The last few years have been difficult for Food businesses the world over with many challenges like a pandemic, supply chain disruption etc. The hospitality business remains highly vulnerable to external factors like rescission, inflation, rising costs, etc. the F&B industry being part of this business is no exception. People think twice about dining out during adversities like pandemics and economic downturns. In these circumstances, it becomes increasingly difficult to make the business stay afloat, let alone make profits.
Cutthroat competition makes it difficult for restaurants to increase their menu costs out of fear of losing the business to rivals. So if you are a restaurant owner and think about how to improve your profit margins, the answer lies in three steps, i.e. finetune your expenses, optimise your resources and find a new source of Income. Most restaurants don’t make it to their 5th year of operation; it becomes tough to reach the breakeven point even if they do. In the below article, let’s discuss some of the direct and indirect methods to make a profit for the restaurant industry.
Controlling Overhead Costs :-
While talking about profits, the most crucial factor that comes to mind is to boost the sales and revenue of a restaurant. However, reducing the cost or expenditure is another way of increasing the restaurant’s profit. To make you understand better, please go through the below formula.
The total revenue earned – Total Expenditure = Profit.
Total Revenue = Sales from food and beverage.
Total Expenditure = Purchases of ingredients, wages, rent of premises, repairs, maintenance, utility fees etc.
So to make a profit, a restaurant’s revenue has to be higher than its expenditure. Increasing sales and reducing costs are the two ways restaurants can maximise profit; let’s see how restaurants can reduce expenses and optimise resources.
1) Periodic restaurant audits:-
To control escalating costs, you need to understand the verticles of expenditure. Creating weekly audit reports and analysing them is the best way to keep a tab on the price before it escalates. Maintaining purchase orders, monitoring inventory reports and reducing delivery errors are important ways to timely audit. With the cloud-based Point of sales and Inventory management systems, a restaurant can quickly generate reports on various matrices and monitor them periodically.
2) Optimising your Supply Chain:-
Optimising the supply chain by procuring quality ingredients at the best rates from reliable suppliers is another important factor in reducing costs. The restaurant needs to have real-time inventory availability in the warehouse, and that 360-degree view of all your outlet will be beneficial. Using 4PL logistics helps food businesses make decisions based on real-time availability rather than gut feeling, which may lead to over or under ordering. Outsourcing your supply chain to reliable partners can benefit the restaurant by creating a one-stop-shop solution for all your logistic challenges. Using pay per use pricing model rather than investing in warehousing, benefiting from the expertise of fulfilment service providers and thereby optimising resources.
3) Reducing Food wastage:–
Mismanagement of inventory is another reason for wastage. Overordering food, especially perishables that have limited shelflife and these going bad, is the same story in every restaurant. While it’s not impossible to totally avoid wastage, it’s the responsibility of every restaurant to minimise the same. The first step would be measuring the wastage and analysing the type of food waste, for example, vegetables, meat or dairy. Knowing which food ingredients top the wastage list, the manager needs to introspect and make strategies to minimise the wastage. Training front of the house staff can effectively reduce Misfires and misorders. If certain dishes have a high leftover proportion, it’s time to reduce portion size. Ideally, you can reduce the portion size by around 5 to 10%, as anything more may negatively affect the guest experience.
4) Organising Human resources:-
Wages are one of the cost variables which restaurants cannot do much about. The restaurant industry is demanding and getting an efficient staff, you need to pay them handsomely. A food business must use its human resources efficiently and hire staff only after proper cost budgeting. If you can manage tasks through interns and part-time contractual workers, hire them rather than going for full-time staff. Rather than giving a standard salary giving a sales-based bonus would be a better idea, this will incentivise the staff to work harder and smarter. Another way of increasing staff productivity is by encouraging them to multitask and rewarding staff who are initiative takers. If some staff have skills in social media, encourage them rather than hiring personnel for it or outsourcing the same to a third party.
Trusting your employees and treating them like your family is key to the success of any business. A restaurant owner needs to be empathetic to the problems of their staff while keeping respectful boundaries of what is and what is not acceptable behaviour in a restaurant. Pilferage is unacceptable behaviour, and it needs to be nipped in the bud before it starts eating into the restaurant’s profit.
