I read a post on Quora recently where someone asked what the essential traits of successful restaurants were. Many current and former restaurant owners, chefs and investors offered their advice. There were a number of common themes, as you might expect – good food, good location, good customer service, good online reviews etc. But one other answer appeared repeatedly as well that I thought was interesting; the owners must have a keen business sense.
It something I’ve talked about before – the difference between working in your business and working on your business. Back in 2008/09, shortly after the construction industry in Ireland ground to a halt, I remember dealing with quite a few queries from brickies, plasterers, joiners and electricians about setting up coffee shops, restaurants and sandwich bars. Their logic, apart from having no site work to go to, was something along the lines of “Sure, it’s just making tea and sandwiches. I can make tea and sandwiches.” But as any experienced eatery owner knows, there’s far more to it than most people realise.
With that in mind, here are my top tips for anyone thinking of starting up a restaurant, cafe or takeaway.
To me, this is just extremely practical. It goes back to the difference between doing the job and running the business. You might be an award winning chef and have an exceptional talent for food, but if you can’t manage staff, promote you business, keep the books and build relationships with customers and suppliers you’re sunk before the doors even open. Bringing in someone with these skills that you trust and get on with will be the difference between success and failure. Whether or not they are shareholder or a well remunerated manager is up to you, but the key is to have everyone playing to their strengths. You look after the food and your business partner can manage the business side of things.
In most food service businesses, wages typically amount to around a third of turnover. However this can shift up or down depending on whether you operate table service or counter service, have numerous highly skilled chefs or one etc. Whatever your model, the sweet spot when it comes to staff scheduling is to have everyone busy but not to a point where they can’t cope. That, ultimately, has a negative impact on the business, the customer experience and the staff morale.
I recommend auditing your processes. From customers walking in the door until they pay and leave, what staff do they interact with? Does each person in that process need to be there or can they be the same person? I have seen restaurants before where one person takes the order and another brings it to the table (as a rule). If that’s the image of the business and that’s important to you, fine. By all means go ahead. But if you’re sacrificing profitability to do that, I think it needs to be looked at again.
Also, be careful in preparing you employment contracts or statement of terms. Agreeing to give employees 40 hours per week could leave you with idle staff on slow nights. Probation periods should also be written in to employment terms to ensure that staff that are not up to scratch can be let go before they really start harming your business.
Having said that, it’s also important to train staff. Even if they have experience, you need to show them how you expect things to be done. This will go a long way to getting staff to buy in to the concept you are creating. If staff can buy in, they should be more able to help customer to buy in and buy more.
Good training will also help staff appreciate the concept of turning tables, cross selling and up selling – all of which will help your profitability.
There is always going to be an element of waste in a food service business, but too much can be what puts you in the red. Whilst you will never be able to perfectly predict how busy you are going to be, having sound processes in place can certainly help reduce spoilage as well as supplier shortages. If practical, you should have all orders checked before you call it in to the supplier. Is what you/your chef is ordering reasonable? Too much and it will end up in the bin. Too little and your customers walk out the door. Generally, you’ll get a feel for what’s needed as time goes on. If you taking forward bookings, this can be an excellent gauge for demand.
Also, make sure you check prices before ordering. Many suppliers will update prices on a monthly or even weekly basis. So the guy that was the cheapest supplier last month may now be the most expensive. However, also be conscious that you will need to balance this with possible price breaks for volume orders, speed of delivery and quality of the produce.
Get The Stats
Designing a menu is a mix of science, art and witchcraft. Oftentimes, the chefs favourite item on the menu may be the least popular. And if that’s the case, that’s wasted real estate on the menu. Collecting the data on whats selling and what the margin is should help you finesse your menu over time and remove items that either aren’t selling or aren’t making you money. There are plenty of till systems out there that can help you collect his information. One such system that I’m a big fan of is Vend. It will not only tell you what’s selling but will also help manage stock, deliveries and even let you set up regular customer to track their history of purchases. Add and email address and an phone number and you have all you need to turn on some additional marketing to your best customers.
Get Your Costing Right
This can be difficult to get right and quite time consuming also. But it is critical. I recently posting an infographic showing the costs behind a cup of coffee. This perfectly illustrates how a high margin item can still lose money. You may find that you’re business has a 70% gross margin. Great. But if your overheads (wages, rent, rates, heating, electric etc) come to £100,000 you need to sell £142,000 just to break even.
Understanding this dynamic from day one will help you price accordingly. Quite often in food service businesses, there is quite a bit of price sensitivity from customers. Hiking prices up even 3% may be too much. The reason for this is that these are very comparable businesses in terms of price. Going back to the cup of coffee, there isn’t typically a huge price differential from one coffee shop to the next. And where there are differences, they are usually backed up by their quality.
Increasing your margin will only really happen in two ways – putting prices up or taking costs down. Again, this needs balanced with the quality of the offering, the image of the business and the customers willingness to either pay more or accept an (even slightly) inferior product.