Managing The Check Average

Is this a great time to push your average check higher?

For over a decade, the economy has been buoyed by cheap money and big equity gains. Now the consumer sees tight money markets and capital losses. Company T&E reports are being scrutinized. Tourists are staying closer to home. Regulars are showing up less frequently. Dining rooms have lots of mid-week tables available.

When your place is packed this weekend, do you push the expensive entrees? High check averages may attract the same scrutiny as the $75 gas fill ups. This may be the time for a complimentary cup of coffee or even a slice of pie.

These decisions are rough on the food cost percentage. A complimentary menu item on your busiest night is risky. Will the customer return next week? If the strategic move gets a repeat visit, you win. If they go to your competitor or eat at home next week, you missed some marginal profit with no immediate gain.



Playing well on the margin is more art than science. It helps to measure results. If you want to encourage a repeat peak visit, a complimentary coffee and dessert could be offered to guests who reserve a table for the following week. Policy could be changed to make this semi-permanent. There would be very little wrong if the process repeated itself week after week during this economic downturn.

Would you sacrifice a coffee and dessert sale to get a table filled next week?

Typically, the after dinner drink and dessert course is very profitable. This action will have a significant impact on your check average. You can control the cost of this promotional gambit. Restrict the complimentary items to coffee, tea, and low cost dessert options. Loyal guests are the target in this exercise.

Food Cost and Portion Size

Would your restaurant guests welcome smaller portion sizes for a similar check average? After a week on the road dining out each day, I believe the answer is yes. The weakening economy and rising commodity costs have everyone talking about costs.

Before the trip, I ran a few errands. After picking my car up from the garage, getting a haircut, filling the gas tank and picking up some groceries, I was out over $200. My mother spent the better part of $20 stopping for milk, bread, eggs and produce. Costs for gas and every day staples have skyrocketed. People across the country are tightening their budgets and cutting out many extras.

My brother likes to go out to eat each week and has shifted from weekends to mid-week. He mentioned a recent check for $93 for a simple steak dinner for 2 with a couple beers. The portion size was huge and he would have been happy with 25% less meat. The excellent bread basket and great salad (included with the meal) would have been perfect with a smaller steak.

I paid a visit to an old friend who owns a pub. One of the waiters joined the discussion with the restaurant owner. He mentioned his tip income was down. His diners are spending less and ordering fewer extras. The tip percentage is lower and the number of diners has dropped. He now works with the guests to deliver a satisfying meal within their budget.

I brought up the portion size issue at each meal. The unanimous opinion is today's portion sizes are too large. We asked one waitress if there was a smaller rib eye steak option. She checked with the kitchen and explained the meat was pre-portioned for the menu item. They could have served us 1/6 less meat for the same price. With no refrigerator at the hotel, we left between 2 and 3 ounces on our plates.

In New York's Grand Central Station, I sat next to a couple splitting an omelet at breakfast. They ordered the special with a second cup of coffee and left satisfied. A diner nearby left 1/3 of his omelet uneaten. With the heightened awareness of dietary cholesterol, most people would appreciate a two egg option.

If your patrons were served smaller portion sizes at the current menu prices, your food cost would decline for the same sales level. This strategy may achieve better guest retention than a 10% menu price increase. Timid menu planners may want to assemble these smaller portions on a single page "Value Menu" to properly gauge popularity.

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.

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.

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.