The average profit margin in hospitality restaurants is around 3%-5%. This means that if restaurant owners do not pay attention to creeping costs, they run the risk of running at a loss even if their revenue has not noticeably dropped.
Here we will go through some of the most common causes of creeping costs in restaurants, and how owners can both identify and troubleshoot them.
Hospitality businesses often waste money by overstaffing their premises during quieter parts of the week. Your rota should reflect the amount of money that you are making at any given time.
These unnecessary staff costs are often created by business owners failing to pay attention to changes in footfall patterns. Factors such as changing seasons, and new businesses and housing popping up in your local area, can affect when your busiest times are.
If these changes are not reflected in the way that you staff your business, you could both lose money during quieter periods and become short-staffed during busier periods.
The first step towards optimising your rota for changing footfall patterns is to identify when your busiest and quietest times of the week are. Software to help you keep data on your business operations is necessary here.
Once you know when your busiest and quietest parts of the week are, you want to organise your rota so that each working member of staff is justified by a specific revenue amount. For example, if your chosen “revenue per staff member” is £100, then if you only take in £100 in an hour then you only have one staff member working that hour.
This will ensure that your business is profitable (or close to profitable) at all its operating hours.
Rota structure should be reviewed every three months to make sure that staffing levels are congruent with any changing footfall patterns throughout the year.
Restaurants spend on average 30% of their revenue on food and drink suppliers. This means that even shaving a small amount off your supplier costs can make a significant difference to your bottom line.
One of the reasons why hospitality businesses often overspend on suppliers is that they select their suppliers when they are starting out and then stick with these rates.
Since suppliers rely on long-term, predictable sources of revenue, they are going to charge newer businesses without a track record of purchases much higher rates than more established businesses.
Once you have a history of being a reliable customer to a supplier, you can use this to leverage better rates on inventory. You can strengthen your negotiating position with suppliers by shopping around and providing evidence that you can get a better deal elsewhere. Chatting with other businesses who sell the same type of food and drink that you do can help you identify who these alternative suppliers are.
Bear in mind that even if you do find better deals with alternative suppliers, it's better to use this to leverage a better rate with your current suppliers rather than change suppliers. There are more variables than just cost in creating a profitable supplier-business relationship and switching to a supplier who is inconsistent and unreliable will cost you more money in the long run.
Although you often don’t have much room for negotiation with premises leases (rent), there is often scope to get better deals on equipment leases than what you currently have.
This is because the amount you should be paying to lease a piece of equipment depends on the overall purchase-value of that equipment. On average, commercial kitchen equipment depreciates 15% - 40% every year that it has been used.
This should be reflected in the amount you are paying to lease that equipment. It's worth shopping around for equipment lease rates at least every two years. Chances are you could either get the same piece of equipment at a much cheaper rate, purchase that equipment for less than you would pay for an equivalent lease, or upgrade that equipment at no added cost.
You should see any time when you are open and not operating at capacity as periods where you are leaving money on the table.
Once you know when your quiet spells are, you should look to ways that you can bring in businesses at these times.
One of the best ways to do this is to try and work with businesses that are busy when you are quiet.
For example, if you are quiet between 10am and 1pm on weekdays, and you are near to a gym that you know is busy, see if you can flyer the gym offering discounts to their members for post workout coffees and smoothies.
Another example is if you are quiet in the late afternoon, and you operate near a school, offer a discount for kids food between 4pm and 6pm on weekdays.
As well as filling out your premises during quieter hours, collaborating with local businesses will help boost your local presence more generally resulting in increased revenue longer term.
In all businesses expenses will creep up if you do not keep your eye on them and consistently try to streamline where possible.
Hospitality businesses have less margin for error when it comes to managing their expenses. It’s recommended that you audit your expenses at least once every two years to make sure that you are not leaving significant money on the table.
Hopsy’s hospitality business management solutions can help you to simplify your workload so you can concentrate on big picture issues such as expense management. Book a demo with us today.
This article was written by Oli Baise. Oli co-owns a coffee shop in London and blogs about all things related to coffee and the coffee industry in his blog Drinky Coffee