Manage by the Numbers - what Reports can do for You

January 25th, 2009

Why do You feel better in some restaurants, than others? Is the thermostate set perfectly? Is it the decor? The friendly staff - how come everything feels right? Even the menu seems to offer only items you love. None of the overload you find on so many menus, that make you wonder, how they can manage the inventory and keep everything fresh and available at all times.

A thought-provoking thesis: maybe these restaurants are managed by owners, who know what numbers to look for in the reports, their Point Of SaleĀ  and other ’systems’ generate day in and day out? I work with onePOS, which is capable of sending relevant reports at a set time to an i-phone or blackberry automatically.

One of the most successful business men once told me “You cannot run a business successfully without meaningful information, delivered frequently and systematically”. He knows. He ran one of Europe’s largest coffee roasters with sales of over half a billion dollars. They sell to restaurants only. He knows a lot of successful restaurants and hotels.

In my years as CEO of Best Western Germany I worked with over 100 hotels and their owners and management. I learned valuable lessons about restaurant success formulas. Information quality is critical for quality decisions. Typically a place with more success had better management, and that meant a higher focus on analyzing data, learning from it and then taking the action to change things around.

It was at that point in my career, I had a revelation: the more successful a business is, the better it understands the cycle of management: analyze (information), strategize, execute and analyze… the very successful ones understand how to extract relevant information, digest and act upon it. I realized the value of good reports. Do you have good, meaningful reports for your restaurant?

How does that work in a restaurant: well, what does the owner know about “their guests”? What sells and what doesn’t sell? When does it sell? I once met the General Manager of a hotel who could tell plus/minus a quart how many quarts of ice cream he would sell by each degree of outside temperature. He had discovered a co-relation between the sale of items and the outside temperature. Soon he began to search for similar values to help him forecast his staffing and prepping for future days of business. He understood the value of managing by numbers…

I admit, this is maybe an extreme, yet interesting example. It reveals though, why it is useful, to keep a record of weather and temperature on every day of business. Well, what are some more mundane, more basic reports each restaurant owner should study frequently:

Well, of course the sales report. Maybe an idea - instead of using just a daily sales report may be to compare same days of business, like series of Mondays or similar month in previous years. One of my convictions: I believe that numbers are more meaningful, if they are not absolutes but comparatives. The regional manager, who compares 15 stores, identical in size and menu mix, may have more meaningful information, than the single operator. Anyone interested in building an exchange group where we compare key numbers for independent restaurants? Email me, if that’s an area you’d like to work on. My firm belief:

Metrics are more meaningful if they are derived from more than one store. Example: food cost in a pasta and shrimp restaurant is 23.5%. What do you now know? Would you know more, if you had a few similar restaurants, sharing their key-metrics with you? If that’s something that interests you, please email me. In Europe data exchange groups are very popular. By comparing with other restaurants one can identify areas of improvement.

The next critical question: how can you translate these numbers into actionable information? What are co-relations? What are $$ averages, such as guest-, check- and table average revenues corrrespond with the food cost %age? Analyze your numbers and you will find the specifics for your store. Clearly an advantage, if a chain restaurant is monitored - each and any number can be compared with comparable stores of the same brand.

OnePOS Restaurant POS offers close to 200 reports and they can be customized and emailed to the operator anywhere in the world. This article will begin a series of better information posts on this blog. Please share your experience and opinion with others. Thank You!

Make The Balance Sheet Your Friend.

January 2nd, 2009

In these hard economical times - many restaurants report massive losses in revenue - fresh thinking and optimism is needed, to not only survive, but to do well. Maybe a new focus on the benefits of technology is also needed: do you run a weekly balance sheet at your restaurant? A weekly P & L? Well, in order to get that done, you just have to have Restaurant IT (Information Technology) in place, that can do more than just crunch out a daily sales report.

In an article of November 18, 08, published in “Hospitality Technology” Emanuel N. Hilario, CFO of McCormick and Schmick’s sums it up in a neat 3-point-success-formula: : “1) Make the balance sheet your friend, 2) deliver superior ROI and 3) leverage technology.”

