Profits are on purpose, not by accident

In my 30+ years of consulting / troubleshooting for failing operations, I have found, more often than not, that the owner / operator has, in trying to increase profit, cut cost in very harmful or damaging ways. They have chosen to cut their labor costs by lower the allowed percentage, raising their menu prices without doing market analysis, shrink their portions, eliminate free refills, stop their pest control program, and many other damaging choices. One operator, I consulted had trained employees to recycle already used paper products to use again for another customer. Another one would put a plate of fresh herb and veggies on the guests table for them to put in their soup, but after the guest would leave, they would take the leftover items on that plate and reuse them for the next guest.

I wish I could say I understand their choices but the fact is I will never understand why someone would spend hundreds of thousands of dollars to purchase their dream restaurant and then consciously make decisions that will ultimately lead to failure. There are countless ways to lose money in the restaurant business, be it in the kitchen, bar, dining room, front counter, storage area or even back office, however with careful planning and preparation you can cut cost without losing sales, customers or reputation. This being said, let’s talk about what an owner / operator can do to stem potential losses by rethinking how they do business in those areas.

Here are 7 of 50 successfully tested practices that I have put into place, in the operations I have been called upon to save. All of these, implemented correctly, are very effective in reducing losses and as a result put more of your hard-earned sales dollars to the bottom line. I have created a checklist of 50 (available at a cost) to aid in spotting potential problems. Some may not have the potential to generate significant savings, but it is important to remember the cumulative effect that successful implementation of several or all of these controls will create to the overall profitability of your business.

Let’s talk about 7 of these practices: (All 50 available at a minimal cost as a well as implementation training)

1.      Lower inventory levels.

Obviously, there's a limit to how much you can lower inventory levels; but it's common for many restaurants to have more food on their shelves than they really need. Evaluate your inventory levels product by product and base your reorder levels on actual usage and par levels, rather than an educated guess, on how much you think you'll actually use until the next delivery comes in and add in a small, but reasonable safety factor. Don’t forget to check your calendar for holidays and possible events that will increase the usage for the given time frame. By reducing excess inventory you'll have less waste and spoilage and you'll likely see your staff do a better job of portioning and handling your expensive products when there is less of it on hand.

2.      Calculate and report on your cost of sales and labor cost every week.

It's a fact, what gets measured improves and your biggest and most volatile costs are food, beverage and labor costs. These costs added together are referred to as a restaurant's prime cost and the most profitable restaurants in the industry know their prime cost at the end of every week. When there is a problem, they can react quickly and get it resolved instead of not knowing a problem exists when this information is only calculated once a month.

3.      Cost out every menu item and recipe.

To be profitable, a restaurant not only needs to achieve specific sales goals but it must also hit certain cost targets as well. However, if you don't know what your target should be then how can you expect to hit it? The first step to projecting a cost target is to create a master inventory list and pricing of every ingredient you purchase. Using the master inventory, you can calculate the cost of every recipe and menu item for comparison to the selling price of the menu item.

4.      Calculate your ideal cost regularly.

The prerequisite for controlling food cost is to know what your food cost should be, in other words, your food cost target. First, you must go through the exercise of costing out your entire menu (as explained above); next, calculate the ideal cost based on actual menu sales mix from your POS product mix reports. This report should tell you the quantity sold and total sales for each menu item for a given period. Simply list the cost of each menu item and the number of sales for that item. Then, multiply the cost times the number of sales to arrive at the ideal cost for each item. Next, add the ideal cost for all items to arrive at the total ideal food cost for the period. Now compare your targeted cost to the actual cost for the period. The difference is the potential cost savings lost to over-portioning, theft and waste. However, keep in mind that if your actual food cost goes up and your ideal food cost goes up as well, it is because of your sales mix and very unlikely it is theft. If your ideal does not go up then you have a problem within the operations to address.

5.      Maintain at least a 1/3 of your staff as part-time employees.

Retail businesses, including and in particularly restaurants, simply cannot give every worker a 40-hour work week. Retail businesses rely on the availability of part-time workers so that peak periods can have maximum staffing while allowing for staff levels to be reduced as demand wanes. Having additional staff to take up the slack when fulltime workers are absent or approaching overtime is also a great way to avoid excessive overtime. Most restaurants find that having at least one-third to one-half of their staff as part-timers helps in achieving comfortable yet affordable staffing.

6.      Filter frying oil every shift. Change fry oil at least weekly.

For restaurants that serve a lot of fried items such as seafood, French fries or appetizers, keeping oil clean and fresh not only enhances the flavor of the food, but also prolongs the useful life and therefore helps in controlling the cost. Considering the average fryer holds anywhere from 35-50 lbs. of oil, costing anywhere from $20 to $50 to fill each fryer, having a daily filtering routine can save big bucks.

7.      Turn off unneeded burners, fryers or ovens during off-peak time.

An often-overlooked opportunity for cost-savings is utility costs. Unneeded gas or electric burners, exhaust hoods, steamers and ovens can use thousands of dollars in wasted energy each year. Add to that the additional electricity or gas for heating and cooling unused dining rooms. Utility costs typically range anywhere from 2½-4½% of overall sales. Incorporating the temperature setting and use of equipment into opening, shift change and closing procedures can produce significant cost savings. I have had several operators take their name tag label machine and place an on /off time of every piece of equipment and light switch in the restaurant, including the customer restrooms. All were timed according to the time they were needed for use. These operations saw utility costs drop 30% to 45%.