Hospitality business owners can come up short by failing to address key financial issues.
The industry allows for a higher level of cost manipulation than other industries, so it’s important for business owners to react quickly to industry trends. Unlike fixed expenses, restaurant owners can control their outgoing costs by lowering expenses, changing food brands, cutting labour costs, reducing portions or raising menu prices.
So, in a realistic and achievable sense, how can you look to reduce your expenses?
YOU’RE REFUSING TO SHARE THE BURDEN
Purchase costs are going up 50% for restaurants and 58% for cafes surveyed however more than 1 in 4 (27%) of restaurants don’t pass any of their purchase cost increases onto customers.
TAKE-AWAY BUSINESSES ARE QUICK THINKING, FAST ACTING
Take-away outlets are the most likely of all the segments (at 38%) to use cheaper products and ingredients. They were again most likely out of all the groups (1 in 4 – 24%) to reduce their serving sizes in efforts to offset purchase cost increases.
RENT IS ON THE RISE
More than half (51%) of take-away outlets’ rental/ lease costs increased as a proportion to revenue, compared to 39% of restaurants, 42% of coffee shops, and 63% of franchises.
BUT YOU STILL WON’T MOVE
While nearly half of all take-away outlets (49%) consider their rent too high, only 3% will be looking to move when their agreement is up for renewal.
Interestingly, nearly 70% plan to renew under similar terms. And they weren’t alone: 43% of restaurants, 54% of coffee shops and 37% of franchises also noted that they wouldn’t move regardless of increasing rent.
YOUR PROFIT IS REDUCING
The vast majority of people are not passing on all the cost increases onto customers, that is taking it as a loss, and therefore making less profit.
YOUR STAFF AND PRODUCT ARE EXPENSIVE
Wages and costs of goods sold (food and beverage) are the highest costs of a hospitality business.
As an industry, food and beverage operators are under a lot of pressure to optimise production and keep their costs low. So how can you look to reduce your expenses?
Reduce energy use. Switch to compact fluorescent lighting to save electricity, and cut your heating bill with better insulation and windows.
Pay your bills...early! Don’t let the cash flow fool you: paying your bills early will crunch at the time, but give you freedom down the track.
Find other options. Think outside the square. Clever new start-ups are always finding new ways to innovate the hospitality industry, with companies like Silver Chef reinventing how food and beverage businesses operate. Measure staff productivity. With wages sitting as one of the highest expense for most Australian businesses, you want to be sure you’re getting bang for your buck. Tie in rewards for achieving their targets.
The expenses for the food and beverage industry are unique to hospitality only. The costs of a restaurant, cafe, or take-away outlet do not exist for any other industry, and provide a challenge only those with many years of experience can resolve.
It doesn’t matter if you’re big or small, a restaurant, cafe, or take-away venue, you will all deal with the same problems, with the biggest being:
• Food spoilage
• Wasted food from employees who eat on the job
• Changing dining trends that include seasonal adjustments
• Loyal customers trying new restaurants
• People who are looking for healthier food choices.
However, good financial management spots these trends and issues before they become insurmountable problems. The solution comes in preparation - always be well across your expense figures, and be prepared to take immediate action on problem areas.
HOW TO REDUCE YOUR EXPENSES
Stefan Blee is a chef, consultant and contractor currently working at London Fields, a new gastropub in West End, Brisbane. He specialises in restaurant set-up and operations, menu and recipe development, and cost control.
We spoke to Stefan about how to reduce expenses in your business. Here are his tips.
FIRSTLY, YOU NEED TO KNOW WHERE EVERY DOLLAR IS GOING.
Look at expense reports weekly and really analyse where the money is being spent and if those expenses are necessary. Shop around for more cost effective products and compare products and services to make sure you are getting the best deal. It can be as simple as changing chemical suppliers or linen services, using a different milk company, or buying cheaper toilet paper. Also look at things like water leaks and low wattage light bulbs to save on your utilities bills, changing your printer to a model with a longer ink life, or buying flowers from a cheaper florist. Every dollar counts.
THE KEY TO MINIMISING WASTAGE IS ORDERING CORRECTLY AND STOCK CONTROL.
Many chefs make the mistake of ordering too much and that can really hurt the food costs. Perishables that have a short life need to be ordered in smaller quantities and utilised in different ways if there has been an over order.
For example: a café orders 5 trays of avocados for the breakfast menu but after a slow few days there are still 2 trays remaining and they are starting to turn. The chef should be thinking about turning those avocados into a salsa or puree and put them on a special to move the stock instead of letting them turn.
