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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.


Unknown said...

Very comprehensive analysis. Thanks for sharing. I am now working on a project about restaurant industry and I would love to know what you think of the trend of the industry. Is there any specific segements growing exceptionally strong? Also, say I am going to start my business in restaurant industry and I am open to all choices, what key success factors and challenges I should notice?

Thanks again!

Joe Dunbar said...

The number one trend overall is a significant increase in the purchases of prepred meals. Both meals eaten outside of the home in a restaurant and meals consumed at home purchased as take out or delivery. Meals may be purchased in either a restaurant, deli, convenience store or market.

Restaurant Data Pros

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