I'm not exactly sure when this recession will hit bottom. Most likely, the bottom will not be remarkably different (economically speaking) than today. The rate of job losses has dropped dramatically from the peak but we are still shedding jobs. Many employers have frozen wages and some have asked employees to take more days off without pay.
All of this belt tightening has made the American consumer afraid to spend money. This is not a completely negative fact of life. When Americans do not spend as much money on non-essential goods and services, the loss of demand drives prices down in the short run. If you were waiting to purchase replacement equipment, furniture, china, glassware, silverware, and kitchen utensils, you should consider making a small investment in the future now.
If you never started a customer loyalty program in the past, you are probably looking at your base clientele in your dining room this month. Patrons who have shunned the bad economy, their New Year's resolutions, volatile weather patterns and the new frugal approach to life here in the states are your fans. Get out in the dining room and say: "Hi! Thanks for joining us tonight. Would you like to join our new frequent dining club?"
January in a recession will often produce a low sales number. If you take the sales figure at the end of January and multiply by 12, you will have an excellent figure for forecasts, budgets and business plans. Could you break even if every month this year looked like this January? If you answer yes, you will make money this year and beyond. If you answer no, you have work to do.
Pretend it is never going to get better than this month. What would you do differently?
By forcing your company to confront the possibility of 2010 staying at the current levels, you will drive your team to innovate. These innovations will provide the path to the future and will create positive cash flow now.
If you are swimming in excess cash, should you open a new location? Like any recession, the market will over correct on the downside. Better days are in the future. If you wanted to open a new location in 2006 and decided to wait, today may be your lucky day. Construction costs have dropped, existing restaurant space is everywhere and experienced professionals are looking for employment.
Tuesday, January 26, 2010
Sunday, January 24, 2010
Alternative Food Cost Benchmarks
Certainly, most restaurants use food cost as a % of sales as a key performance indicator. This week, an anonymous reader asked about tracking food cost in a different environment - a health care facility. He asked if it was advisable to use cost per patient per day in lieu of a percentage. I strongly recommend using the cost per patient day over a percentage benchmark.
In the remote site feeding segment, we tracked all costs per person per day. The advantages to management are greater in labor cost analysis using this method. Food cost generally is variable while labor has both a fixed and a variable component. With long term sales prospects dampened by the recession, tight control has helped many companies survive and prosper.
Is it possible to effectively use per cover cost analysis in a restaurant environment? Many chefs prefer to track menu item performance using gross margin per plate. Since the aim is to make more dollars vs. a higher percentage, they need to take care when analyzing other costs. Direct labor, direct operating expenses and overhead costs should follow suit. If the operation sells higher priced items with relatively high food cost %, the use of cost per cover for non-food expenses is necessary.
Operators should not mix the percentage method with the cost per cover approach.
Consistent use of the per cover method would require a reasonable profit per cover. Use a forecast of covers for the entire year to spread all fixed overhead and profit. In tight economic conditions, it pays to track fixed cost coverage and profit by cover. In addition to cost control, you need to review menu item pricing policy. The popular factor method may not provide you with the edge needed to survive a price war.
The entrees are the best menu items to use for cost coverage. Your entree cost should cover the recipe cost of the item, per cover amounts for direct labor and operating expenses, fixed overhead and profit. If a competitor price war forced you to adjust prices, you would have a clear number for pricing decisions. You could calculate precisely the impact of a penny, dime or dollar move in entree prices.
In the remote site feeding segment, we tracked all costs per person per day. The advantages to management are greater in labor cost analysis using this method. Food cost generally is variable while labor has both a fixed and a variable component. With long term sales prospects dampened by the recession, tight control has helped many companies survive and prosper.
Is it possible to effectively use per cover cost analysis in a restaurant environment? Many chefs prefer to track menu item performance using gross margin per plate. Since the aim is to make more dollars vs. a higher percentage, they need to take care when analyzing other costs. Direct labor, direct operating expenses and overhead costs should follow suit. If the operation sells higher priced items with relatively high food cost %, the use of cost per cover for non-food expenses is necessary.
