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Food | 20/12/2022 13:00:00

The keys to remaining profitable in the current climate

The current climate is forcing the food service sector to take steps to ensure that its management processes are adapted in line with the changes that are taking place at the social and global level. Food service is an extremely dynamic sector that is capable of adapting to changes, innovations, new concepts and consumers’ tastes. However, it must now also adapt to specific external circumstances.

The financial situation post-Covid (characterised by savings that are now being used up), the Great Resignation, the war in Ukraine and the impact of the economic sanctions imposed on Russia, the rising cost of fuel and supplies, inflation and shrinking demand constitute the main factors that restaurants must take into account in order to ensure that the balance between income and expenditure remains stable.

The financial structure of a restaurant

Every book, training programme and hospitality management school establishes approximate percentages in relation to a restaurant’s sales. One of the formulas applied by Pilar García, the founder of Pendulo and a consultant who has worked with a number of restaurant chains in London and Spain, is as follows:

• 30% product costs
• 30% staffing costs
• 20% miscellaneous and overheads
• 10% rental costs
• 10% profit

By dividing its costs in this way, a restaurant can pinpoint where it is going wrong.

Watch out for product costs

In many cases, one of the main reasons why a restaurant or bar cannot turn a profit is because it has not performed a cost breakdown (or has not done so correctly). A cost breakdown is a tool that helps us to determine the total cost of a dish (per person) based on the raw materials used to create it. It is the most basic tool that restaurateurs can use to ensure they always stay abreast of any increases in costs.

What can be done if prices rise?

When the price of raw materials rises, a number of things can happen. For example, the restaurant’s profitability may be affected. If (as explained above) the profit margin is 10%, there is not a great deal of room for manoeuvre, although everything will depend on the percentage of the price increase. If you want to prevent the profitability from being affected (or only the profitability), after identifying which prices have risen you can take measures to renegotiate costs. This can be done on a habitual basis and includes such measures as replacing one product with another (taking care to ensure that quality is not affected) and using local, seasonal produce, which is usually lower in price and would not, in this instance, have any effect on quality whatsoever.

Lastly (and despite the fact that, according to the latest data from the Restaurant Brands Association and the market research company NPD, the food service sector is suffering from a low mark-up on the retail price), you may be able to raise your restaurant’s prices slightly, without fear of perhaps losing a customer or two.

Always pay close attention to staff costs

Another key factor in maintaining a certain level of profitability is human resources management, i.e. staff costs. In the current climate, it is difficult to find experienced staff, and demand for labour power is high. As in any market, this has led to an increase in both salary costs and recruitment costs. Despite the measures to make employment in the food service sector a little more stable, there is still a high level of staff turnover in view of the fact that, for many workers, food service jobs are seasonal and combined with studying or other professional activities, and are highly stressful.

Consequently, in order to assemble the ideal team it is very helpful to make a thorough calculation of the establishment’s needs and set very clear objectives. It is also advisable to review the operations for both the kitchen and front of house and digitalise as many processes as possible, so that employees can create more value for the business.

One of the major failings in the food service sector that management must address is creating a good atmosphere. This can be achieved by having transparent salaries and clear incentives, among other measures. Having a good policy in this regard, along with reducing split shifts as much as possible, usually results in a lower turnover of staff. And as a result, temporary or agency workers would only be needed at times of the highest demand.

How can a restaurant increase its sales?

How can a restaurant attract more customers? How can it increase the average spend on the part of its regulars? These are the two basic questions that every restaurateur asks, and they are fundamental to addressing the rising costs mentioned above. To this end, there are a number of approaches.

The first and most basic is to have an “external” presence, which nowadays takes the form of a presence on social media, although it can also mean the establishment’s involvement in the social sphere (sports teams, cultural activities, solidarity; in short, getting involved in social affairs). Restaurants can use social media to stay in touch with their community and build loyalty, as well as to reach new customers.

Increase sales through operational efficiency

Making a restaurant’s operations more efficient enables the optimisation of its space. If an establishment has 10 tables, for example, and it manages to get an additional use out of a four-seater table every night (a digital reservation system can help to achieve this), with an average spend of 25 euros the restaurant could increase its annual turnover by 36,500 euros. In other words, good operational management can help to resolve many of the establishment’s sales-related problems.