Restaurant Performance Snapshot

Restaurant Performance Snapshot

The vital statistics of a restaurant operation

Do you know the vital statistics of your restaurant operation? If your boss happened to ask you to provide a big picture overview of your restaurant operation, would you be able to cover the most important metrics of your operation?

Restaurant Performance Snapshot

Restaurant Performance Snapshot

Your restaurant operation is affected by many key elements which I call the Profit Triggers. These triggers impact your restaurant performance in a big way. In other words, these profit triggers contribute to your restaurant revenues, profits and related indices in a major way.

This blog post will look at four major categories of performance indicators for your restaurant operation which you must absolutely be on top of. A Restaurant Performance Snapshot format is also provided which you can download and customize for your needs.

The four major categories of performance indicators for your restaurant operation are:

  1. Performance
  2. Revenues and Profitability
  3. Statistics
  4. Forecasts

Performance

Performance is the first major category for your restaurant operation. It refers to how your restaurant fared compared to the market in which you compete or operate. It begins with knowing the revenue share of your restaurant versus the market. In short, this is knowing who your competition is.

Why is knowing about the competition so important?

If you operate in a particular competitive set, it is evident that decisions that you take on pricing, quality, presentation, products and services will impact not just your results but also that of the the competitive set. So, knowing where you stand versus your competition is key.

Performance can be seen from the point of view of market segments of your restaurant outlets and the catering operation. Generically, the catering is the most profitable operation in the food and beverage business. Results can be tracked both from a revenue perspective as well as covers served which indicates volume.

See attached Restaurant Performance Snapshot for the elements of the performance category.

Revenues and Profitability

Revenues are the foundation on which any restaurant (or for that matter any business) operation rests. Understanding your revenue behavior from the perspective of actuals, budgets, last year allow you to make comparisons of business results and indicating where you stand. Knowing whether you are growing or not in your revenues over time is critical to sustain the operation itself.

If revenues are the foundation of your restaurant operation, then profitability is the very reason for survival and earning a good return on investment for your owners. Profitability is what sustains the restaurant operation and injects vital cash flow to run the business. It is often said in the hospitality industry that if there is no top line, there is no bottom line too. Owners are constantly looking for sustainable profits to continue running the restaurant operation.

In measuring profitability, knowing how your food costs, labor costs move is critical to know. These are the costs which actually dictate what profits you are able to retain from the revenues you have earned.

See attached Restaurant Performance Snapshot for the elements of the performance category.

Statistics

While performance versus competition and revenues and profits are major categories, knowing the price and volume elements of related performance indices is critical. Here is where knowing how much of your restaurant results is coming from the occupancy of the hotel (for a restaurant operation within a hotel), how much of your guest patronage is in-house and how much non-resident, knowing what your overall average check is are indicators that allow you to take decisions in the right direction in the pursuit of budgets and targets.

Most times, the direction in which the statistics are headed can clearly point to what is happening to actual revenues and profits. So, keep a sharp eye out for indications of drop in volume or growth from these elements.

See attached Restaurant Performance Snapshot for the elements of the performance category.

Forecasts

While the measurement of revenues and profits during the current month and year-to-date is important, however, depending upon the month of the year you are presently in, knowing the big picture for the entire year is crucial.

For example, if you are in the month of March 2015, knowing what happened to your performance during March and year-to-date for three months is important. However, you must also know what your forecast for the entire year is indicating. In a way, you are using three months actuals and projecting nine months of forecasts which completes the picture for the full year performance.

Forecasts need  to be measured, actioned upon and  monitored both for revenues and profits.

See attached Restaurant Performance Snapshot for the elements of the performance category.

Conclusion

Your restaurant is a complex business operation. Keeping it on a path of revenue and profit growth is key to survival and competing in the environment you are in. If you are on top of the elements shown in the attached Restaurant Performance Snapshot and measure and monitor the indicators, you should be able to run a healthy, growth oriented restaurant operation.

Attachment

The Restaurant Performance Snapshot attached is a Microsoft Excel file that can be downloaded and edited to customize to your unique needs. However, it is important to keep the major four categories intact so that you get a comprehensive picture of your restaurant operation. Data inside the attached snapshot can be imported from your management reporting system or can be manually keyed in. The attached format is applicable for  a single restaurant or for the total food and beverage operation of the hotel, in case your restaurant is part of a hotel operation.

Restaurant Performance Snapshot

More of this kind of analysis and reporting is available in the full fledged Restaurant Profits A La Carte online course written exclusively for Directors of Food and Beverage and Executive Chefs about which you can learn here.

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Are you leveraging the Quantity Price Magic?

POWER TIPS SERIES

Power Tip 4 – Are you leveraging the Quantity Price Magic?

If you have not read Power Tip 1, go here for it on RevPAR VS Average Daily Rate focus or Power Tip 2 here for Buffet Spreads – bundling food and beverage items for higher profits and here for Power Tip 3 here for Are you sacrificing sales mix for sales?