Operators should not mix the percentage method with the cost per cover approach.
Consistent use of the per cover method would require a reasonable profit per cover. Use a forecast of covers for the entire year to spread all fixed overhead and profit. In tight economic conditions, it pays to track fixed cost coverage and profit by cover. In addition to cost control, you need to review menu item pricing policy. The popular factor method may not provide you with the edge needed to survive a price war.
The entrees are the best menu items to use for cost coverage. Your entree cost should cover the recipe cost of the item, per cover amounts for direct labor and operating expenses, fixed overhead and profit. If a competitor price war forced you to adjust prices, you would have a clear number for pricing decisions. You could calculate precisely the impact of a penny, dime or dollar move in entree prices.
Monday, December 28, 2009
Plowhorses or Deterrents?
Anyone who has used the popular Kasavana/Smith menu engineering model is familiar with the term "Plowhorses". A Plowhorse refers to an entree which is highly popular and has a relatively low contribution. My brother Paul is an Executive Chef at a major resort in California. We love to discuss menu engineering theory and we question the characterization of these under-performers as Plowhorses. Paul prefers to refer to the popular items with low profitability as deterrents.
Dr. Kasavana states: "While plowhorses do not help carry the restaurant's "burden of margin," they surely can be utilized to attract price sensitive buyers. These items present an opportunity to create significant price promotions." Later in the Plowhorse description, he offers a suggestion: "...try to shift demand to other, more profitable items through merchandising programs and menu positioning."
Clearly, the fastest way to higher profits would be to convert sales of these popular under-performers to Stars (highly profitable/high contribution items). Playing around with the unpopular Dogs (unpopular/low contribution) and Puzzles (unpopular/high contribution) won't have the same impact due to the relatively low number of orders sold.
My brother Paul argues these "Plowhorse" menu items deter customers from ordering a more profitable menu item. Often he finds servers promoting these menu choices when asked for help by the guest. He courageously eliminated the most popular menu item at the resort. Whether you call it a Plowhorse or a Deterrent, check averages and gross margins are way up.
We find lots of "price sensitive buyers" in the current environment. If you can't bring yourself to completely eliminate these deterrents, consider one other suggestion from the book: "Relocate plowhorse items to a lower menu profile position. Hiding these items may lead to the sale of higher contribution menu item selections." If I am interpreting this suggestion accurately, our aim is to demote these Plowhorses to Dog status.
Treatment of Dogs is straight forward in the book: "TAKE DOG ITEMS OFF THE MENU!"
If you are struggling with one or more highly popular menu items which simply do not carry their fair share of contribution, you need to take action now. You may feel the need to try to hide these items or combine them with more profitable options. Do you have the confidence to eliminate these items now? You may find more money in your bank account.
Dr. Kasavana states: "While plowhorses do not help carry the restaurant's "burden of margin," they surely can be utilized to attract price sensitive buyers. These items present an opportunity to create significant price promotions." Later in the Plowhorse description, he offers a suggestion: "...try to shift demand to other, more profitable items through merchandising programs and menu positioning."
Clearly, the fastest way to higher profits would be to convert sales of these popular under-performers to Stars (highly profitable/high contribution items). Playing around with the unpopular Dogs (unpopular/low contribution) and Puzzles (unpopular/high contribution) won't have the same impact due to the relatively low number of orders sold.
My brother Paul argues these "Plowhorse" menu items deter customers from ordering a more profitable menu item. Often he finds servers promoting these menu choices when asked for help by the guest. He courageously eliminated the most popular menu item at the resort. Whether you call it a Plowhorse or a Deterrent, check averages and gross margins are way up.
We find lots of "price sensitive buyers" in the current environment. If you can't bring yourself to completely eliminate these deterrents, consider one other suggestion from the book: "Relocate plowhorse items to a lower menu profile position. Hiding these items may lead to the sale of higher contribution menu item selections." If I am interpreting this suggestion accurately, our aim is to demote these Plowhorses to Dog status.
Treatment of Dogs is straight forward in the book: "TAKE DOG ITEMS OFF THE MENU!"
