regarding new take-out windows and counters.

Tuesday, April 17, 2007

Great Night For A Buffet

One sure way to experience a higher food cost percentage is to substitute an all you can eat buffet in lieu of your a la carte menu on your busiest night of the week. Batch production and preliminary forecast data will set a ceiling on the quantity and cost of production. Service labor is typically lower on buffet service. Most likely, the buffet is priced well above your average dinner entree.

Is this a smart move?

I do not recommend allowing customers to determine portion size. You can help by having manned carving stations. Although you will see a better food cost percentage, you lose some of the service labor savings.

Does the higher buffet price make up for the greater food consumption associated with the buffet service style? I believe the higher prices encourage customers to overload their plates. Your patrons are aware of the menu structure. They will calculate the utility in selecting the buffet and make the decision based on appetite.

Years ago, I was at a training seminar for statistical sampling techniques. In the early evening, a classmate asked "where's a good place to eat around here?" and very few people responded. Finally, a friend suggested an excellent Italian restaurant with a Wednesday night only buffet. He said he heard about it from his cousin who lived in the area. It was a Wednesday. Four of us decided to join him at the buffet.

This restaurant offered both a la carte menu service and the buffet. Our waitress asked if we were ready to order. Everyone encouraged me to start first. I was a definite for the buffet from the moment I stepped inside. My friend stuck with his original plan and also ordered the buffet. The next person was dieting and she chose a chicken breast entree. The ordering dynamics changed and the last two people also selected from the a la carte menu. Both people ordered a pasta entree with a side of Italian sausage.

Our buffet was priced twice as high as the typical entree. We each enjoyed clams on the half shell, shrimp, baked lasagna, prime rib, salad and we picked up dessert for our still hungry mates. Everyone kept looking at our prime rib (a beauty) with envy.

This restaurant employed help to carve the rib and portion the stuffed pasta dishes. The portions were generous and the goal seemed to discourage patrons from going back to the self-serve shellfish selection and salad bar. Desserts were eye popping and our friends begged us to bring them each a slice of a decadent chocolate cake. Our dieter stuck with some fresh fruit.

Our fellow diners decided they would order the buffet if they came again including the dieter.

I am 100% sure the cost of the food we consumed exceeded the target food cost percentage. During the meal, I noticed most tables were filled with serious buffet lovers. Clearly, the wait staff was skeletal. They did pay for extra help to handle portion control at the carving station. Were they right in the decision to go buffet style? I believe they were doing well with the buffet strategy.

Since they used a sumptuous buffet with prime rib and a top notch seafood selection to fill seats on a Wednesday night, I liked the idea. A quick check of the other restaurant parking lots nearby showed the wisdom of the decision. Shift the same meal service to Friday or Saturday night and I'd be against the decision.

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Monday, April 09, 2007

Market Segmentation - Service Style

The food service industry offers patrons a wide variety of menu choices served with style in many formats. An operator's choice of meal service is an important strategic decision. This strategic decision will impact the target market, price policy, expected food and labor costs and overhead.

QSR Operations
The QSR segment has operations with higher paper costs and lower food cost percentages. These units have limited menu choices, relatively few raw ingredients, more frozen items and many portion control items. Typically, QSR operators experience lower spoilage and waste due to the tight menu focus. In recent years, QSR menu strategy has been dominated by value meal options and upscale fast casual themes.

The value meals are available for breakfast, lunch and dinner. Leveraging the low cost per ounce fountain beverages, the segment has presented customers with a simple order by number order process (well suited to the drive thru patron). Fast casual menus use more fresh ingredients and charge higher prices. Many of the traditional QSR strategy is used including meal pricing, paper and plastic plates and self-service.

Take Out Meals/Delivery
In our neighborhood, there are many casual dining concepts with growing parking space devoted to pickup order customers. Often the dining rooms are nearly empty and the take out window is packed. This meal service style has spread beyond Chinese food, fried chicken and pizza. Delivery cars move through our side streets each night with Thai food, Latin style chicken and steak dinners. The choices multiply if you are near the hotels and inns frequented by business travellers.

Take out and delivery has significant paper and packaging costs. Parking spaces, drive up windows and other structural changes require higher initial outlays. More help is required to take orders and make the deliveries. Wait staff may not be required.

Food cost may improve. Operators know exactly what is placed in each take out order. However, the opportunity for profitable after dinner dessert and beverage sales is lost.

All You Can Eat Buffet
Often the toughest meal service style from a cost control viewpoint is the AYCE buffet. These operations require high volume to offset the cost to stage the initial buffet layout. Savvy buffet veterans use portion control at carving stations and other high cost service stations. I have seen buffet operations with a breakfast/brunch food cost percentage below 25%. Some seafood buffets may run over 50% food cost percentage.

In theory, service labor cost is lower and most of the food cost is fixed before the first guest arrives. High customer counts provide the solution to the profit puzzle.

Cafeteria Service
The corporate dining rooms are fed by queues of guests with trays making selections. They pay the cashier for exactly what they select. There may be two or three meal specials each day for a value price. Many patrons order a sandwich and a snack. They drink tap water or beverages from their office refrigerators. These meals may be subsidized by the company or the entire cost may be charged to the customers. Food cost percentages may run high by design.

Table Service
Dining rooms at many restaurants offer relaxed dress codes and popular ethnic and American grill menus. Patrons come for the ambiance and service. Entree portions are large and meat and seafood dominate.

Service staff are trained to sell appetizers, desserts and after dinner drinks. The talented sales team will announce specials, make suggestions and time the pace of the meal. They may communicate with the host stand to manage the turns and maximize revenue.

Food costs vary depending on the overhead. Restaurateurs who own their property may choose to run a higher food cost percentage and communicate value to the clientele. Major hotel dining rooms may run lower food cost percentages to help offset the higher service labor and overhead.

The well run table service operation depends on excellent communication. When the entire staff functions as a team, these restaurants can deliver a fantastic return on sales. The wait staff has to work to improve the check average. They need to know exactly what items to promote.

Restaurant Data Pros

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