Category Archives: Questions

These are questions that have been asked of me in the past, and my replies. They are from one on one conversations, food service industry discussion forums, and questions that have been answered by email.

Can I use coupons to build my business? It works for restaurants like Papa John’s.

Posted on March 2, 2008 | 8 Comments

In most cases, coupons are a path to disaster. Coupons undervalue your product, and getting customers to come in with coupons doesn’t give them a good idea of what type of value you really offer. You end up with customers that think your restaurant is a good value, “with a coupon”. Then, they wait til the next coupon to come out before they come back to your restaurant.

As far as chains that use coupons, they know something the average independent operator doesn’t. They have a sales history showing them how much of their sales are given away in the form of coupons. They track their discounts, and they price their coupon marketing strategy into their menu. If a pizza costs them $3.00 to make, and they need to make $7 gross profit for every pizza they sell, they know they have to make the regular price of that pizza $12 or $13 so they can send you a coupon and make you think you’re getting a good deal paying only $10.

How many people really pay $18.00 for a large pizza at Papa John’s? None. People wait until they have coupons. Sure Papa John’s makes money, but they know they’re not earning repeat, full price, customers by sending out coupons. They know how much money couponing is costing them, and they adjust their prices accordingly. They then use coupons as a “trick” to build value into their product.

Can coupons be used responsibly and still allow for a profit? Sure, if that is part of your marketing and pricing strategy from the get-go. Outside of that, coupons should only be used to promote items that earn you MORE gross profit than you need to make money AFTER the discount is applied. Even then, I suggest never offering a flat percentage discount, and only using coupons to promote package values, or to give freebies that are “extras” that won’t detract from the gross profit you’ll make by selling the rest of the meal at full price.

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Should we switch to a 13 period accounting cycle?

Posted on February 23, 2008 | 1 Comment

A 13 period accounting cycle has several advantages over a monthly accounting cycle. The two biggest advantages are eliminating month end labor accrual to straighten out your P&L, and recordkeeping.

With a 13 period year, holidays fall into the same week of the same period every year. Your weekly sales data can be accurately compared to each other from different years, making it much easier to spot trends and make comparisons that give you a true history. With a monthly accounting system, your period can end any day of the week, and holidays can fall into different weeks in the same month of different years. You can also be hit with overtime labor from a prior period right at the beginning of a new one with a monthly accounting system, putting you “behind” budget from the get go. With a 13-period system, every period ends on a Sunday and starts on a Monday, so there is no mistated labor numbers, and no need to accrue labor to a different period.

With a 13 period accounting cycle, it’s also easy to syncronize inventory periods, especially if you take inventory weekly which I strongly suggest.

Another big advantage is the ability to compare one period to the next to spot trends. With a 13-period system, every period has the exact number of days and weekends. You can then compare apples to apples when you are comparing 2nd period numbers to 3rd period numbers, instead of comparing a 28 day month to a 31 day month.

Some of the advantages are more difficult to describe, as you will only see them after you switch. Once you do, the whole “accounting cycle” thing makes a lot more sense.

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In a chain restaurant, will a unit that has skewed product sales towards higher food cost menu items have a higher food cost?

Posted on February 23, 2008 | 2 Comments

Yes, more sales of higher food cost items will yield a higher overall food cost. That doesn’t mean that it’s a bad thing though. A low food cost isn’t what makes you profitable. A high gross profit is, meaning that making $4 gross profit on a $7 sales is better than making $3 gross profit on a $4 sale, even though the food cost for the first instance is higher (43%) than the second instance (25%). No matter the food cost, making $4 is better than making $3. The only exception would be if that $7 item resulted in significantly higher expenses or labor that ate up that extra $1 in gross profit, which isn’t likely.

You CAN’T use food cost percentage as a factor in pricing out your menu, or deciding what items you’d like to sell. Food cost percentages are a management tool, not a pricing or strategic tool. You want a product sales mix that yields you the most gross profit, despite the food cost.

