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 http://www.sec.gov/ 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.

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?

3/31/2011

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.

Innovative Uses to Increase Your Return on Investment in Technology

Most restaurants with revenue above $1 million have invested in a POS system.  These systems track the entire sales cycle and provide tremendous reports to help managers understand their business.

Popular reports show customer counts, server productivity, menu item popularity and scheduling efficiency.  Since all customer orders are tracked by time of day, the same data can be used to track arrival rates and average service time.  This information combined with your seat count can be used to predict the length of lines on busy nights.  Your host staff needs this data when communicating approximate wait times.

Guests counts by day of the week can be used to improve your orders for highly perishable items purchased daily.  If you offer a complimentary bread basket, you can use the information to reduce waste.  Standard recipes can be combined with expected menu item sales counts to help forecast demand for expensive protein items.

There are reports which show menu item counts by meal course.  Dividing these category counts by your covers will provide percentage data which can be used in developing a customer profile.

Restaurant chains have developed pricing strategies built around a dinner for two including one split appetizer and two entrees.  The data used to develop this strategy comes from the menu item reports.  You can use the recap sales by meal course to find out what percentage of your guests choose a dessert.  A server contest could help raise this percentage and your POS system will provide the name of the winner.  Menu item sales may be tracked by server.

For longer periods of time, including weekly, monthly and annual reports, the system tracks your check average.  This number equals the total revenue divided by the total number of guests served.  Some systems allow you to enter the number of seats.  The total number of guests served divided by the total number of seats equals the turnover rate for your dining room.

Sales equal the number of seats times the number of turns times the check average.  Should you expand your dining room?  What will help raise the check average?  Are we losing business?  These questions can be answered with standard reports used together to see the whole picture.

If you track the number of prospective guests who decide not to wait for a table during busy periods, decisions regarding your capacity can be made using this data.  This information is particularly important for restaurants in resort areas or which depend on sales from just one day a week.

Many restaurants build their menu each day using items available in the local marketplace.  A significant share of the daily revenue is derived from sales of specials.  If your chef has an eclectic approach, you will find it more difficult to predict customer behavior.  Your covers forecast may be accurate.  However, you won't have a wealth of data on specific menu item popularity.  Expect a higher number of sold out entrees and greater spoilage despite the use of market fresh ingredients.

POS systems can be setup to track more than just Special 1, Special 2, Special 3, etc.  You can create galleries of specials to track the preferences for specific entrees.  This data can be used to create seasonal menus which will reduce the number of daily specials while simultaneously offering the most successful menu choices.  This menu approach can help chefs and managers improve forecasts and increase guest satisfaction.

Focused menus are generally used by ambitious companies with a national strategy.  It is much easier to order food for a limited menu built around burgers, pizza, chicken, burritos, or stir fried Asian combinations.  Your POS system manufacturer may offer enterprise reporting with many of the best reports available for a region, state, metropolitan area or the entire company.

These restaurant management groups track benchmark statistics including average unit volume, food cost percentage, labor cost percentage and gross profit.  Stores which are not meeting company objectives receive more attention from the headquarters staff.  The enterprise data can be sliced in more creative ways to make comparisons more meaningful.

The location profile can be used to create logical groupings including interstate exit stores, airport stores, mall food court stores, urban locations, locations near schools, etc.  Using targeted benchmark data can provide useful information for improving operations results and in selecting future sites for expansion. 

See Your Menu Through the Eyes of Your Customer

Pretend you are dining at a restaurant for the very first time.  You have just opened the menu handed to you by your host.  The front cover has a picture of a boat, the name of the restaurant in large font, and the family name of the owners.  A short subtitle contains the words seafood, fine and dining printed in italics.  The back cover explains the restaurant's history, the address, phone number and the same information for a sister restaurant.

Opening the menu, you unfold an 11" x 17" sheet of paper.  Each side offers 8.5" x 11" of space.  The half inch margin all around offers 150 square inches of space.  The restaurant owners use this space to create a guide to help you through the order process.  They want you to enjoy your experience.

Where do you begin to look for information?  The center feature box on the right side?  Maybe you direct your eyes to the upper left hand corner.  You may scan the entire document quickly to make sure the term fine dining promised on the front cover doesn't mean too expensive.  Once the pricing scheme is mastered, you'll try to solve the main puzzle.  What should I order?

The menu may have photos, feature boxes bordered in bold colors and other eye catching magnets to grab your attention.  One of these feature boxes may offer specialties of the house or family favorites.  Perhaps, the menu reflects a Mediterranean theme.  It is common to see the various meal courses in separate boxes including appetizers, entrees, salads, soups and side dishes.

In a short time, your waiter will arrive and ask if you have any questions.  In addition, they may describe the specials of the day.  They should ask if it's your first time dining in the restaurant.  Hopefully, they will make you feel at home while describing the popular dishes and cooking techniques employed in the kitchen.

Normally, you will be given a few moments to make your preliminary short list.  The waiter will return and ask if there are any other questions or possibly a simple "Are you ready to order?"

Depending on your selections, there will be different options and you will be asked to make more decisions.  Options will include desired dressings, toppings, side dishes (complimentary and additional charges), cooking method and temperature.

Remember, the owners want to help you truly enjoy your dining experience.  They have a major investment in the marketing tools used to get you through the front door.  They designed the menu to insure their guests order and receive great meals, return again often and tell others of their excellent dining experiences.

If the owners accomplish their objective, you have an excellent chance of enjoying your meal including the atmosphere, your food and the companionship of your fellow diners.

Some restaurants do a great job accommodating parties wishing to share their selections.  They offer their guests additional plates and silverware.  Restaurants specializing in shellfish dishes often offer bibs, special equipment and instructions for separating the food from the shells.

Since the number one financial objective of the restaurant is to make a profit, your entire experience will be designed to help you spend money.  Generally, starters (including appetizers, salads and soups) are more profitable on a % basis than the entrees.  Guests who are made to feel welcome may linger for a dessert course.

The dessert course is more profitable than the starters.  Commonly, you will be handed a separate dessert menu and the waiter may have strong opinions.  Everyone wants you to leave with a great taste on your tongue.

Some restaurants use the valuable space in the menu to highlight additional charges for splitting entrees, minimum dollar limits, and charges for items generally offered for no additional charge.  You may see a $10 charge for splitting an entree.   Bleu cheese dressing may cost you an extra $1.  Guests seeking a meal during the dinner period may be asked to spend at least $25 each.

Seafood market prices can change significantly from week to week.  Some restaurants use the phrase "market pricing" on dishes which feature raw ingredients with the most volatile prices.  Lobsters and whole fish may be sold by weight.  Other shellfish may be sold by the dozen.  A three pound whole fish sold for $25 per pound will show up as a $75 charge on the check.

Your guest check may seem too high for the meal you were served.  Take a look at the line items with the highest prices.  I have been charged $100 for a mixed shellfish appetizer in a restaurant featuring entrees between $25 and $40.  The waiter never mentioned the price when describing the presentation and optional sauces. 

Ask for a full accounting if anything appears to be amiss prior to handing over your credit card or cash.