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.