If you are struggling with one or more highly popular menu items which simply do not carry their fair share of contribution, you need to take action now. You may feel the need to try to hide these items or combine them with more profitable options. Do you have the confidence to eliminate these items now? You may find more money in your bank account.
Sunday, December 20, 2009
Managing Sunday Brunch
The number one decision in managing your Sunday Brunch operation is the size of the staff for a given forecast. The staffing should include one or more people at the host stand. If your patrons know each other, you should consider seating people close to one another by opening zones in your dining room. Dining patrons will tend to spend more time in conversations thereby giving their digestive system ample time to send the "I'm full!" signal.
Generally, people will behave differently around their friends and neighbors vs. a crowd of strangers. There are no statistics to back me up but I think they will eat somewhat less if they are surrounded by people they know.
You will also staff the food stations and the dining room. In the dining room, the number of servers will be significantly lower than a typical dinner shift. Most of the service will involve drinks and condiments. One area you should adequately staff are the stations with meat and seafood selections. If you are comfortable letting patrons empty your pans of bacon and sausage, you should at least consider someone who can portion roasts and grilled items.
Some restaurants have a featured item which requires a ticket. Generally, the serving size for this one-time item is generous. The theory is twofold. First, the patron is limited to one generous portion. They will tend to build their experience around this menu item. Second, the portion is generous and will help limit consumption of other menu items.
When we were traveling with my first employer after college, our group always hit a great brunch in a hotel on Sundays. We were allowed to stay on the road vs. flying back home on the weekend. We were loyal to a hotel brunch with three drawing cards: fresh baked rolls, a great salad bar and prime rib (one serving per patron). None of us ever had any room for bacon and sausage. We paid at least 25% more than the local competition charged for the fresh baked goods and the large portion of perfectly cooked prime rib.
I'd recommend a baker in the kitchen if the volume justifies the expense. These pros can put people in your seats. Since many bakers work at night proofing the dough, you could finish the bread and rolls during the shift.
Clearing plates from the table seems to be art form many brunch operators have mastered. If someone is around to offer coffee and suggest a fresh pastry, you could save the expense of seconds at the meat and seafood stations. Placing pastries in conspicuous niches helps to get guests discussing dessert before they even begin their meals. The cost of a coffee and a slice of cake is lower than seconds on shellfish and steak.
Finally, I recommend costing each pan or plate sent from the kitchen. You need to know the cost per serving ahead of time in order to properly orchestrate the brunch in the dining room. If you have a main draw with terrific fresh baked goods, you can still charge a premium and save on mass consumption of ancillary items.
Generally, people will behave differently around their friends and neighbors vs. a crowd of strangers. There are no statistics to back me up but I think they will eat somewhat less if they are surrounded by people they know.
You will also staff the food stations and the dining room. In the dining room, the number of servers will be significantly lower than a typical dinner shift. Most of the service will involve drinks and condiments. One area you should adequately staff are the stations with meat and seafood selections. If you are comfortable letting patrons empty your pans of bacon and sausage, you should at least consider someone who can portion roasts and grilled items.
Some restaurants have a featured item which requires a ticket. Generally, the serving size for this one-time item is generous. The theory is twofold. First, the patron is limited to one generous portion. They will tend to build their experience around this menu item. Second, the portion is generous and will help limit consumption of other menu items.
When we were traveling with my first employer after college, our group always hit a great brunch in a hotel on Sundays. We were allowed to stay on the road vs. flying back home on the weekend. We were loyal to a hotel brunch with three drawing cards: fresh baked rolls, a great salad bar and prime rib (one serving per patron). None of us ever had any room for bacon and sausage. We paid at least 25% more than the local competition charged for the fresh baked goods and the large portion of perfectly cooked prime rib.
I'd recommend a baker in the kitchen if the volume justifies the expense. These pros can put people in your seats. Since many bakers work at night proofing the dough, you could finish the bread and rolls during the shift.