What food cost percentages ARE important for, are to help give you a first line of defense in stopping theft and waste, but to go along with your actual food costs, you have to have ideal food costs to compare them too. If you don’t figure what your food costs SHOULD have been, you have no idea if a high food cost is bad because of theft or waste, or good because your sales mix has changed to higher cost, higher gross profit menu items. High food costs alone don’t mean there is a a problem. They could mean just the opposite. Start a system for figuring ideal food costs, so you can compare your actuals to them to know if there is really a problem, or if your product sales mix has changed.

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Advice to an interim restaurant GM

Posted on February 16, 2008 | Leave a comment

Here is a reply I once posted to an assistant manager’s inquiry from a foodservice operation. It deals with a common situation in the food service industry. One that I have not been asked for advice on before, but one that I do have a strong opinion about, especially considering the initial response of other advisors. I think it was an important piece of advice.

“I have quick question…For the past 3 weeks have been the acting GM and have not been compensated for it. I am a team player, but was told that it will be another 12 weeks before they can get another GM trained and ready and that I have to continue in the same role until they find one. Is this right?”

Initial responses directed the person to quit and look for a job that paid what the person thought they were worth. I have a much different take on this situation and thought I would share it. I tend to be pretty straight forward with my opinions and apologize if it doesn’t sound sugar coated.

(Tom),

3 weeks filling in at a GM position doesn’t qualify you to be a GM. Every employee honestly believes they can outperform their boss, whether it’s the restaurant business or any other. That’s human nature. The truth of the matter is that most employees understand no more of their bosses job than what they know how to do themselves. This creates the picture that their boss is not working as hard as them because their boss is not accomplishing the volume of the same activities that the employee does. Thus creating the appearance to the employee that they can do their bosses job better.

An interim position as a GM does not require you to perform all of the duties required of a GM. As GM, what steps have you taken toward the restaurants long term planning goals? What are you doing as GM to increase the revenue of your store? Are you planning the stores marketing strategy? As GM in the last three weeks, what have you done to broaden your restaurants role in the community? Have you been attending Chamber meetings and networking with other area business people to help develop a plan to further your business community’s role in your local area government? What are you doing as interim GM to safeguard your owners against liabilities such as worker’s comp, unemployment insurance costs, lawsuits. Are you performing the restaurants safety plan audits to ensure compliance and reporting the results to the owners? Are you maintaining accurate day to day employee records and answering Department of Labor inquiries as to the status of terminated employees to reduce unnecessary payment of unemployment benefits? Have you started on next year’s financial budget? It’s September now, time to start planning. Do you know what percentages your restaurant has for goals on labor, COG’s? Do you know what COG’s are? Can you read a P&L, really? Can you look at last year’s P&L and know which expenses were out of line and where you can save? Do you know what is acceptable to your owners to plan for as an acceptable increase in sales? Do you know what market prices are acceptable for every item you buy in the restaurant? Do you know if you’re getting ripped off or getting a good deal? What do you do if you are getting ripped off? Are you capable of negotiating a contract with a new purveyor? Do you know how prices for your food items or other expenses are calculated with the companies you do business with? Have you familiarized yourself with pricing structures and payment terms with every company your restaurant has a contract with? Are you familiar with every report required of you as a GM? Are you completing the restaurants Accounts Payable logs, coding invoices for payment, auditing payroll to ensure accurate employee compensation? This is only a short, short list of the GM’s actual responsibilities.

The point here is this, as an assistant, you don’t yet understand what it takes to be a GM. That is why the owners are searching for someone else to fill this position rather than just promoting you. They’re not just idiots who are oblivious to your presence. Believe me, it’s been discussed whether or not they could just promote you. Day to day operations are the responsibility of the staff. They’re only 1/3 of the real responsibilities involved in running a restaurant. A GM who spends all their time concentrating on daily operations is an ineffective GM and most likely overworking themselves. So don’t expect it from the position.

You are in a position of opportunity right now. You have two choices:

1) Let your ignorance lead your actions and assume a negative position. Get mad because you think you are doing a GM’s job and not getting paid for it. Approach the owners from this negative position and create a negative image of yourself to them. Most likely you will quit or get fired when things don’t go your way. You will create a red flag on your resume. “Didn’t see eye to eye with owner” is not something you want to list as your reason for leaving.

