Those in the restaurant industry are familiar with the oft-repeated stat: nearly 60% of restaurants fail within the first year, and 80% go under within their first five years of operation.
While restaurant failure rates are indeed alarmingly high, it may actually be a matter of perception. A 2014 study zeroed in on the elements at play when it comes to restaurant closures, and shared the following insight:
"...due to the visibility and volume of restaurant startups, the public perception is that restaurants often fail. However, […] restaurant turnover rates are not very different from startups of many other different industries."
With over 620,000 restaurants operating in the United States, the average consumer is exposed to countless restaurants in their day-to-day activities, making it easier to notice failures and closures more frequently than in other industries.
How do you see it?
So, if restaurants aren’t failing as fast as the naysayers would have you believe, what can you do to ensure that your restaurant operation stays vibrant and visible?
While it’s tempting to fall back on well-worn strategies like “offer great customer service,” or “try to increase check size,” these usually offer little in the way of actionable tactics to help you achieve success.
...due to the visibility and volume of restaurant startups, the public perception is that restaurants often fail. However, […] restaurant turnover rates are not very different from startups of many other different industries.
Instead of simply “selling more,” consider your cost drivers. Cost drivers include the expenses that cut into your bottom line and are usually lumped into lumped into three groups: food costs, labor costs, and operational costs.
Here are five easy ways—in five different areas of your restaurant—that can help control your cost drivers to ensure your operation continues to thrive:
Determining next week’s sales doesn’t require a crystal ball. All you need is access to your POS system and a spreadsheet. Most modern, restaurant-focused POS systems come with the ability to generate and export reports of your sales so you can start looking for trends that will affect your business in the future.
Notice a downturn in sales every Thursday? Perhaps there is something you can do to stem this potential loss of revenue, which leads us to our next topic...
Labor cost control
To continue with the previous example of examining the perpetually slow Thursday, it wouldn’t make sense to schedule as many staff then as on your busier nights.
When your labor costs make up a third of all costs, it makes sense to minimize them. After all, a single percentage in labor cost savings can equate to ~$800/month in savings for a typical full-service restaurant!
Procurement done right
Given the continually rising cost of food, which the USDA pegs at 2–3% in 2017, it is imperative that restaurants find ways to order inventory more efficiently, reduce spoilage and know when the time (and price!) is right to place an order with a supplier. Enter apps like BlueCart that aim to tackle all of these issues at once. With an integrated app that makes inventory management a snap, you can reduce spoilage and place orders easier—two great ways to help you save time and money.
Turn down energy costs
While residential customers are experiencing the first declining electricity costs in over a decade, restaurant energy costs continue to surge on.
Why? Restaurants are wiring up! As more and more restaurant operations become computerized and electrified, it makes sense that we have more things “plugged-in” to offset the lower cost of electricity.
So, what’s an operator to do? The first order of business is to tackle the low-hanging fruit, like replacing conventional bulbs with LED bulbs and setting up smart thermostats (think: Nest and Ecobee).
To take things one step further, consider switching to energy-efficient kitchen equipment that, while costly at first, will pay you back via energy-cost savings in the long run.
Hack your rent
Given an average commercial price per square foot of $30 in the USA, it’s important to keep an eye on your rent or lease to make sure you aren’t forced into closure with a space you can no longer afford.
The best thing you can do? Be prepared. When negotiating a new lease or space, be crystal clear on what is included, what the terms are, and what your escape clauses look like. Once you are locked into an agreement, getting out can be difficult and costly.
Worrying about skyrocketing rent? If your lease permits it, consider subletting your space. A sublet is a great option if you can spare the room and are looking for another way to cover your costs.
These are just a few of the ideas that you can implement in your restaurant operation to help reign in runaway cost drivers and strengthen your restaurant’s success. What are your favorite ways to save money and control costs to keep your restaurant profitable?
Post written by Chris de Jong, the Marketing Lead for 7shifts, an employee scheduling app designed for restaurant based in beautiful Saskatoon, Saskatchewan. He works with the rest of the 7shifts team to help their customers all over the world save time scheduling, reduce labor costs, and improve communication in their businesses.