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Saturday, April 26, 2008

Lagniappe Builds Loyalty

On a recent trip, we made a detour to Philadelphia (about 50 miles out of the way) to have dinner at our favorite Chinese restaurant. This restaurant is in the heart of Philadelphia's Chinatown (near the convention center). The restaurant has a wonderful ginger garlic sauce they bring to the table for appetizers. We just love it and always request more.

This restaurant really gets the concept of lagniappe. Lagniappe is a familiar term in New Orleans and it refers to a small extra given to the customer for free (e.g. an extra beignet if you buy a dozen). I have visited this restaurant on just about every trip to Philadelphia and frequently go out of my way when returning home on Interstate 95. They go out of their way to show guests they are appreciated.

On one visit, I brought my parents and the waiter took the time to describe the preparation of the Chinese broccoli dish to my father (who loves greens). On another visit, our waitress explained how to make the famous sauce. Even though I can make it now myself, I still like to experience the authentic dishes which benefit from a good dollop. Danny, the manager, responded to my wife's compliment this way: "If you don't like the sauce, you don't like this restaurant." He proceeded to fill a small bag with 10 take-out portion cups of the sauce.

As regular customers become more difficult to find in this economy, the concept of lagniappe could help you retain those who decide to try your restaurant.

Thursday, April 24, 2008

Smaller Portions or Higher Prices?

We bought a loaf of fresh baked whole grain bread at a local bakery today. Something about the loaf was different. This loaf was about the same dimension as the loaves purchased previously from the same bakery. The price was the same. The difference became apparent when holding the loaf in my hand. The weight was different - much lighter. I'm guessing they shrunk the loaf between 15 and 20% by weight.

Flour prices have been increasing significantly during the last year. The operator decided to hold prices steady and shrink the portion size. In my opinion, the change in portion size will be perceived by most of the patrons. I love the bread and I'll continue my long term loyalty. Six bucks for a great, but lighter, loaf of bread.

The bakery definitely had fewer employees today. The store traffic seemed slightly less than I remember. I'm guessing the staff has been cut 25% and the number of patrons is down 10%. If I'm close, sales are down 10% (same price per loaf), cost of goods sold are up 5 to 10% (even with the smaller portion) and labor cost has dropped 25%.

Will the patrons remain loyal given the lighter loaves? Possibly. Would they be happier with the same size loaves and higher prices? I'm not sure they would prefer the higher prices. Maybe the baker has struck the right balance for his clientele. He's always at the bakery and he knows many patrons by name. He talks with lots of people and he has a decent read on our local economy.

Whether you try smaller portions or higher menu prices, this may not be the time to do both.

Friday, April 18, 2008

Menu Specials Strategy

The economy continues to make consumers jittery. Discretionary income is in decline in many regions of the country. Restaurants featuring quick and cheap meals are holding their own while formal dinner houses see large drops in check averages and covers.

If a restaurant's sales dropped from $2.5 Million to $2 Million and average ingredients cost increased 15%, their gross profit will plunge - over 25%. Trying to make up the difference in labor is impossible.

As customers watch their check totals closely, it may be tough to sell profitable extras. If your menu concept relies heavily on specials, the answer could be a conspicuous value oriented option each meal period. By changing to menu selections which require lower cost ingredients, you would position yourself to eliminate the impact of higher commodity costs.

There are plenty of moves possible in every segment: Kobe tenderloin to Kobe sirloin; Shrimp Scampi to Linguine with Shrimp; Veal Marsala to Chicken Marsala; Omelets; Steak to Chicken Breast; Chilean Sea Bass to Flounder, etc.

You can close the gross profit gap with smaller portion sizes. Customer friendly, lower check averages result from smaller portion sizes and less costly ingredients. Menu selections should be offered a la carte and as a table d'hote option. The table d'hote choice could include profitable appetizer and dessert choices which can be added for a $5 to $10 bump in price over the a la carte entree price.

Put your free bread basket under a microscope. Lower check averages increase the cost impact of any fixed meal component. Try to keep the perceived value with less costly alternatives. Wheat prices are sky high. On a recent trip to New York, I paid $1.20 for a bagel. You could try baking your own flat breads or foccacia. Shop around for lower cost bread options and mix them into the basket. Every little bit helps.

Wednesday, April 16, 2008

Eggs Up 150% in 7 Years

Today's Washington Post Food Section has an article "It's Waste Not, Want Less for Some Chefs" with comments from local chefs. Gillian Clark, at Colorado Kitchen, told Tom Sietsema her cost for a case of eggs has gone from $13 to $32.50 in 7 years.

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In addition to my 100% free Food Cost Control Blog, I have started a second resource which will be offered for a limited time for $100 per year. This online resource will include many posts like Slow Day vs. Busy Day . These articles will not be typical on the free blog. Click the Buy Now button located on the upper left sidebar to join!

Monday, April 14, 2008

Changing Your Break Even Point

After receiving an above average response to my "Do You Know Your Break Even Point?" post, I'd like to answer those who seek ways to lower their number. Since the formula relies on sales and costs, the quickest way to lower your break even point figure is to lower fixed costs.

Governor Jimmy Carter balanced the Georgia budget using zero-based budget techniques. He made department heads justify every cent in their budgets. This is a huge departure from the typical budget process which simply takes the previous year's actual costs and adjusts for inflation and projected revenue increases. Many operators won't see last year's sales volume.

Pressure on sales may require increases in advertising and promotion expenses. If your food and beverage percentage is heading up, now may be a great time to trim your overhead. Motivate top executives with a smaller base pay and a larger bonus potential. Let your key people work hard to find a way to greater profitability and reward them for their effort.

With restaurant operators opening fewer new units across the country, you may find 2008 a great year to renegotiate your lease agreements. Take a look at both real estate leases and business property leases. The Federal Reserve is stimulating the economy with lower rates which may help you when you're talking to leasing firms.

Close all losing units which are nowhere near break even point sales volume. Leaving a money drain open hurts the other viable units.

Once you're through slashing waste and unproductive assets, you can look at increasing sales. Rather than throwing a price increase at customers awash in meal coupons, you could book more banquets. Use banquet sales to cover overhead expenses.

Finally, you may want to schedule major repairs and maintenance activities this year. If you are projecting poor sales during a normally slow month or off season, give your employees an extended vacation and get the repairs done.

Friday, April 11, 2008

Impact of Coupons on Food Cost

Since many of you are trying coupon mailings to increase sales, I decided to review this popular topic. Frequently, I'm asked how to account for coupons in the food cost percentage calculation. This issue has no absolute answer. My preference could change depending on the length of the coupon campaign and the impact on total sales.

In general, my strong preference is to record the total gross sales and treat coupons as a method of payment. This approach provides a consistent base sales for cost % calculation. Net sales may reflect the coupon discount or you may want to record this activity as a promotional expense. It's a good idea to check with your accountant to make sure the treatment is consistent with previous periods.

Should you decide to extend the coupon campaign to a longer term, management should examine the overall impact on the operation. It's possible to keep costs in line with gross sales levels and experience rough times. If coupons represent over 5% of gross sales and the length of the campaign is indefinite, the operation may not be able to cover fixed costs.

A short term coupon campaign is a terrific way to meet new guests. Unit management should be alerted when a guest redeems a coupon. Rather than treating these customers as second class citizens, it's an opportunity to give special treatment to a potential long term patron.

Click Here For More Information

In addition to my 100% free Food Cost Control Blog, I have started a second resource which will be offered for a limited time for $100 per year. This online resource will include many posts like Slow Day vs. Busy Day . These articles will not be typical on the free blog. Click the Buy Now button located on the upper left sidebar to join!

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