Topic overview
Owning a business in food and beverage industry can be a fun and rewarding career, but one that can be the tricky to make profitable. Within high product costs and unpredictable landscape of supply and demand, generating revenue comes down to innovation, strategy and research.
Globalisation has lifted Australia out of its meat-and-three-veg past, and into an exciting new future of diverse cuisines and tastes. In conjunction with the foodie craze sweeping the country- we can thank reality TV for that one- there is a definite optimism felt for the future of hospitality.
So, how can you leverage these conditions to boost your revenue, and turn your business from a labour of love into a profitable venture?
FACTS AND FIGURES
Business confidence is high, particularly in the cafe sector, with a growing optimism across the industry. With exciting new innovations in ordering and service technology, and new food trends being embraced across the population, now is the time to grow in the food and beverage industry.
PRESENT
1 in 4 cafes and 1 in 5 restaurants surveyed are brand new and have been operating for less than 12 months, suggesting that there are still lots of opportunities for growth in these sectors. Take-away outlets however, only have 11% of new players on the market.
Both take-aways and cafes saw the most improvement in their businesses performance over the last 12 months.
Positively, 2/3 of our survey group noted they were performing better or the same.
FUTURE
Interestingly, half of of all cafes anticipated their profit margin will grow in the next 12 months, highlighting the confidence of this group.
Indeed, the optimism is strong; 41% of restaurants and a huge 50% of cafes surveyed say their profit margin will grow in the next 12 months of trading.
Yet despite the improvements in the take-away sector, in comparison only 32% expect their business to perform better in the next 12 months.
LONG TERM BOOM
Looking at expenditure patterns over the longer term, Australians have emerged as big spenders on eating out.
In the age of longer working hours, rising fresh produce costs, and innovative new takeaway technology (we’re looking at you, Menulog!) more and more people are ordering out when it comes to their meals.
Where households spent around one-fifth of their weekly food budget on eating out in 1984, today that figure is closer to one-third.1
OPPORTUNITIES
MORE PEOPLE ARE EATING OUTSIDE
Close to one third of Australians spend over 50 hours a week in their office. That means less time preparing their own food, and heavier reliance on restaurants, café, and take-away food outlets.
With the increase in demand, has come a revision of both product and service, with the resulting improvement in both encouraging loyalty and return behaviour from the consumer.
LOYALTY PROGRAMS
Introduce loyalty programs: it will encourage return behaviours in your consumers. Interestingly, loyalty programs did not rate well in the business we surveyed. Only 14% of restaurants, 11% of café, and 11% of take-away outlets said that they would consider introducing loyalty programs to boost revenue.
This is surely a missed opportunity, as loyalty programs are experiencing a renaissance thanks to digital/app-based loyalty programs.
Some of the more popular apps in Australia include:
• Wealie
• BEEloyal
• Stamp me
• eCoffeeCard
USE THE RIGHT EQUIPMENT
1. Your service will be faster.
2. Your food wastage will be lower.
3. Your food quality will be higher.
4. Your value perception will allow for higher menu prices.
Almost 2 out of 3 restaurant owners (61%) say they would improve the service speed and quality/consistency of their food and beverage offering by updating equipment in their kitchen.
CHALLENGES
CASH FLOW
Poor cash flow is the number one killer of small business, attributing to a staggering 90% of small business failures3. So how to get around cash flow problems? Consider reorganising the elements you can-that is, the timing when you pay your staff, staggering your food deliveries, and forecasting as regularly as possible.
RESISTANCE TO MARKETING
Take-away outlets are the least likely from all the segments to invest in marketing to attract most customers and boost profit. Marketing is the quickest and more reliable method of drawing in a new consumer base - it opens up a conversation around your product and service that is able to be fully curated by you.
NOT BEING PREPARED
Prepare for the black swan: that is, rare events with great impact -have you got your game plan ready for sudden loss of staff, equipment, expense increases, or product failure?
EATING IS CHANGING
• Embrace sustainability: The global ‘green movement’ is only gaining traction, so make sure you’re on the right side of the fence.
• Understand generational needs + values: recognise the growing demand for allergies-aware, vegan, vegetarian, halal, kosher, or organic options.
INTERVIEW
Kieran Westlake is the National Coffee Channel Manager for Silver Chef, and is an industry expert when it comes to forecasting and reviewing trends in food and beverage.
Given recent reports of glowing optimism on behalf of restaurants, cafes, and take-away outlets across the nation, we asked Kieran: in a congested market, why are business owners feeling so confident?
The answer, says Kieran, is a two-pronged cause and effect: a growth in disposable income and debt buffers, matched by leaps and bounds in high-quality ingredients and products, especially in weaker markets like Western Australia and Queensland.
