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Sunday, September 22, 2013

Food Service Trends - Major Chains Show Mixed Results

NOTE: All of the data used in this article is available to the public in mandatory annual reports which can be accessed at free of charge. The data used was taken from audited year end financial statements. This article is NOT aimed at predicting the stock prices for any of the companies mentioned. In fact, the stock prices are not relevant to the discussion.

Base Year Most people will remember the year 2008 as a very poor year from an economic standpoint. By year end, the stock market was in free fall and mortgage banks were struggling to remain solvent. The bad economy had a major impact on the presidential election. We are using 2008 as our base year for comparison.

Three Restaurant Companies - Four Year Record The most recent year end reports for Chipotle, Darden and McDonald's show earnings per share results have improved over the 2008 results. Chipotle has shown the greatest % increase in earnings per share with a 271% rise. McDonald's had a solid 42% gain. Darden, which has acquired several chains in recent years, had a gain of 20%.

Several factors impact the results and it is important to put the data in context. Maybe the most dominant issue is the meal service style. Americans, in reaction to the rough economic conditions, made fewer visits to full service, casual dining establishments. For those households where the dollars spent in dinner houses declined, a shift to fast casual and QSR concepts helped fuel growth.

We don't have enough information to evaluate the success of Darden's acquisition strategy. Surely, they paid less for locations acquired than they would have before the economic decline. Former competitors are now part of the Darden group of concepts. The dividend paid to shareholders has increased to $2.00. Clearly, Darden feels most comfortable operating in the dinner house segment. Rather than targeting fast concept chains, they have acquired other full service concepts.

Chipotle pays no dividend. They continue to grow along with the entire fast casual segment. Americans now are willing to pay a bit more for perceived quality. They continue to spend a large part of their meals away from home dollar in restaurants which offer low to moderate check averages.

McDonald's has seized this opportunity to capture more revenue from sales of menu items with a higher perceived quality. Patrons now have many options from the popular value menu to the higher end wraps, angus burgers, and the improved cafe and smoothie drinks. While on vacation in the Canadian Maritimes, my daughter ordered a McLobster - a very good lobster roll.

All restaurant companies are wrestling with the options to determine the best strategy for employee health care insurance. Our industry has always relied on large pools of part-time workers earning entry-level wages. I'm sure many independent owners will look for answers by following the lead set by major chains. It will be interesting to observe how well each of these 3 companies handle the changes ahead of us with regard to labor costs.

Friday, September 20, 2013

Food Service Trends - Restaurant Catering Options

Many restaurants have scrambled to increase their catering business. For many of these companies, a party simply requires an estimated guest count and a reserved table or room. The guests order off the menu and drinks are all charged by the drink. Rarely, the host may restrict their guests to specific entree choices. Usually, a printed menu is prepared with the limited choices specified with prices.

Some restaurants offer catering services with no catering menu. How do they operate as a caterer? They simply let a party reserve a much larger table than usual (sometimes an intimate room off the main dining room). The guests do not order ahead of time and they are served from the dinner menu. 

Is this truly a catered affair?

Some restaurants charge a set price per person for food but let the orders go through to the kitchen on the POS system. Often, these companies have separate PLU numbers to handle these orders. In this manner, the revenue is generated per person and the menu items selected are tracked to the specific party. These PLUs may be grouped to show party activity at-a-glance.

Most restaurant operators using their facility for parties do not shut down their normal operation unless the group wants the entire space for the event. Occasionally, you will see an apology sign in the window letting guests know the restaurant is closed for the evening due to a party.

Since a party could have been booked with a catering specialist, these special events are clearly catered affairs. Restaurants with no catering menu do not typically book huge parties during their prime hours. There are exceptions to this rule.

If the restaurant does not ask for the order ahead of the seating, the event is strictly a large party. However, some restaurants ask the guests to order ahead of the party. In my mind, this is a truly catered affair. The restaurant provides a comfortable venue and the room is configured to focus on the party. The kitchen has a predetermined menu allowing the culinary team to execute the event well.

A third option involves establishing a fixed price amount charged per guest and limiting the menu item options. These operators allow the party guests to choose their appetizer and entree options once they arrive. Although the restaurant has a firm sales number, the profit potential won't be as high as the event with a predetermined menu.

Although the restaurant is still seating regular dining patrons, the act of putting the special menu on the agenda is key. The food order is less uncertain and the proper staff level is easier to forecast. These are two of the advantages caterers have over an a la carte dinner house.
Generally, the manager adapts the service staff to the number of guests. The final count for the party is added to the base forecast. Since the guests often order items which are also on the regular menu, the meal period is treated as normal with a higher covers forecast.

Extras like photographers, flowers, special invitations, etc. may be handled by the host or the restaurant. If the restaurant provides these services, they are usually added to the bill.

Caterers often have profit and loss statements with very low food costs. A 25% food cost is at the high end because they divide the total revenue into their food cost. Beverage costs are treated similarly. Most restaurants show the traditional food and beverage cost numbers. Extras will be treated as other income.

While it is not always the case, caterers tend to use job costing principles and restaurants stick with periodic reports. Restaurants could increase catering profit by creating suggested packages. If guests were offered packages with higher gross margins, the positive impact of special events could increase.

Food Service Trends - Labor Cost in Focus

Around 18 months ago, I posted an article on the Professional Catering blog regarding a interview with the CEO of Paychex on CNBC. (see full article below) The interview was focused on the Paychex business model and this company serves as the payroll department for many small businesses. Many of my clients use a service for payroll processing and it is very cost effective.

Paychex is focused on small business and 98% of their customers have fewer than 100 employees. I find the second statistic more interesting in light of the Affordable Care Act (ACA) which is on the minds of many operators. Mr. Mucci stated 82% of the Paychex customers have fewer than 20 employees. I believe many restaurants and caterers fit this profile. These companies will avoid most of the penalties which keep small business owners up at night.

Original Article:

Should You Hire Now?


The Paychex CEO, Martin Mucci, was interviewed about the lack of movement in his company's stock. Mr. Mucci stated new business formation was flat. He mentioned 2 statistics which show the importance of small businesses in any business turnaround.

He stated 82% of the Paychex customers have fewer than 20 employees and 98% have fewer than 100 employees.

Paychex stock may be ready to make a move upward as American small businesses stop hibernating and begin hiring again. Should you be hiring now before the inevitable rise in salaries and wages? The job market is starting to add more jobs and first time unemployment claims are in decline. If your sales are perking up or your summer pipeline looks promising, it may be the time to hire.

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