If running a restaurant wasn’t already expensive, running one under new distancing regulations means less capacity and investment in safety infrastructure that will take a toll on costs. After speaking with some of our partners in the industry on how they toe the line between investing in innovation and cutting costs during this time, we found five things restaurant owners can do to boost profits and stay open beyond the COVID shutdown.
1. Re-engineer Menus
The restaurant dining experience has changed forever and menu items must also adapt to these times.
First, it is important to develop a tighter menu with a focus on customer favorites and high margin items, replacing underperforming dishes with a rotation of new products that can excite and retain customers. Taking the example of dishes with a high ‘perceived value’, such as proteins, desserts and drinks, can allow for higher prices and better the bottom line. Improving from 20 percent margin to a 35-percent margin on a $12 dish, serving five0 covers per night translates into a $90 net increase in profits, allowing for increased cash flow to sustain operations.
Second, it is becoming essential to focus on items that will travel well for upwards of 30 minutes in a third-party delivery or for a customer to pick up. This may entail separate packaging that maintains the freshness of the ingredients, or coming up with pre-cooked meal kits for the customer to re-heat up and assemble at home.
Third, menus should take into account changing customer bases. For instance, a spot that usually serves tourists may need to adapt to a more local crowd. We’ve found that restaurants that offer family-style meals find more success since people are at home with their children, looking to save time and support local businesses.
Lastly, food cost should always be a consideration when making menu changes. This helps make sure each item is selling at a higher margin than before.
2. Optimize Inventory
Food cost is one of the key variables restaurants can manage on their P&L/ During these times, it’s important to evaluate which suppliers are offering deals and cut down on ingredients that are more expensive or low margin. Some restaurants are focusing on ingredients that have overlapping uses in multiple dishes so they can order bigger quantities, less often and still take advantage of bulk discounts. This is also a time to experiment with ways to preserve ingredients through techniques like pickling, smoking or canning to extend the shelf life of the inventory, as well as testing out new trends in fermentation.
An easy way to get started on optimizing inventory is by calculating the cost of goods sold with the following formula: Beginning Inventory + Purchased Inventory – Final Inventory = Cost of Goods Sold
Let’s say you operate a burger shop with beginning inventory valued at $5,000. You purchased $1,000 in ground beef patties at the beginning of the week. At the end of the week, you had inventory worth $4,000. CoGS for the period = $5,000 + $1,000 – $4,000. CoGS for the period is $2000.
By optimizing inventory to focus on more creative ways to use the same ingredients- you could take advantage of a bulk discount of 10 percent off of burger patties, so the calculation becomes:
$5,000 + $900 – $4000 = $1900
Next, calculate the food cost ratio by dividing CoGS by sales: CoGS / Sales
The industry average is around 20-35 percent so with a CoGS of $1900, a restaurant should have sales at around $6300. By reducing the CoGS side of the equation, the restaurant can be leaner and operate more profitably going forward.
3. Customer Communication
The situation in the pandemic is changing every day, so it is important to keep customers updated on opening times and any changes, but also to ensure they feel safe visiting a restaurant by highlighting the safety and hygiene measures in place. Social media presence is free and a great way to remain connected to customers and build a community.
It is recommended to schedule one post per day, since customers correlate recency of posts to whether the restaurant is operating or not. Professionally photographed food pictures and a call to action to support local restaurants are two effective ways to create engaging content, and this is a great way to advertise new items and takeout and delivery options. Many recent surveys show that restaurants with professional food photos featured on delivery apps perform significantly better. To build this community is not easy and chefs, servers, hosts and managers should all work together to build social media presence by asking customers to follow the restaurant when possible.
4. Adopt Technology
Now may actually be the time to evaluate technology and digital tools that will directly add value to your business, particularly with the swathes of free tech available on the market right now. Low-cost, high-impact investments are less risky rather than spending a hefty sum upfront in times of uncertainty. It’s important to think holistically about what value technology can bring: while top line revenue growth is of paramount importance these days, time and food cost savings can add up to make a big impact on a restaurant’s bottom line.
Though restaurant technology has come a long way in improving the front of house customer experience in discovery and delivery, one area of the restaurant that is often overlooked is in the back of house. Given smaller staff sizes during the pandemic, it is more important than ever to empower kitchen teams to get more done with less effort. Technology can help streamline ordering for free, save time and remove errors to help a restaurant’s bottom line and manage their business more effectively.
5. Lean into Regional Options
Many restaurants have partnered with local producers to sell specialty and unique items as a part of their storefront. This won’t ever replace a restaurant’s main source of revenue but is another great way to support the local producer community and offer customers something more unique. This is a time for mutual aid and innovation in the food industry, and working with local suppliers and producers is essential to helping the industry come out of the crisis stronger.
These are just some of the many creative ways members of the restaurant industry globally have been adapting, and hopefully through platforms like this we can continue sharing knowledge and experience to come out of the crisis stronger than ever.