“Innovation and further quality enhancements has driven consumer value perceptions. This has led to an ever-increasing demand for better food, beverage and coffee orderings from established businesses. To be commercially viable in this market, business owners must understand the factors at play and leverage off them.”
This upswing of growth is set to stick around, say Kieran, with many new opportunities presenting themselves for the future. He gave us the insider tips.
FOCUS ON YOUR WEAKEST LINK
Some people are known for their coffee, others are known for their food. The trick? Make sure you master BOTH.
MULTIPLE REVENUE STREAMS
“Businesses need to start driving multiple revenue streams from their fixed costs, premises rent, electricity and equipment. This lowers the holding costs against their fixed assets and increases their margins per revenue stream.”
INVEST IN YOUR EQUIPMENT
Silver Chef allows you to have the right equipment immediately in order to adapt to trends, without having to fork out at the time of purchase, removing the barrier to change.
For example, Silver Chef previously helped a bowls club diversify by adding coffee to their offering. This added revenue stream boosted their profit, and opened up a brand new client base.
Aside from the obvious benefit of an extremely high profit margin on coffee, incorporating this new area of business also meant that it attracted some younger, trendy types in addition to the base market of young families and the club’s traditional member base. Coffee was something everyone could enjoy. What does it take to make good coffee? Well, there’s a few factors - the beans, the training, and the right equipment. Silver Chef can help get your coffee dream off the ground by helping you get the equipment you need quickly, and making it affordable to give you peace of mind.
SO WHAT IS DRIVING THIS GREAT FOOD REVOLUTION?
Kieran points to the new and active involvement of the consumer. Thanks to the explosion of cooking shows and review sites like Zomato (acquiring Urbanspoon), everyone is an expert, and are enjoying having a voice when it comes to directing food trends.
Australians are also a pretty inspired bunch, says Kieran, with recent spikes in overseas travels encouraging foodies to replicate their exotic meals once back on home soil. Overall, Kieran says that this ‘trial by fire’ environment for hospitality business has, “driven the innovation and quality of products made, driving further consumption.”
In closing, Kieran says that we need to remain true to our roots
Coffee, says Kieran, is the most exciting new opportunity space.
“The Australian coffee industry, especially in milk based espresso drinks, like flat whites and lattes, is arguably the best in the world. Due to the demand for our product and expertise, we are driving innovation in this space globally and domestically.”
The equation is simple: great produce, means great value for the consumer, which encourages loyalty, which increases sales.
This is across the industry, and with access to premium produce for on-trend products, the optimism in Australia is set to continue.
Innovation and further quality enhancements has driven consumer value perceptions.
This has led to an ever-increasing demand for better food, beverage and coffee orderings from established businesses.
To be commercially viable in this market, business owners must understand the factors at play and leverage them.
HOW TO BETTER MANAGE YOUR CASH FLOW
Undoubtedly the greatest challenge to the hospitality industry, small business or large franchise, is that of cash flow.
Managing cash flow effectively proved to be very challenging across all industry segments. 84% of franchises, 71% of take-away outlets, 74% of restaurants, and 77% of cafés said when it came to managing their cash flow in the last 12 months, it was a constant juggling act and sometimes difficult to keep on top of.
STEP 1: PREPARE A SALES FORCAST.
You should look to do this at least once a week: creating a cash flow projection using factors like:
•Sales forecasts
• Customers payment histories (if regulars, or retainer clients)
• Upcoming expenditures
What you will be left with is not a full accurate prediction -none of us know the future! - but will allow you rough idea to work around market climates, seasonal trends, or fluctuations in the industry.
STEP 2: ESTIMATE CASH INFLOWS.
This is the list we actually enjoy writing: what are your cash inflows for the period in question? This should include money from customers, money from assets sold, interest earnings, loans received, or other sources of income.
STEP 3: ESTIMATE CASH OUTFLOWS.
And now for the list that should be entitled “reality”!
What are your outgoing expenses? This could be supplier payments, salaries, loan repayments, taxes, debt, or supplies. Don’t forget the less frequent but equally as important costs such as insurance, rates, and registrations.
STEP 4: CALCULATE YOUR NET CASH POSITION.
This formula is simple:
Cash on hand + estimated cash inflows – estimated cash outflows = CASH BALANCE. This will give you a good picture of where you stand in terms of spendable income, as well as bringing into the spotlight your ongoing costs.
STEP 5: SURVIVING SHORTFALLS.
This is the moment any business - big or small - dreads: being unable to pay the bills. The plan of attack should be immediate action. By regularly calculating your net cash balance, you should be able to spot the problem early, and in doing so, be in contact with your bank for assistance.
Always ask your suppliers for longer payment periods, and most of all: be transparent. Hiding the problem or lying to those owed will only create more of a problem.