Table Turnover, Meal Period Analysis
Two paths to restaurant revenue growth are table turnover ratio and the meal period analysis.
If you arrived at this post directly, you may want to visit Market Segmentation Reports – Road Map to Revenue Results and 5 Myths about Financial Analysis, to catch the thread of earlier related posts. These are key to operational analysis, a powerful compliment to effective financial analysis.
Restaurant Table Turnover Ratio
We saw in the earlier blog post 2 Paths to Revenue Growth Nirvana that incremental revenue from existing customers is a faster, cheaper and better method of sustaining growth. For hotel restaurants, this works differently. Revenue growth here is achieved by re-selling capacity and turning tables over faster. This process is measured by and known as the Table Turnover Ratio. What is this ratio about?
Table Turnover Ratio is a simple ratio which measures the number of times a table in a restaurant is turned over during a particular meal period. In effect, how many number of times the same table in a restaurant is sold.
Obviously a high turnover ratio means higher incremental revenue for the restaurant.
3 Major factors affecting Table Turnover
Table turnover is affected by a number of reasons but the following are three major ones:
- Type of Restaurant Outlet
- Meal Period
- Hotel or Resort
1. Type of Restaurant Outlet
The single most important factor impacting table turnover is the type of restaurant outlet. What do we mean by this?
For example: a Coffee Shop by virtue of the nature of fare it serves is a busy, bustling, fast turnover outlet with an elaborate buffet spread laid out. The buffet not only allows customers to pick food of their choice but also to do so quickly and then be on their way. In contrast, a Fine Dining or Speciality restaurant is a sit-down restaurant serving a-la-carte (to be ordered from the menu) fare with an elaborate three course meal of soup or salad, entree and dessert accompanied by wines, spirits etc. It is a restaurant outlet catering pre-dominantly to lunch or dinner.
2. Meal Period
The second critical factor is the meal period. Table turnover is very different for breakfast as it is for lunch or dinner. Breakfast is normally a fast turnover (for exception, see the next section) event dominated by the buffet spread. Lunches and dinners despite having buffet spreads are sit down events mostly and undergone more leisurely although lunches targeted at office goers like executive lunches can be quick turnaround ones as well. Read more about this in the next section on meal periods analysis.
3. Hotel or Resort
This factor creates a diametrically opposite impact on table turnover depending on whether the restaurant outlet is part of a hotel (generally a city hotel) or a resort. This normally has more to do with the purpose of stay.
Stay in a city hotel generally is for business purposes (assuming a pre-dominantly corporate customer base) while it is for leisure in a resort. This for example has the effect of making even a breakfast meal period (in the Coffee Shop) very leisurely and long winded in a resort. Guests in resorts normally come down for breakfast very late (this is one reason why the breakfast meal period is stretched to accommodate this behavior) and they are buffet spreads as well. Thus, table turnover actually becomes a moot point since the patronage of the breakfast meal period will almost entirely be in-house guests. The only exception in the case of a resort will be one which is located close to a city or town area and attracts local customers.
Meal Period Analysis
The second path to restaurant revenue growth is meal period analysis. This is actually very closely related to table turnover ratio seen earlier. In fact, we can go as far to say that the optimum path to restaurant revenue growth nirvana is a combination of both these factors.
But what then is meal period analysis?
Meal period analysis is to restaurant revenue management what market segmentation is to room revenue management. It is a study of data and information on what contribution each meal period in a hotel or resort’s restaurant outlets is making. This of course depends first on the type of outlet.
Meal period analysis requires accurate identification of specific meal periods that are applicable to each of a hotel or resort’s restaurant outlets. Generically, the standard meal periods for a city hotel are breakfast, lunch, snack, dinner, supper although this is more applicable to a Coffee Shop.
Table Turnover & Meal Periods as powerful analysis tools
Having understood factors which affect table turnover and meal period analysis, how then are these considered powerful operational as well as financial analysis tools and how do these actually contribute to restaurant revenue growth.
Revenue contribution in restaurants is made by two key elements – food and beverage covers (number of guests) and the average food & beverage check. These are also known as the quantity (or volume) and price contributions. This is made clear by the following formula:
Restaurant Revenue = Food & Beverage Covers X Average Food & Beverage Check
When the above formula is applied for each meal period, these become the building blocks of a revenue estimate. However, this revenue estimate is on the assumption that each guest or cover is based on a turnover of one. If we are to assume different table turnover ratios for different restaurant types and meal periods, then we need to multiply the earlier revenue estimate with this ratio to arrive at the final revenue estimate. Please see Table below (Download Excel file here):
For example, taking the earlier formula further:
Restaurant Revenue = Food & Beverage Covers [X Table Turnover Ratio] X Average Food & Beverage Check
An alternate way of calculating restaurant revenue is:
Restaurant Revenue = Restaurant Seating Capacity X Table Turnover Ratio X Average Food & Beverage Check.
One very important aspect to remember in using Table Turnover ratio is that the ratio must be accurately applied. When applied to full seating capacity, the factor will be less than when computed based on covers.
So, the approach is to estimate revenues assuming table turnover ratio is 1 and then multiplying actual cover count (or seating capacity) with the table turnover factor (number of times a table is turned over) to arrive at the final estimate.
This is why table turnover and meal periods in tandem are such powerful elements of budgeting or forecasting restaurant revenues.
New Hotel Revenue Projection
Another area of financial analysis where table turnover and meal period are used together is for new hotel revenue projections. This is done by actually applying table turnover ratio to the full capacity of the restaurant.
Moreover, table turnover can be generically used to determine various other factors like manning requirements, supplies etc.,
What are your thoughts and views on the restaurant revenue growth nirvana in this post?
Leave a comment and tell us what you think.
Click this RSS Link or the one on the Top Right side of the home page to be updated automatically when a new post appears or forward to your friends who you think will benefit from the discussion.
In our next post in this series, we will be looking at the first of some key human resources indices, namely Staff to Room Ratio.
Staff to room ratio is a key index for estimating manning requirements and critical for accurate labour cost budgets and forecasts.
It is as important an index as table turnover ratio and meal period analysis is for restaurant revenue growth nirvana.