Are you leveraging the Quantity Price Magic?

Are you leveraging the Quantity Price Magic?

A Room sold at a lower rate is any day better than a room vacant from a bottom line perspective
What does this mean? How can you leverage this powerful principle?

Room Revenue is contributed by two major elements – price and quantity. In other words, occupancy and average rate. But this is common knowledge. What is uncommon is their impact on profitability.

Price and quantity affect profitability differently. Any additional dollar of revenue earned contributed entirely by price (average rate) tends to go entirely to the bottom line when compared to revenue contributed by quantity which brings with it variable costs.

In short, if the major part of your room revenue performance is contributed by price or average room rate than volume or occupancy, you should me making more profits than if volume was making such major contribution.

So, next time you are analyzing your profitability, be aware that it all boils down to how your revenues were delivered. The top line influences the bottom lime. One of the most powerful principles profitability behavior.

Watch out for Power Tip 5 in the Power Tips Series.

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5 Myths about financial analysis and numbers

5 Myths about financial analysis and numbers

If you have not read Power Tip 1, go here for it on RevPAR VS Average Daily Rate focus or Power Tip 2 here for Buffet Spreads – bundling food and beverage items for higher profits.

5 Myths about financial analysis

5 Myths about financial analysis

The reasons why Financial Analysis is something considered outside the realm of an individual with a non-finance background are the myths that surround it.  The fact that the phrase “financial analysis” sounds very technical contributes to these myths to complete the aura of mystery.

Finance professionals and those with finance background have not helped the cause any by refusing to demystify financial concepts.  Perhaps, in their way of thinking, they hold the power of this knowledge and hence are reluctant to share it.

Financial Analysis can mean different things depending on how broad or narrow an interpretation of the definition we choose to take. From a broader perspective, financial analysis can mean the process of evaluating businesses, projects, budgets etc of a business venture that is currently in operation.

Myth 1
You need a Degree in Finance to understand Financial Analysis!

While by no stretch of imagination is financial analysis a generalized area or body of knowledge, it is equally true that it is not something which requires a full degree in Finance to understand and utilize.  The concepts underlying financial analysis are quite simple and while a few of the terms need to be digested, a lot of the work can be achieved through logic and common sense.

Myth 2
You need to be an Accountant to understand Financial Analysis

While it is true that an Accountant by virtue of being the individual tasked with the primary responsibility of producing financial statements tends to understand financial analysis more quickly, it is definitely not true that one has to be an accountant to understand and utilize financial analysis. This ease of understanding for the accountant comes from the umbilical cord connection between accounting (books of account) which are the source for production of financial statements.

However, any Business Manager who is responsible for results can pick up concepts of financial analysis without knowing any technical aspects of accounting and in fact it is true in most industries, that the head of the unit is a non accountant who is responsible for the results and performance of the unit. Again, it is important the accountants make an effort to lift the veil that surrounds the concepts and make them simple to understand for those not from a finance or accounting background. This is a responsibility that many of them unfortunately fail to carry out resulting in a deeper fear in the minds of the non-finance people.

Myth 3
You need to be a wizard in Math to carry out Financial Analysis.

This is another of those classic myths.  Since a major part of the financial analysis exercise deals with numbers and figures, people immediately jump to the conclusion that you need to be some kind of wizard in Math to carry out effective financial analysis.  This is as far from the truth as the first two myths which dealt with having a finance or accounting background.

While again, numbers and figures do behave in a certain manner and understanding those behaviors makes the analysis that much more impactful, it has nothing to do with math per se.  I will even go as far to say that if you can do basic addition, subtraction, multiplication and division and have a working idea of percentages you are good to go.

Myth 4
People with non finance background cannot be good at Financial Analysis

This myth is purely the result of the handiwork of accountants and people with finance background who have resolutely refused to cede what they consider their territory. However, as I said earlier, more business unit heads are those from a non-finance background and thus this in itself blows the myth that they cannot be good at financial analysis since they are responsible for the performance and results of their unit.  You have to remember that the accountant merely produces the financial statements from the books of account, he does not hold singular rights or for that matter mastery over their output.

I have regularly come across business unit heads with a non-finance background who have a very healthy head for finance and financial analysis and by virtue of this have actually performed excellently. It is something that can be emulated with a bit of effort and support from the accountants/finance people.

Myth 5
You need to wade through difficult technical terms before understanding Financial Analysis

The last of the five myths and a big one at that is that you need to go through complicated technical terms before understanding financial analysis.  While it is true that there are technical terms to be understood and used in analysis, they are by no stretch of imagination insurmountable and definitely not out of bounds for non-finance people.

