Does this franchise restaurant have too high of food costs?

Is the cost of food and supplies less when you own a franchise because of their buying power, or the same, or even more because of kick-backs from suppliers?

The franchise I am looking at shows cost of goods to be from 34% – 38%.
This sounds a little high to me. Is this what the norm is in this industry?

It all depends on the menu and prices. If you’re evaluating a potential franchise purchase, the food cost percentage is the last thing you should be worried about. Percentages don’t equal profit.

You should be concentrating more on the average profit and investment, how large the investment is, how fast that profit will earn back your investment, and whether that profit makes the investment worth your time.

Franchises do normally have increased buying power. Whether that results in a lower food cost percentage depends on the pricing, not the purchasing.

There is no “norm” for the industry. Some operations make a profit with 45% food costs, some need to be under 20%. Achieving either one doesn’t mean either will even make a profit. The profit is made with the money that is left over AFTER you pay for the food. While operating efficiently, and not wasting product is important to profit, the importance of running a particular food cost percentage is grossly overstated in the restaurant business.

How many servers should we have per customer for a banquet?

Will there be wine service at the party? I wouldn’t be comfortable having 1 server to serve and cocktail for more than 20 people in a four course dinner. Even then, I would want to make sure the first course was pre-set, in addition to bread, butter, coffee cups and saucers, water and iced teas for half the guests if the bar is a cash bar or if there wasn’t a bar. If it’s a free bar, I wouldn’t worry about the iced teas.

Even 20 people all at once for one server is stretching yourself thin, except that you have 1 busser for every 3 tables. That helps.

How is your service station set up for this party? How far will servers have to walk to fill and refill water pitchers and coffee pots? Where is your bus station in relation to the tables, or do you use large oval trays?

How you service this large a party will have a lot to do with how they view your prices. It will definately affect whether you get referrals.

In my opinion, it’s worth it to go above and beyond on service to make a name for yourself, and build value in your banquet prices so you can increase them when you need to. With that in mind, in my years running country clubs, served dinners with more than 2 courses and cocktail service, never got less than:

1 server per 15 guests
1 busser per 50 guests
1 bartender per 75-100 guests
1 manager/captain per 150 guests

For buffets:
1 buffet attendant per 75 guests

There are many restaurants and catering services out there that don’t offer anything beyond food and food table setup. They set things out, and people help themselves. This is all fine for a family reunion, and casual affairs with paper and plastic. If you’re plating and serving, provide the same level of service you would in a restaurant, and make a name for yourself.

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

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.

Should we switch to a 13 period accounting cycle?

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.

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

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.

Advice to an interim restaurant GM

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

How much should I budget for marketing in my startup?

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.

Unique selling point – vol. 1

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.

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

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.

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

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.