What’s the secret to Restaurant Profitability?

Business, Restaurants

Restaurant profitability is influenced by every part of the business. And each aspect of the business needs to be aligned to give the best profit performance.

It is easy to be distracted from financial management in a restaurant, when day to day tasks take over. Financial management isn’t as exciting as developing the latest menu. Nor is it as exciting as being front of house to welcome new and eager diners. But it is crucial to restaurant profitability, and a system to analyse the profitability of each dining session is essential.

The costs and dynamics of lunch sessions are often different to evening dining. Are the variances clearly identified in the business model? Food and beverage requirements can vary significantly between the two dining sessions. Time is likely to be a factor in both delivery of the service and churn of diners. This has an impact on headcount, front and back of house, as well as on the menus. A restaurant running lunchtime and evening dining could be viewed as two separate establishments. The profit model will be quite different for each.

Of course there are basics to restaurant profitability.  Like keeping fixed costs as low as possible and managing variable costs, strictly in line with demand. This is another basic which can get overlooked. The efficient and effective management of variable costs is extremely important. Inefficiency is usually the reason that variables increase and bleed profit from the business. And manpower is often the most inefficient asset!

We all know about the fast food chains that upsell at every order point. “Would you like chips with that” has become a byword for upselling opportunities. It is just as appropriate in non fast food establishments. The subtle upsell of extra food portions or beverages is a skill that all front of house staff should have. It is a crime to leave easy profit on the table! Subtlety is the key. Real savvy upsell is achieved through dynamic product display and menu engineering. Let the main focus of the staff to be on genuinely caring for and looking after your guests!

Then there is menu pricing. Dish prices are not plucked out of the air! They are based on a range of estimated costs. And there’s the clue. These costs need to be verified very regularly. Extra waste or marginal price increases from the supply can make restaurant profitability evaporate in a sitting.

And finally there is the importance of driving gross revenue. If this is just too low and the business is not generating break even income then you need to act fast. Strong financial management will give you indications that all is not well.

External intervention can help you turn things around before the damage is too great.


Would you like to know more?

Download our latest White Paper entitled “Why Return on Hotel Investment Can Significantly Underperform” or contact me, Lucienne Mosquera (Managing Director) for an informal conversation about your Investment.