2) Look for favorable outcomes that could happen and take a positive position to attack your situation. Ask the owners for a detailed GM’s job description so you can do the best job possible until they find a permanent replacement. Learn everything you can about job tasks you have never had to perform. Take on the tasks you know the most about and demonstrate your ability to the owners to do more than just day to day operations. Gain experience. Your positive actions will show the owners how valuable you are. They could possibly even decide you have enough potential and the right attitude to train into a GM position at that location. Maybe you’ll be the first consideration for GM at their next venture after you have more experience. Maybe they are ignorant fools and you can use this experience to pad your resume in the search for a GM position elsewhere. “Offered a better position” is something acceptable to list as a reason for leaving.

There are many positive outcomes possible here. Think about your future and your reputation and take the positive approach. Negative people are doomed to a life of being unappreciated, overworked, underpaid, and generally miserable whether it’s only imagined or a self fulfilling prophecy.

Opportunities in any occupation are created through adversity, a negative situation. The best outcome is not created with another negative but rather a larger positive. Be the larger positive.

 Brandon

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How much should I budget for marketing in my startup?

Posted on February 4, 2008 | Leave a comment

It’s common for startup restaurants to budget an initial 10% of their sales to go toward marketing in the first few months. If no one knows who you are, it can take some $’s to get known.

After that, it’s more common to see 2-4% of your sales being directed toward marketing. As far as how to break that down, that depends on a lot of factors, including your ability to do much of the work yourself. The less you are in the business working, and the greater ability you have to design and print your own materials, the less of your sales you will spend on marketing. Different marketing mediums work differently for each business also.

No matter what you budget, you’ll want to focus your personal effort first on the most inexpensive marketing tactics, like shaking hands and giving out samples with menus to get your name and product in front of people. You’ll also want to concentrate a lot of effort on building your customer database. Marketing dollars spent communicating with anyone who has already been in your restaurant will most likely yield the greatest return on marketing dollars.

Of other factors that will determine how much you need to budget, your location, visibility, and accessability are the most important. A good location, combined with ease of access, and visible, well designed signage can go a long ways to drive traffic into your business, eliminating some of the need for costly marketing campaigns.

Your message itself will also affect how much you will have to spend on marketing too. If you have a good unique selling proposition, and use it effectively, you’ll have to spend less to get people in your door. If your concept is confusing to people, if you try to be too many different things to too many people, or if you fail to follow through with your USP’s promise, you’ll have a hard time filling seats no matter how much you spend.

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Unique selling point – vol. 1

Posted on January 13, 2008 | 1 Comment

Excerpt from a forum post to an Indian restaurant owner: 

A unique selling point stays away from claims about “better food” and “better service”. Those are minimum expectations of your customers, not reasons to choose you over your competition. Sure, you may be able to get that very small market of people looking for Indian food by being the only Indian restaurant around, but you’ll starve to death if you’re depending on that market. Your market must be bigger and transcend your food. Good food and service don’t make restaurants profitable. They’re not even a necessary ingredient though they help. Having good management systems and marketing, then consistently meeting the expectations of your customers whether high or low is what makes restaurants profitable.

I’m not saying all of those points aren’t important to the success of your restaurant, I’m just saying none of them provide your target market with a reason to go to your restaurant over the one down the road.

People DO NOT buy products, they buy emotions. A USP expounds on whatever emotion you are offering to your customers. Talking about your food, and your chef will win over a small amount of people, but the majority of people are looking to get some sort of feeling by visiting your restaurant, or in anything they do for that matter. If you market correctly, whenever they are in the mood to feel the way your restaurant makes them feel, they will think only of you, because your USP is truly unique. Now, you have to decide what feeling you want your customers to associate with your restaurant. Something unique to start. Then you do ONE THING (or more) that none of your competition does and give them that feeling you are selling them. Then, they’ll remember you and you’ll have a competitive edge on your competition. Then, your target market grows past people that just want great Indian food, to people that want to feel the way your restaurant makes them feel.

Think more along the lines of some of these feelings other restaurants sell:

“I’m selling stature, not food.”
Roll out a red carpet. Use crystal glassware. Real silver. Have a valet. Call every guest by name. Make sure the name of the restaurant suggests “stature”. TELL your customers visiting your restaurant will impress their friends.