STOCK CONTROL IS PARAMOUNT TO A SUCCESSFUL BUSINESS.
All perishables need to be labelled and dated, and correctly rotated with new stock. Correct handling, regularly changing containers and vacuum packing are all going to increase the life of those products. Savvy chefs will use techniques to minimise wastage such as bottling, pickling and fermenting.
THERE ARE MANY WAYS TO REDUCE THE COST OF GOODS SOLD.
Firstly you need to check that the menu item has been costed correctly and that there is sufficient margin for the sale price. Know the cost of your products and shop around for a better deal - most companies will do anything to secure your business so speak with the reps about the products you are using and give them comparisons of cheaper products through other suppliers. Having multiple suppliers can be beneficial as well – cooking oil, flour and sugar may be cheaper with one company, but vinegar, chocolate and disposables cheaper through another.
DON’T PERSIST WITH CHANGES IF THEY ARE NOT WORKING, AND GET REGULAR FEEDBACK FROM YOUR CUSTOMERS TO BETTER UNDERSTAND WHAT IS WORKING AND WHAT IS NOT.
If changes are too noticeable and the business appears different there is a risk of losing regular customers.
For example, if you have been putting linen on the tables for years and decide to remove them to save money, speak with your regulars and let them know why you have removed them. Many small businesses will cut back on wages by rostering less staff, but not plan accordingly and spread the extra workload sufficiently. Make sure you have a clear plan on how the changes will affect the service and product and what will be done to minimise the risks.
THE IMPORTANCE OF MARKETING IN HOSPITALITY
It never ceases to surprise that for such a fast-paced, cutthroat industry, hospitality has always had such a love/hate relationship with marketing. “We’ve got a great reputation”, say some. “Our regulars will never go anywhere else”, say others.
In a bygone era of booming suburbia, cooking at home, and the attitude eating out or buying take-away as a ‘treat’; these arguments might have been relevant. But today, more and more Australians are opting to eat out for most meals, and are therefore less about loyalty, and more about quality and price.
Modern marketing comes in a smaller - and arguably more invasive - space than traditional media: online. Investing your marketing budget into online advertising on platforms such as Facebook will see great return. It’s becoming increasingly easier for you to track your efforts and spend in this space with functionalities like free Facebook reporting tools in the back-end. On a commercial front, are you registered with one of the many online ordering apps, like Menulog?
SAVE YOUR PENNIES
The best part about this type of marketing is that it is cheap, and accurate. You are able to target specific audiences, and establish a connection with them for future contact with promotions, new menus, or discounts.
FIND THE RIGHT ANGLE
What should you be talking about online? Here are our recommended starting points.
• Kids and teens: make sure you are directly addressing your major audience, particularly in the take-away industry. Kids can be very persuasive.
• Photography: the proven method to get mouths watering.
• Value and affordability: ‘guilt free’ eating.
• Social Responsibility: green packaging, vegan/vegetarian options, and food recycling.
Don’t be left behind with outdated marketing in the wrong places. Make sure your business is getting the visibility it deserves.
SILVER CHEF TIP:
If you are a small business who is unable to hire a full-time staff member to manage your marketing, why not hire a marketing consultant? They will be able to come in and establish your marketing strategy, whilst giving you a few tips on how to get started.
HOSPITALITY BUSINESS BENCHMARKS: HOW DO YOU FARE?
Just like regularly reviewing your menu offering, reviewing these numbers regularly could have a big impact on your profit.
COMPARE YOUR BUSINESS PERFORMANCE TO A BENCHMARK
A great way to scale how your business is faring on the competitive landscape, make an effort to compare your business performance using the benchmarks across the industry on a regular basis.
They will allow you to confirm that you are performing within the benchmark range, as well as clarify what it may mean if your business is outside a benchmark range.
When reviewing your results, try to identify the reason for the differences between yourself and the benchmark.
If your business is new, you can use the benchmarks to get a better idea of what sales you should be able to expect and how much your main expenses are likely to be. This will help you in developing a financial forecast for your business.
WHAT THIS MEANS FOR YOU
If your Cost of Goods is higher than the benchmark, it may be because you could be buying some goods cheaper, or it may be there is a high level of wastage.
If your Labour/Sales ratio is higher than the benchmark, you may need to review staffing levels, or rosters for quieter periods.
If your Labour/Sales ratio is below the benchmark, you may be losing customers because your service is slower than your competitors.
If your Rent/Sales ratio is higher than the benchmark, might you be able to negotiate a discount on the rent with your landlord, or could it be worthwhile moving to a different location at the end of your lease?