Tag Archives: RESTAURANT PROFIT

CHEFS – VALUE and the TOP LINE DRIVE the BOTTOM LINE

23 Saturday Jan 2021

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In the restaurant business there are really only two ways to view profit:  a very small amount of profit balanced by very significant volume, or a significant amount of profit on far less volume.  How you approach the design of your restaurant in this regard will determine nearly everything else.  How you approach profit will determine what your physical plant will look like, the scope of sophistication in your kitchen, who your vendors will be, how many employees you will hire and the depth of their experience, where you advertise and how much you invest in that, your table top appointments, and even your hours of operation.  So, if you are in the process of ideation with regard to a restaurant – then start with one simple question:  “How do I want to measure profit?”

In those restaurants where profit is measured in terms of smaller numbers with significant volume then concerns such as food cost percentage are of paramount importance.  When profit is measured in more significant profit from fewer sales then I will make a statement that may cause many chefs scratch their heads in disbelief: “Food cost percentage is far less relevant – it’s all about contribution margin.”  In both cases it is sales (the top line) that sets the stage for success.

So what is contribution margin?  Simply stated it is what a menu item contributes to the financial success of a restaurant.   This can be direct (the menu item itself contributes working funds) or indirect (because the item is present on the menu – other items are more likely to sell).  So let’s look at this through an example or two:

Chicken Saltimbocca vs. Beef Tenderloin with Wild Mushroom Demi Glace. 

The Chicken breast (6 ounce flattened) may cost in the neighborhood of $3, the additional slice of Prosciutto, Provolone Cheese, and sauce reduction another $1.50, and complementary vegetable/starch combination another $.75 for a total plate cost (not actual costs, but fair estimates) equals around $5.25.  The baseline formula for determining selling price using an acceptable food cost percent of 30% would be:

SELLING PRICE SP) = PLATE COST (PC)/FOOD COST %(FC%)

SP = $5.25 / .30

SP = $17.50

The available funds left (contribution) = $17.50 – $5.25 or $12.25

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The Beef Tenderloin might look something like this:

Beef Tenderloin (trimmed) (8 oz.) at around $18/pound = $9.00, the wild mushroom demi from stock to finished reduction around $1.25, mélange of wild mushrooms (chanterelles and morels) at approximately $2.00, and a standard vegetable/starch combination at $.75 for a total plate cost of around $13.00.  If we use the same baseline formula for determining selling price:

SP = $13.00 / .30

SP =    $43.33

The available funds left (contribution) = $43.33 – 13.00 or $30.33

Now the first question is:  Can you sell this steak at $43 or does this exceed what the market will bear?

If we chose to use 50% as the desired FC% then the result would be:

SP = $13.00 / .50

SP = $26.00 (A price that guests would be more willing to swallow)

The available funds left (contribution) would be $13 or $.75 greater than chicken at 30%.  But now the contribution potential goes even further if we consider general psychology and human behavior. 

1.         It would not be a stretch to consider that a steak person is different than a chicken person (behavior considerations are generalized).  The steak person may very well be less “price sensitive” and more willing to listen to recommendations by the server for adding appetizers, desserts, and even a nice bottle of wine.  The chicken person might be of the same mindset, but could be considered more cost conscious and a tougher sell.  So, in this example  – even though the steak (at a 50% cost) falls outside of the norm for food cost percentage, it stands to contribute more in terms of available gross profit as well as the ability to encourage ancillary sales of other items. 

If, in fact, you understand that the success of a restaurant leans on the ability to generate sales, then it becomes obvious that getting all wrapped up in food cost percentage pales in comparison to driving the “top line”. 

2.         The “soft issues” that go beyond measurement of dollars and cents point to a more robust overall “dining experience” when a guest is able to enjoy a broader spectrum of dishes and complementary beverages.   When the “experience” is driven by turning tables to reach a desired volume then something will likely be missing.  It should always be the restaurateur’s goal to encourage return business and ambassadorship when happy guests recommend what you have to offer to others.

Now, what about those operations that rely on a smaller amount of profit enhanced by some serious volume – can they create an experience that is worthy of a return?  Absolutely!  But, in this case you need to rely on the uniqueness of an atmosphere that also encourages shorter dine in times, signature items that create excitement and buzz (think Chick fill-A chicken sandwich), systems throughout the operation that are geared for speed (think about the order/delivery system at Panera), and the ability to maintain a high level of volume.

In the higher profit/lower volume model there will be a requirement for higher levels of skill from both front and the back of the house, a greater understanding of ingredients and their source, cost appropriate table top items (more expensive china, flatware, and glassware), and a level of finesse that rises to the level of the menu pricing.

At a time when pandemic restrictions dramatically impact typical top line initiatives for both methods of measuring profit, it is easy to see just how challenged restaurants are to find a profit scenario that works.

BRING VALUE INTO THE FORMULA

The magic of a great restaurant and one that yields profit potential for the operation lies in those factors that go beyond costs and selling price determination.  These are the elements of a food experience that create “value”.  Every restaurant should embrace, as part of its goal structure, a feeling among its customers of: “That was well worth what I spent.”  Whether it is a $5.00 quick service meal or a $100 fine dining evening – there is always room to create experiences and in turn – great value.  The most common components of the value approach are:

  • UNIQUE, MEMORABLE FLAVORS

It may very well be that one item or a few signature menu choices that just knock people’s socks off.  Excitement around flavor is one of the most compelling reasons to support a restaurant.  People come from all over the country to New Orleans with a clear commitment to stand in line at Café du Monde for their beignets.

