5 errors which eat restaurant profits

We’re passionate about restaurants and our founder, Jaipal, started Favouritetable in response to his local restaurant owner losing profits due to what he saw as unavoidable cost. Restaurants are businesses just like any other and the first rule of commerce is to make a financial surplus, period.

In this short blog we highlight some areas causing a restaurant’s profits to leak away, or not be what they should.

Confused marketing

Granted, marketing can get very in-depth, to the point where restaurateurs conclude they have to hire in a group of city slickers to come up with all kinds of concepts, mood boards and other concepts in order to just do the basics. Certainly restaurants and groups with high profiles and lots of cash will turn to external consultants when they need some help, but basic marketing isn’t beyond the capabilities of independent restaurants.

The key here is to keep it simple, and answer some basic questions, such as “what do we want prospective customers to know about our business?”; “what are our key strengths?”; “what is consistently true about a dining experience in our restaurant?”; “what do we want prospective customers to do when they see our marketing?” followed by “...and how can they do it?”.

The objective here is to establish a brand for the business which is recognisably yours in the minds eye of the customer. That could be built on the quality of the food, the ambience of the interior, the friendliness of the staff or a host of niche attributes such as being dog friendly or having a wide selection of vegan dishes on the menu. Being and saying all of those things, however, will confuse the customer even if it’s true - marketing should concentrate on some key strengths to hammer them home in any marketing activity.

What do we mean about confusing the customer? Well, let’s say the restaurant takes out some adverts in the local village magazine, creates a flier to go through doors and decides to add some compelling comms to its Facebook page. If they all concentrate om different things, then it is confusing and leads the customer unsure what you’re actually saying. That would be a shame, because a confused customer is likely to take their cash to somewhere with more clarity, meaning that not only is your marketing spend wasted but you lose the revenue and profit on what could have been a nice sale.

Hidden and runaway costs

Let’s make one thing clear: restaurant owners cannot scrimp and save their way to profitability. Sooner or later the result of overzealous cost cutting will come back to bite them, as standards drop along with customer numbers.

However, taking one’s eye off the ball when it comes to cost control is a sure fire way to burn profits yet a surprising amount of restaurant owners accept the lines of their P&L accounts often because “they’ve always been there”. 

Once a business owner starts looking at costs with a clear and rational mindset, a significant number of entries will often be found and can be put in the imaginary “do we need that?” bucket. Here are some examples:

• Ineffective advertising. Ads should always be measured for a return on investment. That half-page ad which has been running for year will be doing wonders for the publication’s P&L, but may be less than positive for yours;
• Staffing. Very contentious, we know, but nonetheless staff costs should always be reviewed to make sure shift patterns and staff numbers align with the needs of the business;
• Suppliers. We’re big fans of loyalty in the supply chain, and supporting local traders. However, this is business after all so a periodic line-by-line check of invoices to satisfy yourself that you’re getting the best deal is always beneficial. Frankly, are there savings to be made by switching to a competing supplier?
• Consumables & supplies. This is where savings can really be made, as long as they aren’t noticed by customers or negatively impact their perception of your business. Napkins (do you need the expensive linen-feel disposables?), sachets, cleaning materials, bottled water (bottle your own?) and a myriad of other items can easily be cut or changed.

As we said, you can’t cut your way to profitability as part of a plan which excludes growth of the business overall. But it is perfectly sensible to operate a relatively lean regime when it comes to costs, because it is amazing how the little things add up to significant savings over time. Think about it like this: if you save £2 a day on something, that’s £14 a week, or £728 a year. Over five years it's £3,640 which will straight to your bottom line.

Unproductive/disruptive staff

We’ve said it before and we’ll say it again here: staff are your best asset. You know this already, because you can’t operate your restaurant without them. From service staff to the kitchen brigade, they are the people responsible for delivering your vision. They are your knights in shining armour. 

Well, most of the time they are but we’ve all been in situations where, at best, there’s someone in the team who isn’t performing. With some coaching and sometimes a bit of a talking-to they’ll often become star performers, but if they don’t - well - you have a problem. The issue is that unproductive staff not only contribute to a poor customer experience (which of course impacts the customers’ likelihood to return) but they are using up your profits for little return. The worst case scenario is more than one, or indeed all staff working at sub-standard levels. That’s a real problem and frankly it is unfair on you, the owner, and you shouldn't put up with it.

How do we solve the issue of unproductive staff? In many ways it is very simple: staff need to understand that their employment is a deal; a two-way arrangement; a 50:50 contribution to the business. They need to understand that by taking your money, they have to perform to the standards you require, be them financial, customer satisfaction, team player or any other KPI you see fit. Make it very clear what staff are expected to achieve, to what standard, and how they will be measured. One thing we always mention in blogs on this subject is to never, ever tolerate disruptors even if their on-paper performance is superb. Disruptors will eventually bring the house down and with it your P&L’s profit line, so if you have them, find a way to get rid.

Poor/non-existent technology

“We’ve always done it this way”

“What we’ve got works well enough for us”

“All this new-fangled technology. Nah, it’s not for us”

“But we like our current software/epos/whatever supplier”.

We’re humans, after all, so we do have a propensity to stick with what we know or find reasons not to change things. That’s very noble, but misses the point, because having the right technology isn’t about us, it’s about what the customer expects. Many restaurateurs fail to grasp that idea and are losing revenue and profit as a result. 

Taking reservations over the telephone with pen and paper does work very well, until things go missing. Then all hell breaks loose as orders go astray, diners arrive unannounced and tempers get frayed. Customers will only tolerate such things as characterful of the restaurant for so long, before deciding that quaint and slightly idiosyncratic restaurant ways are just a hair’s breadth from being downright rubbish. 

There’s another key point here, too: you may not be a great internet user; you may not like or use social media; you may not own a smartphone and you may live your personal life in a terrestrial, non-digital world as far from technology as possible. You know what? That’s absolutely fine for you personally, outside of your business - sometimes it is great to just ignore all that stuff. But when it comes to the business, you absolutely must recognise that customers do use all of these methods day to day and expect your restaurant to, too. 

Our Business Development Manager, Ian, often comes across restaurant owners who say things like “no, we don’t want any of that new technology. If customers don’t like it, they can lump it”. Ian is a polite guy but it’s on the tip of his tongue to say “would you take the same attitude if we were talking about, say, dishes being cooked properly?”. He doesn’t say that, of course, but the principle is the same. Customers absolutely expect certain things, and in 2022 they vehemently expect online booking, digital menus, order-at-table and pay-at-table at the very least.

Don’t lose customers and their contribution to your bottom line because of your personal attitudes towards technology. 

Poor pricing strategies

We talked about pricing in our last blog but it well worth mentioning it again. Put simply, what restaurants charge their customers has to “add up” - restaurateurs must know their numbers. There’s no quicker way to reduce profit than to sell something for less than it costs to produce it. 

We won’t go into it again here, but if restaurateurs find themselves thinking about pricing and coming out with any of the following lines, it is probably time to rip up the menu and start again:

“We’ve always charged that”

“We can’t charge more because the customers won’t like it”

“Ah, well, that dish didn’t really cost us anything because…”

“Yes, we lose on that dish but it is ok because…”

Wrapping up

We hope you have enjoyed our slightly light-hearted look at a few reasons restaurants might be missing out on profit. We’ve chosen these topics to demonstrate how little things can add up to big things when it comes to generating surpluses right across the business, and they are presented here just to get the creative juices flowing. 

If restaurant owners seize upon just one of these areas and make savings, get better staff performance, generate more customers or produce more effective pricing, they’ll be onto a P&L winner.

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