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Thursday, January 30, 2014

Can a Losing Restaurant Become a Profitable Business?

Dear Sir,
Trust you are well & fine? This is Sanjeev from Bahrain, Arabian Gulf. 

I'm working as Cost Control Manager. We are connected through linkedin and I'm taking the privilege to write to you.

One of our board members, who is a business man here in Bahrain, runs a small restaurant which is showing a big loss. 

What could be the basic reasons for it? 

Please see the details of the restaurant below:

Seating Capacity - 12 to 15 pax
Average sale per day - $335
No recipe costings or selling margins have been established.
Total staff :- Kitchen (4) & Front (2)
*Kitchen cost is very high at the moment.
All purchases are from local suppliers.
Salary (All Staff - $2,660)
Rent - $2,393

I would appreciate if you could give me some ideas or bullet points to improve this restaurant's business & making it profitable.

Thanks a lot for your valuable time. Take good care.
Sincere regards & yours truly,

Thanks for the question Sanjeev!  I know the restaurant has opened recently and I appreciate the urgency.

At this time, costing recipes and calculating gross profit per menu item takes a back seat to marketing and promotion activities.  Sales are too far below the minimum level required to produce a profit.  This is the reason so many restaurants close in the first year.

If the monthly sales are $10,000 and the rent is $2,400, our occupancy cost is 24% of revenue.  This indicates sales need to double for the restaurant to be a going concern.  Keep in mind a 12% occupancy cost is still relatively high.  The goal is 10% or lower.

The breakfast strategy could be part of the solution.  In addition, you could create a carry out menu and search for delivery customers in the vicinity.

Keep the staff level as tight as possible.  The current 26% is good.  As your sales rise, you may be able to reduce the labor % to 25%.

Your cost of goods sold needs to stay below 35% of sales.

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