  • A SPECIAL LOCATION

Those restaurants that are fortunate enough to physically sit in proximity to a breathtaking view, a center of exciting activity, or in a community of other restaurants will always enjoy a steady flow of value seeking customers.  The Union Oyster House in the middle of Quincy Market – Boston; The Slanted Door on the edge of San Francisco Bay; or Spiaggia overlooking Chicago’s Magnificent Mile and a view of Lake Michigan are all prime examples of locations that create an experience for diners.

  • BEAUTIFUL FOOD PRESENTATIONS

A chef knows that he or she has succeeded in engaging a guest and creating visual value when the presentation of a plate of food causes the table to stop, focus on the beauty before them, and pull out their cell phones to take a few pictures to remember.

  • TRUST IN CONSISTENCY

Those restaurants that consistently create food flavors that are expected, presentations that are anticipated, and service that lives up to previous experiences will always be viewed as a place that offers special value.

  • REAL SERVICE

There certainly is value in proper technical service, but it will always be those restaurants that offer that warm sincerity, the welcoming attitudes, and those friendly connections with guests that build the most important reasons to return.

  • COMMUNITY RELEVANCE

Finally, when a restaurant is engaged with a community, supportive of neighborhood efforts and causes, and there to make a difference  – true value becomes incredibly obvious.  Why would guests patronize any other operations when yours is part of the neighborhood family?  This is value.

In the end, creating compelling reasons for guests to patronize your restaurant is complex, but it can be narrowed down to building value.  Building value will always lead to healthy top lines (sales) for restaurants.

PLAN BETTER – TRAIN HARDER

Create Value Experiences

Harvest America Ventures, LLC

www.harvestamericacues.com  BLOG

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RESTAURANT PROFIT IS IN THE PEELS AND SHELLS

30 Thursday Jan 2014

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RESTAURANT PROFIT IS IN THE PEELS AND SHELLS

I believe that there are very few businesses more challenging when it comes to profit, than restaurants. As I have previously pointed out, there are numerous reasons for this; however, one of the most significant is the management of perishable supplies. There is inherently, an unusually large amount of waste in the process of taking raw food and converting it to finished goods. This “waste” is rarely defined past the literal translation that infers that there is no other use for it. In reality, this “waste” is where the profit in food often lies.

The equivalent to re-defining food waste would be the age-old statement: “One man’s junk is another man’s treasure”. I have never been one to attend flea markets or even spend much time in antique stores, however I do recognize that some people are masters at seeing the potential in something that I would quickly discard. It is the same in restaurants. You must begin by first changing your vocabulary and looking at food as food, valuable and useable in the right hands with the right mindset.

I have often times used the translated discussion with Chef Marc Meneau from L’Esperance Restaurant in Vezelay, France when he told me: “American’s do not know how to make money in restaurants. They don’t realize that profit comes from the peels of the onion and the shells of the lobster and how chefs define – useable”. It really all begins with the time and effort put into menu planning and recipe development, understanding how food works during the process of cooking, and how to use an understanding of “methods” to properly extract flavor and build consistent results.

Another friend of mine, years ago stated that the best control device in kitchens is smaller garbage cans. His theory was that for some reason cooks feel obligated to fill garbage cans regardless of their size and the amount of business at hand. Once he replaced his large 30-gallon cans with 5-gallon receptacles he immediately noticed a positive impact on his cost of goods. We have become conditioned to the word waste and especially in busy restaurants, have become accustomed to discard before finding the time to utilize some parts of the raw materials that could be used effectively with enough thought.

If we stop to think about some basic realities the mental light bulb tends to shine a bit brighter. When you buy whole ingredients whether they be tenderloins of beef, whole salmon, or cases of produce what must first come to mind is that the cost per pound or cost per piece is the same for the trim as it is for the “typically useable” portion of the material. We commonly build our restaurant pricing on “yield”, vs. “at purchase” weight or price. This results in a selling price that will yield (hopefully) some level of profit. That “unused trimmed” is a potential source for additional profit – in fact it now becomes pure profit if we are able to plan effectively for it’s use.

Here are some simple examples: even though a proper stock will be drawn from precise proportions of mirepoix to bone, to water and vegetables are typically peeled, cut and prepared a certain way to yield a consistent product; the peels of onions, tops of celery, peels of carrots can all serve as a base for vegetable broth and foundation for your daily soups. The fat cap trim from your pork loins can serve as a component in your pate, the chain and boot trim from the beef tenderloin is a perfect addition to your ground beef for burgers, the shells from your shrimp for a fumet or reduced with butter as a cooking fat for sautéed scallops and so on. In all cases these “waste” products can help to stretch your profit margins or at least add flavor value to your cooking. Render your own duck fat from legs that you cook rather than purchasing it for $18 a pound, use your limp, but still flavorful herbs to make a pesto for canapés, cut your potatoes for pommes frites with the skin on to increase yield and add a rustic appearance to your fries, and have your baker save week old cakes for crumbs that can garnish the exterior of your finished desserts or even a partial substitute for some of the flour in cookies.

It is so easy to discard what is not easy to use, but it is the attentive and creative chef who sees this as the real opportunity to create a viable restaurant business. If all else fails, at least work on building a composting program that can utilize edible waste to serve as animal feed for local farmers or soil composting to support the next growth of crops.

I will admit that I have often found myself, as a chef, ignoring this reality and sometimes just need a prod from an attentive cook to put me back on track, or the shock of a food cost out of control that could spell real problems for the operation and its employees if left unchecked.

Profit in restaurants may seem like an oxymoron at times, but with great planning and constant monitoring, those peels and shells can make all the difference in the world.

PLAN BETTER – TRAIN HARDER

Harvest America Ventures, LLC
http://www.harvestamericaventures.com

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