As an accountant and finance person myself, I can without hesitation say that a good chunk of the understanding will come from logic and common sense and knowing cause effect relationships.  In fact, I would go as far as to say that knowing cause effect relationships will de-mystify financial analysis a great deal and I will be actually using this approach to do just that in this blog series

So, fasten your seat belts (as opposed to putting on life jackets which will frighten all and sundry), this ride may be bumpy but I promise it will be exciting and at the end of it you will be as savvy in financial analysis as any of your esteemed accounting or finance colleagues. I promise it will not give rise to sleepless nights or hair pulling or head bashing.

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Are you sacrificing sales mix for sales?

POWER TIPS SERIES

Power Tip 3 – Are you sacrificing sales mix for sales?

If you have not read Power Tip 1, go here for it on RevPAR VS Average Daily Rate focus or Power Tip 2 here for Buffet Spreads – bundling food and beverage items for higher profits.

Balanced Sales Mix

Balanced Sales Mix

Your profitability is enhanced not by your Sales but from your Sales Mix. So, what is the difference?

Sales is about the number of products on offer. Sales Mix is about the combinations of products on offer. Sales deals with absolute quantity sold. Sales mix deals with proportion of each product compared to total.

Proportion and Quantity
Why are proportion and quantity such a big deal?
Combinations are where the sales mix magic happens. Each combination of price, cost and contribution margin for the items forming part of the sales mix is what brings in the profit element.

Contribution Margin – path to profit
Put simply, contribution margin is selling price less variable expenses. This is different for different items being sold. However, the unique combination of high contribution margin items in the sales mix is what boosts the bottom line.

Pay attention to what each item in the sales mix contributes to profitability. It is more important than simply the number of items sold.

Watch out for Power Tip 4 in the Power Tips Series.

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Buffet Spreads – Bundling Food and Beverage Items for Higher Profits

POWER TIPS SERIES

Power Tip 2 – Buffet Spreads – bundling food and beverage items for Higher Profits

If you have not read Power Tip 1, go here for it on RevPAR VS Average Daily Rate focus.

Buffet Spreads - bundling food and beverage items for Higher Profitability

Buffet Spreads – bundling food and beverage items for Higher Profitability

In any hotel food outlet and in particular when buffet spreads are offered, it is important to push beverage sales along with the food offering. Consider that a quality buffet offers you a soup, salad, entree, dessert and a drink all for a fair price. This strategy provides a balanced meal, enhances sales mix and revenues and boosts profitability. This is the Buffet spread philosophy.

It is predominantly a sales mix matter. The principle of bundling more than one product is an age old marketing strategy. Take for example the ubiquitous McDonald’s Value Meal Bundle – Fries and Soda are offered along with the main food item for a value bundle price. This is to the benefit of the customer. For the vendor, It helps push sales of 3 products instead of one. A classic Win Win situation.

In the case of hotel food and beverage items, there is similarly a silver lining. Selling four items (soup, salad, entree and dessert) instead of one has enormous benefits. Contribution margins are enhanced, service employees can be reduced with a buffet spread laid out and revenues are boosted. Moreover, beverage costs are much lower than food costs and tend to boost profitability through contribution margin.

The buffet spreads in hotels are their version of the McDonald’s Value Meal bundle. You get a soup, salad, entree, dessert and a drink all for a fair bargain price compared to an a la carte order of these items individually. In this case, there is something that even the McDonald’s bundle cannot offer – unlimited consumption of food and beverage items. You can always keep going back to the buffet for more helpings. A unique Win Win situation again.

Watch out for Power Tip 3 in the Power Tips Series.

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RevPAR Vs Average Daily Rate Focus

POWER TIPS SERIES

Power Tip 1 – RevPAR Vs Average Daily Rate Focus

RevPAR VS Average Daily Rate Focus

RevPAR VS Average Daily Rate Focus

Recently, while working with my customer, I was asked this question: Why should hotel RevPAR be preferred over Average Daily Rate? My response was this.

If you were an archer and granted a boon to choose strength (power) against distance, which would you choose? Which is best?

The best would be neither power nor distance individually but the two together. The two are complementary to each other. The two enhance each other.

Business is no different. If you were tasked with achieving a revenue target, you will need both quantity and price (power and distance comparably). Just one of them is good but not good enough. You need both. This is why you would choose RevPAR over ADR.

Illustration

RevPAR = ADR x Occupancy %

See how RevPAR uses both ADR (power) and Occupancy % (distance) – the best combination.

It tells you what the combination of occupancy and rate is producing. This is the reason RevPAR has become a global norm to measure asset utilization in the hospitality industry.

Look out for Power Tip 2 which will be: Food and Beverage as a profit boost combination

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Cloud Academy

Cloud Academy, a Ignite Insight LLC enterprise opened its doors as a virtual learning portal on May 1, 2013 offering courses (visit: http://www.elearningcloudacademy.com) with self-paced, easy to learn and understand financial concepts and analysis for the hospitality industry.

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