Clearing plates from the table seems to be art form many brunch operators have mastered. If someone is around to offer coffee and suggest a fresh pastry, you could save the expense of seconds at the meat and seafood stations. Placing pastries in conspicuous niches helps to get guests discussing dessert before they even begin their meals. The cost of a coffee and a slice of cake is lower than seconds on shellfish and steak.
Finally, I recommend costing each pan or plate sent from the kitchen. You need to know the cost per serving ahead of time in order to properly orchestrate the brunch in the dining room. If you have a main draw with terrific fresh baked goods, you can still charge a premium and save on mass consumption of ancillary items.
Sunday, November 01, 2009
Menu Planning and Strategy
Our industry is experiencing a shift in the demand curve. Restaurant goers are downsizing from upscale to casual, casual to fast casual and fast casual to QSR and take-out. The regular patrons at many family owned restaurants are watching their checks and eliminating an appetizer or dessert course. If you have a lower priced entree on your menu, you may find the popularity on the increase.
Most of the menu analysis and menu engineering models were built during a time of solid annual growth for our industry. These models focus on high gross margin entrees loved by patrons. Blindly using these models to adjust menu prices may hurt your bottom line. These models are designed to eliminate low gross margin menu items if the popularity is low.
Rather than completely eliminating these dogs, you may want to repackage these items. Take them off your printed menu and try them as budget specials. You may find a winner or two.
The stars need to get your full attention. Are your guests still selecting the reliable cash cows? You may see the high gross margin items slipping in popularity. Chef Mario Batali (one of my favorite chefs) was quoted in a USA Today article: "There's less caviar, foie gras and truffles, but they're still there. They're just not on nine courses. They're on one course." This same article highlights other chefs who have decided to offer more price points for their patrons.
Expense accounts are being scrutinized at every major S&P 500 company. The current earnings season on Wall Street shows companies are slashing costs.
The wine lists are offering guests fewer trophy bottles as demand for the $200 plus bottle of wine has collapsed. Many restaurants religiously ordered their annual commitment from the same boutique vineyards without regard to consumption. Now, these wine cellars are loaded with these high cost bottles. Many have decided to end this practice and they are moving these bottles by the glass.
Are there ways to produce the same gross margins in this new era? Yes. You need more turns on busy nights. Offer early bird specials, table d'hote options, and popular add-ons for your popular menu items. Promote seasonal ingredients which typically offer lower cost of sales.
Customer knowledge (including dining out budgets) leads to effective menu planning efforts. Rather than completely revamping your current menu, you may find a few strategic revisions will help you meet your targets.
Most of the menu analysis and menu engineering models were built during a time of solid annual growth for our industry. These models focus on high gross margin entrees loved by patrons. Blindly using these models to adjust menu prices may hurt your bottom line. These models are designed to eliminate low gross margin menu items if the popularity is low.
Rather than completely eliminating these dogs, you may want to repackage these items. Take them off your printed menu and try them as budget specials. You may find a winner or two.
The stars need to get your full attention. Are your guests still selecting the reliable cash cows? You may see the high gross margin items slipping in popularity. Chef Mario Batali (one of my favorite chefs) was quoted in a USA Today article: "There's less caviar, foie gras and truffles, but they're still there. They're just not on nine courses. They're on one course." This same article highlights other chefs who have decided to offer more price points for their patrons.
Expense accounts are being scrutinized at every major S&P 500 company. The current earnings season on Wall Street shows companies are slashing costs.
The wine lists are offering guests fewer trophy bottles as demand for the $200 plus bottle of wine has collapsed. Many restaurants religiously ordered their annual commitment from the same boutique vineyards without regard to consumption. Now, these wine cellars are loaded with these high cost bottles. Many have decided to end this practice and they are moving these bottles by the glass.
Are there ways to produce the same gross margins in this new era? Yes. You need more turns on busy nights. Offer early bird specials, table d'hote options, and popular add-ons for your popular menu items. Promote seasonal ingredients which typically offer lower cost of sales.
Customer knowledge (including dining out budgets) leads to effective menu planning efforts. Rather than completely revamping your current menu, you may find a few strategic revisions will help you meet your targets.
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