“I’m selling speed. Not food.”
Offer fast service. Put a time limit guarantee on getting your product to them. Arrange your restaurant to cut steps out getting food to the customer. Have your restaurant’s name suggest “speed”. TELL your customers you are the fastest place in town to eat.

“I’m selling sex. Not food.”
Hire attractive waitresses. Dress your waitresses in short shorts and tight tops. Teach them to flirt. Name your store a sexually suggestive name. TELL your customers it’s the place to go to be waited on by beautiful women.

“I’m selling nostalgia. Not food.”
Collect memorabilia from a certain era or genre. Display it in your restaurant with stories about the pieces. Decorate the store in the style of the era or genre. Give your restaurant a name that suggests “nostalgia” for that era or genre.

“I’m selling accomodation. Not food.”
Encourage your customers to customize your menu items. Allow substitutions and many choices. Adopt a moniker that says you’re accomodating and market the heck out of it. Use a name that implies “accomodation”.

“I’m selling fun. Not food.”
Build a playground in your restaurant. Use cartoon characters and marketing partnerships with kids movies in your menu selections and marketing. Use colors in your restaurant that appeal to kids. Use a name that implies “fun”.

Well established brands realized long ago that only a few people come to them because they like their food better than any other restaurant. They know that people have to be thinking about you when they’re hungry to keep you at the top of their mind when they’re thinking of places to eat. They know that feelings and emotions create stronger memories and associations than any of the 5 senses.

What are you selling? If it’s food and service, don’t expect too many people to get very excited about it. They can get that anywhere.

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Should I cancel our employee holiday party if we’re behind budget?

Posted on January 10, 2008 | Leave a comment

A good employee party done right is a gift that keeps on giving. Even if it means closing down for a day, it’s worth it for the goodwill earned with your staff. The quickest way to lose that goodwill is to not have a party that you normally have every year. That sends the message that you don’t like them as much this year, or they aren’t as good employees this year.

Your past parties sound fun. I think the key point to an employee party is just getting everyone together outside of work. I would suggest sinking a grand into some raffle prizes too. Give some stuff away. Make your party something your staff talks to all the new staff about. It will all come back to you through the year.

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How should I go about marketing a New Year’s Eve event for a fine dining restaurant?

Posted on January 10, 2008 | Leave a comment

Have you taken advantage of your four walls and table tops to market this event? How about the wait staff? Price the event so you can offer five dollars for each reservation a member of your waitstaff brings in, guaranateed with a credit card. Market the event with table top print pieces and wall posters at your front door and in the bathrooms. Don’t forget to have an easy system for signup near the posters, and slips for the waitstaff that have spaces for all the information they need to collect.

If you have good day to day traffic in your restaurant, you should be able to fill up reservations by the wait staff selling them. You can also try radio spots. I don’t suggest radio for everyday advertising, but for special events they can work. Try a spot three weeks out, running in a good time slot for a couple days. Repeat the ad for several days start 4 to 5 days before the event.

Anyplace with a community calendar is a good spot to advertise also. Look to see if the newspaper is doing a specials New Years piece in the Entertainment section. Check for local magazine that the community looks to for entertainment information.

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What makes a successful restaurant?

Posted on January 10, 2008 | 2 Comments

You won’t be able to find the answer as to what it is exactly that makes a restaurant successful in any forum. Without experiencing it for yourself, it’s tough to imagine that a restaurant is one of the most complicated businesses you can run. Most businesses are pretty simple. You buy a product, mark it up enough to cover your overhead, and hire people who can sell it effectively and count change, or you manage a warehouse, a sales team, a manufacturing line or a specific service your business offers.

A restaurant is so much more complicated than that. First, you are more than a retailer. You are running a warehouse. You have to have the same skills a good warehouse manager has, including a system for checking everything in and out of inventory, protecting your product from theft, knowing how to keep your vendors honest in their pricing and their service, tracking and recording all your purchases and usage. All of this for a 200 item inventory of PERISHABLE goods, not just pieces that can be stored indefinately.

