5 profit eroders

We all know that owning or managing a restaurant, pub or café bar is hard work. Very hard work. It is often frantic, extremely demanding and fast-paced, requiring multiple and often conflicting priorities to be juggled. 

Customers must be kept happy, staff engaged, inventories monitored, beautiful food created not to mention a plethora of red tape to manage. Once all of that is successfully done, hopefully the restaurant will be a thriving enterprise which not only delights customers but makes its investors a healthy profit. 

Sometimes, however, restaurants make less profit than they could, due to unnecessary spending. Here are our five hidden profit eroders.

Consumables

Broadly these are all of the non-core items which are used kitchen and table side and it is amazing how much of them get used every day. Most owners want their customers to experience the best of everything and it isn’t uncommon for food and beverage-oriented outlets to go to town on serviettes, sachets, table linen or take-away disposables. Switching to lower cost items can seem like penny pinching, but the pennies do add up over time. Further, the customer probably won’t even notice. 

Similarly, buying lower cost foil, cling wrap, cleaning products or kitchen towels of an acceptable quality will have a cumulative effect at the end of the financial year, keeping the owners and their accountants happy.

Over staffing

This may appear controversial, but many restaurants simply have too many staff at any one time. The vagaries of service patterns of course mean that businesses will always have periods when staff outnumber customers or there are not enough, but an occasional deep-dive into the business’s standard operating norms will often pay dividends here. 

Team members’ productivity and performance has a direct bearing on how many staff are needed: lower performing staff will be required in greater numbers in order to achieve the same productivity as fewer but higher performers. Taking an honest look at what is expected of staff and their performance can help shape a staffing strategy which, if implemented, will ultimately bring down the wage bill.

Restaurateurs should be wary of the inherited “we’ve always done it this way” attitude often found within some team leaders. The current staffing arrangements could well be fixed in stone for a very good reason, but questioning if things could be done differently may pay dividends.

Ad-hoc advertising

A laissez-fare approach to advertising is often a sure-fire way of losing money and therefore bottom-line profits. Without a joined-up and carefully devised strategy, restaurants can fall into the trap of accepting offers of fire & forget adverts within irrelevant publications. Slick advertising executives will extol the virtues of a quarter page ad in their publication and impress with their readership and distribution figures, making the offer seem compelling. In many cases owners will simply think “why not?”.

The problem is, one-off adverts are geared towards filling the publication’s pages rather than providing a genuinely high return on investment for the restaurant. At the very least, owners should do their sums and calculate how many covers will be needed to not only cover the cost of the advert, but create a financial surplus. The answer can be surprisingly high, leaving restaurateurs with the sinking feeling that, after the euphoria of seeing their business in print has subsided, their money was wasted.

Rather than fall for knee-jerk promotions, it is far better to set a marketing strategy – aligned with a fixed budget – and stick to it. Moreover, the response from adverts should be measurable in order to establish whether or not the media concerned is actually a good source of custom. The great news is there are a range of easy to use marketing tools out there which will engage customers without costing the earth, and are measurable. 

Unmeasurable, ad-hoc adverts which don’t align with any strategy are a major cause of eroded profits.

Portion control

The pursuit of customer delight is a noble cause, but in some restaurants can create a run-away effect if not controlled. Big brand chains and high-end famous-name restaurants have well-honed practices for controlling the size of portions, to strike the correct balance. It isn’t always so easy for smaller restaurants with less formal infrastructures or kitchen brigades which haven't attended catering school.

The simplest way for a restaurant to determine if its portions are too large is to monitor plate waste. Quite simply, if an owner can see there is a pattern of food going in the bin, the portions are probably too big (unless there are quality issues!). Changing the behavioural patterns of chefs, however, can be a challenge when all they want to do is wow customers with their art. 

Perhaps one way to bring the issue to their attention is to give chefs more exposure to the finances of the business: we’re not talking about making them responsible for the restaurant’s entire P&L, but illustrating how excess waste hits profits may result in that lightbulb moment.

Customer churn

If a restaurant has full capacity, it doesn’t really matter if those diners are new or repeat customers, right? They all pay their bills and the coffers for that lunchtime or evening service are full. Looked at in isolation, this is quite true and the restaurant owner will be able to zero the till system with some satisfaction. 

The truth is that there is a financial cost of acquiring new customers, be it through advertising or promotions, so retaining existing customers is key to keeping acquisition costs low. A restaurant with high customer churn will inevitably have to use its cash reserves to generate new customers, eating into profits to do so. By contrast, returning customers have a single cost of acquisition yet provide recurring profits. 

Wrapping up

As is often said, the little things make a difference and this is particularly true in the restaurant sector.  Many profit-eroders are unnecessary costs which over time have become normalised in the business, often as a result of embedded opinions, working practices and traditions. 

By taking stock of these areas and challenging the status quo, restaurateurs will undoubtedly unearth alternatives which cost less, have no negative impact on quality and help return a healthier surplus at year end.

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