After reading an article in this month’s issue about the top ten myths of restaurant profitability, it gave me an idea for my next post – to touch upon the most common myths mentioned as well as include some of my own which I have experienced.
The Top Misleading Tips
- Purchasing in bulk to receive discounts saves money. The only saving you will receive is the discount from the original cost of your order. Smart operators will only purchase what they need to prevent food wastage, theft, spoilage and offering unnecessary specials at lower prices.
- Paying higher wages increases labor costs. The restaurant industry is a highly competitive labor market. Finding good labor can be a challenge. Offering higher hourly wages will increase employee retention, improve productivity and reduce employee turnover. Cost in hiring and training will also lower the overall labor costs.
- Overtime pay is due to bad management and poor scheduling. Paying overtime can prevent sacrificing the quality of service during a shortage of staff. A restaurant may have become busier than expected which may require some staff to work extra hours. Paying overtime can also act as an occasional incentive for your most deserving employees.
- Maintaining a lower food costs means larger profit margins. Several well renowned restaurants run well above average food costs, but they remain profitable. Focus should be placed on promoting items based on gross profit contribution rather than items with lower food costs (i.e. Dollars versus Percentage)
- Profit & Loss statements should be prepared monthly. Comparing monthly P&L statements will provide an invalid sales comparison. There may be a different number of total days or a different number of weekend days in each month. Most restaurants earn 50% of their sales on Fridays and Saturdays. Good operators will prepare P&L statements that reflect a four week, 28 day cycle to ensure consistency among each month.
- Deliveries should be checked by only a manager or chef. The manager and the chef are often the two people who have the least amount of time to thoroughly check the deliveries. Several companies will employ a receiver who is solely responsible for checking all deliveries.
- Restaurant cleaning should be completed by the staff. At the end of the day, part of the duties of the closing staff is to clean and prepare for the next day’s opening. However, outsourcing a professional cleaning company can provide special equipment and chemicals to thoroughly clean the restaurant much better and faster than your own staff. Appearance is everything in a restaurant.
- A complex menu offers more variety for the customer. The larger the menu selection the more ingredients you need to store which will lead to higher costs. A complex menu will require more training for both the kitchen staff and front of house. Well planned menus are simple and appealing.
- The most important part of pricing a menu is determining the food cost of each item. Costing each menu item to determine the gross profit contribution is important. However, evaluating the market should be the first step in understanding the type of customers you will be attracting and how much they will pay to dine. Studying the competition, consumer spending habits and income levels will provide valuable information.
- Cash overages are better than shortages. Neither an overage nor shortage is great news. Rarely will a customer pay more than necessary without an attentive cashier noticing. Overages can be a sign of unrecorded sales.
A Victim of Myths
Managing restaurants can have its fair share of challenges and frustrations. Restaurant operators must have a clear understanding of the business and be aware of misleading tips. In my previous workplace, the owners were so focused on reducing costs and trying to simplify procedures that they were blind sighted. The owners just couldn’t grasp the concepts of investing in their employees rather than constantly hiring and training new ones. Because of this, we were frequently short staffed and working on minimum levels of labor.
Instead of paying overtime, the quality of service and food suffered. So since the mindset of the owners was cutting costs, having a lower food cost each week was the goal. Great lengths would be done to achieve this to the very extent of depleting our inventory to a point we did not have sufficient supplies of food to sell. Frustration among the managers as well as the customers grew.
When it was time to review our profit and loss statements, our prior month was used as a reference. Sales and profit targets that were not met were questioned. Factors such as the difference in the number of days in each month, a different number of weekend days, the number of catering contracts and the number of holidays were neglected which lead to false sales comparisons.
The company did something right, but it took them over 15 years to realize they had to invest in a receiver for deliveries. For years, managers had to struggle trying to manage our 200 seat restaurant while trying to coordinate the deliveries. Wages remain low, but have slightly increased for some. Since appearance is part of the first and last impressions of a restaurant, the owners realized that spending a bit more money on a professional cleaning company could mean night and day compared to paying a cheaper company.
Change Your Way of Thinking
Restaurants like this can be found anywhere. Accepting the truth can hurt, but denying the truth that your restaurant is badly managed can completely destroy your business in no time.