You are also a manufacturer. You have to run several assembly lines at once, and fill the orders for your product faster than any manufacturing line ever has to. You’re not just making one product either. Usually, it’s at least 20, sometimes as many as 100 different products, all with the same employees. The parts for these products are also perishable. If your warehousing systems aren’t good, it can ruin the manufacturing of the products. If your products aren’t getting made efficiently, consistently, and cost effectively, the whole ship will go down.

You are also a delivery service. You have to have systems for delivering a product with a very short life span to the right place within a time limit, all the while doublechecking that the manufacturing of the product meets standards. The delivery systems inside your restaurant is even more important than any you might offer outside the four walls.

You’re running a sales team too. Your front of house staff have to not only be experts on your product, but also know how to sell customers your highest profit products. You’re margin for error on staffing sales personnel alone could sink you. Without effective sales staff, or staff with the ability to communicate work with the other systems in place, the whole system won’t work.

You are also a service provider. In addition to being your sales force, your front of house staff are also customer service representatives. The number of things that can go wrong within this entire complicated system are enormous. Your FOH staff have to make sure none of those mistakes ever effect the customer. That’s a big task.

You may also be a repair service and a custodian to your own building if you don’t want to pay someone else to do it. There is a lot of equipment in a restaurant to break, and a lot of square footage to keep clean. A breakdown in either of these operating systems could also ruin your business.

All this before we even make it to the management. Managers and owners in restaurants have to know how to run all these different types of businesses under one roof, in addition to being bookkeepers, expert marketers, graphic designers, realtors and human resource pros, while keeping up on legal issues from labor law to health codes, building codes and city ordinances. Not an easy task while you’re supervising a team full of low wage employees. It’s not easy finding managers with all these skills at the wages restaurants can afford to pay. It’s not even easy to have all these skills as the owner. With all the rest of this to consider, how can you even fathom how to price your product to pay for everything? Most owners can’t. They guess, or they use some bad math someone else taught them that doesn’t take into account the unique financial situation of their own restaurant, or the market they are competing in. Then they guess at what a good purchasing contract with their vendors is, they guess at whether their lease is a good one, and they bet on their food being SO good, people will line up at their door to get it.

A lack of experience in any one area of a restaurant can sink it. That doesn’t mean it will, many bad restaurants make money DESPITE the mistakes of their managers and owners, but that doesn’t make it a good idea to try. My advice to anyone opening a restaurant without experience is to use someone else’s. Either pay someone knowledgable to teach you what you don’t know, or open a franchise where all the planning is done for you and the operating systems are already in place.

If you are looking for reasons why restaurants fail, they are easy to find. There are a million of them. If you are looking for reasons why restaurants succeed, that’s a tougher task. I think marketing is the most important thing an owner does, but any one thing they don’t do in their business can counteract their greatest strength, even a natural knack for marketing.

Maybe after all this, you can see why I say that great food just isn’t enough. It’s only the minimum necessary requirement to running a successful restaurant. There is so much more.

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Should I charge a fee on to-go food to cover the additional expense of carryout containers?

Posted on January 10, 2008 | 1 Comment

You don’t need an extra charge to cover packaging costs. It will only make your customer’s think you are nickel and diming them.

While you do have to pay for packaging to put your to-go food in, there are many expenses you are avoiding by not servicing that customer inside your restaurant. There are no chemical costs to washing their dishes, cleaning their table, and cleaning up after any smudges, smears, spills and stains they may leave behind. There are no products used in your bathroom, or condiments at the table. They are not filling a seat which would reduce the number of customers who can sit in your restaurant at one time. There is no wear and tear on your furniture, fixtures or equipment, and no utilities used on their behalf. You do not have to pay the labor for a staff member to service that person in your restaurant, to clean up after them, or perform extra closing duties due to them.

While it may seem to you that to-go packaging is an added expense to servicing takeout customers, it’s really just the opposite. Even with paying extra for packaging, your gross profit on a carryout customer is significantly greater than a dine-in customer.

Instead of charging extra for special carryout containers, you should be concentrating on marketing the fact that you are environmentally conscious, and be secure in the fact that it is making you a larger profit.

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