Educating your staff on the consequence of internal theft on the business and the subsequent hindrance it will cause to their financial growth is a good first step to stopping thefts. Installing CCTV cameras in the storerooms helps staff be mindful that they are watched and discourage mischief. Access to cancel and rectify the bills in invoices has to be limited to managers or senior staff. The staff who is amending the bill need to enter the credentials and reason for the changes, limiting the ability to manipulate the billing.
6) Switch to energy efficiency:-
The restaurant needs utility services like water, electricity, and gas for cooking. Food business needs to optimise their utility service usage by maintaining some SOP to save where ever possible. The first step will be to use energy-efficient equipment, which may be expensive but will go a long way in saving electricity costs. Regularly maintained restaurant equipment consumes less energy; hence upkeep of appliances is important for energy saving. Air conditioning of the restaurant needs to be regularly maintained as the external climatic condition if the cooling becomes too much, bringing it down a few degrees can save a lot of energy.
7) Digitisation Your Restaurant:-
HoReCa’s business has been late in catching up with digitisation and technology. Mostly manually managed, the restaurant has started realising the many benefits automation can have on the food business. Today majority of the restaurants have managed to digitise the front-of-the horse customer-facing vertical by implementing the Point of sales software. The inventory management system has been helping restaurants digitise the back of the house, especially with procurement management.
The amount of digitisation a restaurant has to go through depends on the scale of operation. A large outlet that wants to scale its operation also can integrate the POS and the IMS to get a 360-degree view across its outlets. Procurement solution startups like SupplyNote give an option of third party integration, thereby providing tailor-making solutions as per restaurant requirements.
Finding a new source of Income:-
Having discussed the ways to control the cost, let us turn our attention to increasing the revenue streams of the restaurant
8) Increase online presence:-
The digital presence of a restaurant is inevitable. If a restaurant does not have a website or social media presence, it’s missing an important vertical of revenue. The food business website has to be optimised for mobile devices as almost 70% of website orders are through mobile devices. Listing your restaurant in online directories especially google my business is a great idea for attracting new clientele. The number of prospects who google the closest cafe or restaurant is pretty high, and you need to cash in on this. Encourage your visitors to give a positive review about yout restaurant as it validates your business and entices the prospects to try out your place.
Social media is another digital avenue a restaurant should try for marketing if they haven’t. Traditional marketing is expensive and has limited reach, whereas social media sights like Facebook and Instagram have many followers, and paid campaigns are affordable. The restaurant can run highly targeted ads on social media focusing on specific groups they feel are their targeted groups.
9) Offers and Amenities:-
Restaurants run on very thin margins; however, providing certain amenities can be a magnet for certain age groups. Free wifi is one of such amenities the college-going kids and young corporates appreciate. Declaring happy hours during lean hours is a good strategy to attract prospects nearby to increase footfall and get brisk business even at a low margin. Extending discounts to corporate houses is a good way to promote your restaurant to the clientele you think has a deep pocket. Cross promotions are marketing campaigns restaurants can launch in association with other brands or products. For example, a restaurant can tie up with new beverage brands as a cross-promotion and launch them in the restaurant either for free or at discounted rates.
10) Host parties and events:-
Depending on a restaurant’s space, a food business should host events, birthdays, corporate engagements, or even marriages to make revenue. A separate menu and packages need to be created for the parties and events, so the client has a ready reckoner to decide on. It’s always possible to make changes or additions if the guest needs to change the package. You can ask the restaurant.
11) Selling merchandise and branded products:-
A trend famous in the west and now gaining popularity in India, HoReCa businesses sell their branded merchandise in India. Cafes in India are at the forefront of exploiting this revenue stream. Blue Tokai is one of a few examples of Cafes that have a web of outlets across major cities in India and sell roasted coffees and merchandise. They have websites with a wide variety of coffee products, including Roasted and grounded, cold brew cans, Easy pour sachets, etc. Other than coffee, the merchandise list includes the brewing equipment, grinders, coffee mugs, etc.
Above mentioned are some of the mesures of how to make your restaurant profitable hope you find the same useful.