As a restaurant IT consultant I often meet people on their way of becoming restaurant owners. They are in that period of deciding the theme, decor, china and silverware, buy kitchen equipment, write a menu, hire a staff and uhh, yes, “we also need a POS”. Often that is delegated to ’someone’ on the team, who has some computer literacy and maybe worked with a POS system in their past. Translation: many restaurant owners miss out on the potential, of defining a clear strategy: what is it, they want to accomplish with their restaurant IT? A POS is just one element, albeit a very important one. What accounting system, which CRM element, which inventory control system?

Systems are top management / owner decisions and should not be delegated down. Without systems a restaurant can not be replicated. If a restaurant owner wants to be able to multiply the formula, systems are the other critical component - next to talent.

Capital preservation is critical in these tough times - how can you monitor your capital if you don’t have an “eye on the ball” and monitor your balance sheet. When it comes to technology Hilario suggests: “Operators do not need to be on the leading edge of technology, but should instead focus on solutions that provide a real-time view of profits and the cash position.”

Translation: you don’t need to be the first on the restaurant row, to have leading edge stuff. You do have to have a robust, reliable and time-tested solution. Does it have a proven track record to allow the kind of integration with other systems, necessary for focused financial management?!

Are all POS Systems created equal? Of course not - it’s like saying all cars are the same, as they all have four wheels with rubber tires… hell, no: a rarely discussed, but critical differentiators of POS systems is their database and its reliability. Not, whether it’s flat-file or SQL or Oracle. But more basic things like “what does it track?” The depth of your database determines, what you can track. What a system doesn’t record, can’t be reported, sent to your inventory or accounting application. Do you know, what you want to track? What are the indicators and metrics you’d like to monitor for your business?

One possible conclusion: working with a qualified IT consultant, who understands the connections between the accounting package, time & attendance and inventory applications and a Point of Sale system can help in designing great restaurant systems - to make the balance sheet your friend, you need to leverage your technology. To make well informed decisions, make sure you consult an expert.

Yield Management for Restaurants? Why not!

November 12th, 2008

As a “hotel man” I have always theorized about “Yield Management” (YM) for Restaurants. Yield Management is also known as “Revenue Management”. The objective is to increase profitability by selling more at a lower price when demand is low and at a higher price (in smaller allotments) if demand is high. If we could use Yield Management methods in the restaurant world, it should be possible to develop a set of tools to increase the revenue per available unit, which in a restaurant is the seat. YM really can be defined as “demand-based price/volume management”.

Here’s how it works in a nutshell: If a restaurant has 100 seats and a revenue of $5,000 per day in say 16 operating hours, than the revenue per available seat per hour is $5,000 ./. 16 = 312.50 per hour divided by 100 is $3.13 RevPASH (revenue per avail. seat per hour). Like airplanes and hotels - restaurants have perishable products that, once unsold in any given day, will never ever be sold. Tomatoes, if not sold as fresh produce, can be turned into tomato paste or ketchup. An empty seat in a plane or, for that matter an empty table in a restaurant is a revenue opportunity lost forever. So the goal could be to grow RevPASH to $4. That would result in $6,400 in income.

Much like we learned in the early eighties to think about hotels with this new paradigm - what I haven’t sold today I will never be able to sell - “revenue per available room” (RevPAR) as opposed to thinking about average occupancy and average rate - restaurants can in fact implement a yield management approach by looking at things just a little different:

Thinking of the unsold chair as a revenue opportunity lost forever. So “what if” we had stimulated demand by introducing special offers to stimulate certain guests - a senior dinner pricing for early dinners for example. This could help increase revenue in “shoulder” times. Or a late happy hour to stimulate late night bar sales… etc.

Another new paradigm: restaurants do 80% of their sales in maybe 20% of all opening hours. If we reverse that, it means that in a 16 hour restaurant business day only 3 hours are really busy and 12 to 13 are not. Look at your sales reports per hour and identify how that works in your restaurant.

As a hotel man educated in Europe I have always looked with admiration at America’s leading hotel management schools such as Cornell and Michigan State. In 1984 I had the privilege to learn about YM from Professor Eric Orkin, one of the fathers of this theory, at Michigan State University in Lansing. Cornell University has a very active Center for Hospitality Research and recently I discovered a series of highly inspiring and exciting articles and research reports about restaurant yield management.

Modern POS systems offer the foundation for Yield Management in the restaurant world. OnePOS by Travis Young is an application that provides a tool-set to increase the yield of any restaurant, willing to focus on these techniques and tools. Email me, if you’re interested. I would love to work with a local restaurant (group) on enhancing yield and profits.