Expenses Can Be Overwhelming
As in any industry, labor accounts for a large percentage of overhead in food and beverage establishments. Similar to how product inventory represents a large part of operating costs in the retail industry, food and beverage costs contribute heavily to the operating costs of restaurants.
There does not seem to be much room for profit when you add food and beverage costs to equipment and technology costs, rent, utilities, insurance, advertising and marketing costs, and franchise fees. With all of the expenses of running a restaurant, it is a wonder that there is any room for earning a profit without chasing away customers with excessively high prices.
Using specific labor management practices (minimized labor costs, inventory controls, qualitative controls, and employee procedure controls) can help you to maximize your profit by minimizing your expenses
How to Quickly Minimize Labor Costs
There are a minimum number of employees necessary to open a restaurant up for business every day and close it down at night. Anyone else that is generating payroll expense during any particular shift should be there because their presence is in direct relationship to the current shift’s business volume, not because their name showed up on the schedule. Payroll costs are not a hard-and-fixed expense. They can and should be as variable as the number of covers on any particular day.
Understanding key ratios and effective scheduling principles can bring runaway payroll costs under control quickly and easily. Likewise, understanding how to implement portion control and a variety of other cost reduction methods are an essential part of every restaurant manager’s day-to-day responsibilities.
Factors Affecting Inventory Control
With today’s food costs running as high as 33% of gross sales in some markets, there is no margin for error when it comes to managing costs. An effective cost-control program must be multifaceted in order to close all of the profit-draining holes that exist both in the front and the back of the house. Any comprehensive cost control system must take into account several factors, including inventory and portion control, just-in-time ordering to avoid spoilage, vendor price comparison, accurate receiving procedures, waste, prep and pull procedures, compensation, and coupons control.
Of course, quantitative techniques, or “number crunching”, is a basic step in the process of reining in food costs and keeping them under control. The ability to create a budget and track all expenses against that budget provides an accurate snapshot of actual food costs and other overhead, but it does little to identify all of the factors that contribute directly or indirectly to those expenses. Likewise, knowing your average ticket and table turnover statistics provides a good foundation for sales and revenue forecasting. Use a budget in conjunction with measurements and ratios for an accurate idea of how to improve your restaurant’s profits.
Using Qualitative Controls
Although many issues can be measured using quantitative measures, some issues contributing to your P&L, such as employee turnover and customer satisfaction, need to be measured qualitatively. Qualitative controls can also be extended to purchasing by ordering specific brands based upon their quality and cost attributes and buying food, beverage, sanitation, and other products in the most appropriate weights or package sizes to optimize costs.
Stringent inventory control procedures also contribute to managing food costs. While a manual inventory control system is better than no inventory control system, computerized systems offer a method for easily managing the entire inventory control process, which includes receiving, storage, issuing, quality control, waste and theft-prevention measures. Beverage management, while a part of overall inventory control, requires additional oversight in order to regulate pours and to ensure that each drink served is priced correctly, according to liquor brand. By using qualitative measurements in specific aspects of your restaurant, such as inventory control, you can greatly minimize the excessive expenses that your business may be experiencing.
Standard Operating Procedures, Employee Training, and Evaluations
Developing written Standard Operating Procedures (SOP) will address all front and back of the house operations. An effective SOP, coupled with a comprehensive employee training program, and an ongoing evaluation program, will show remarkable improvement in not only the environment within your restaurant, but also the profit that your business sees.
Properly trained employees not only contribute to a positive customer experience, they also contribute to cost control by adhering to portion/inventory control procedures, by following other cost containment procedures identified by management. While food costs may be one of the biggest expenses faced by restaurant owners and operators, they can be manageable with effective systems and procedures enforced in the restaurant.