Tag Archives | Food Cost

7 Restaurant Business Predictions for 2011

As we bring in the new year, we are going to take on a risk of predicting what the near future has in store for the restaurant business. While we want to be right in our analysis, we hope that some of these predictions don’t come true as they mean it will be harder for a restaurant owner to make money and to keep the money they make in their restaurant business.

Restaurant Business Prediction #1: Daily Deals

With the success of the Groupon business model, more and more entrepreneurs jump on board and start their own versions of “daily deals”. Unfortunately for Groupon, they don’t have a “secret sauce” to help them defend their turf from the onslaught of this new competition. (However, their market is far from being saturated). Fortunately for a restaurant owner like you, there will be even more Groupon-like marketing options available to you.

Whichever “daily deal” or “group coupon” company you decide to work with, remember that they are in the business of making a profit for themselves, not for you. (The same is true about newspapers, TV, Yellow Pages, and any other advertising media). It is your number one job to make sure your restaurant business turns a profit.

To make a Groupon campaign work for you, be organized and prepared. Here are some quick tips:

* Have enough food and staff to serve any increase in business
* Don’t go with it unless you can at least break even on every check (because if you’re losing money, you can’t make it up on volume; any repeat business is the gravy)
* Train your staff to handle the “moochers” just like your best customers (to minimize the risk of getting bad reviews on Yelp, UrbanSpoon and other review sites)
* Train them how to do upsells and how to collect customer contact information table-side (to have a chance to follow up with them and invite them back)
* Get first-time guests on your email newsletter
* Enroll them in your VIP Club or Birthday Club
* Have a follow up / bounce back campaign thought out and in place to bring the new guests back in

More information on how to work with Groupon and other “daily deals” companies is available here.

Restaurant Business Prediction #2: Local Search and Geo Targeting

The Big 3 search engines (Google, Yahoo, Bing) keep coming up with new and better ways to deliver geo-targeted results. Local small businesses (especially those in the hospitality and foodservice industry) are where it’s at when it comes to providing a better user experience to an online user.

A few years ago, the Internet was thought of as a “global information super-highway” that allowed someone in England to check on the status of their shipment from China to a client in Canada. While this is still true, the Internet has changed into an everyday tool to help a local mom decide which cafe she’s will stop at when she takes Little Johnny to his soccer game or which movie she’ll go to on a Tuesday night with her girlfriends.

Independent restaurant owners are generally slow to embrace marketing technology. Many still don’t even have a website. And now just having a website for a restaurant business is no longer enough: It has to be optimized for local search. Get on this now before everyone else and their dog is on there. Early adopters will make the most money.

Restaurant Business Prediction #3: Mobile Marketing

The new waive of Internet users no longer use a computer to go online. They can — and do — go online from their cell phone. They call them now “smart phones” and even that is a bit of a misnomer: It’s anything but a phone. Chances are, your smart phone has more smarts than your 3-year old computer.

What does this all mean to a restaurant business? It means that if you were late to hop on the train called “website” and “email marketing”, then the new train called “mobile marketing” is going to choo-choo away from you even faster. Build a mobile version of your site and do that now. Google has been reported on some occasions to NOT show “traditional” sites in their mobile search at all, so the sooner you get there the more you will benefit.

And as you are collecting your patron’s emails and mailing addresses, it’s time to start collecting their cell phone numbers too.

Restaurant Business Prediction #4: Inflation and Higher Food Cost

The currency is being created out of thin air by The Fed and all the other central banks around the world at an unprecedented speed. As more currency (not to be mistaken with “money”) enters the circulation and starts chasing the limited supply of goods, the inflation kicks in. Where the inflation will be the most visible is the price of gas, utilities, and the food cost.

I’ve met restaurant owners who purchased their business several years ago and “inherited” everything — staff, menu, decor, pricing, clientele — from the previous owner. They are not ready for these fast-pace chances in their business costs. As the inflation get bigger and faster, food cost management will become a matter of survival and not just a “best practice”. Be ready to tweak recipes, portions, and menus much more often than you have in the past.

Restaurant Business Prediction #5: More Regulation

The governments of all levels are broker than broke. Incessant hand-outs, giveaways, and bailouts require more currency coming in in the form of taxes. While the federal government can ask The Fed to print more dollars, local or municipal governments don’t have that option. Their response is going to be more regulation, strict enforcement of bylaws, permits and licenses, more bureaucracy, and the complete abandonment of reason in their dealings with local businesses. A story comes to mind of a businesses owner who answered the door to find there two IRS inspectors serving him a notice to pay $0.04 in back taxes plus $200 in fines. Brace yourself up for more insanity.

Restaurant Business Prediction #6: Brand Management

Yelp, TripAdvisor and a multitude of other review sites have the power to both put your on the map and to destroy your business. Your restaurant’s brand management is likely to become your headache or at least a priority in the coming year. If you’ve taken the time to build a VIP Club and turn your guests into raving fans, they will become the army to defend you from blackmail campaigns by an unscrupulous vendor or competitor. Also, if you thought mess ups in your dining room were costing you a lot, now they can cost you the entire business.

Restaurant Business Prediction #7: Social Media

Love it or hate it, social media is here and it’s here to stay. Facebook is already responsible for one click out of every four in the US and they are growing bigger. The “ugly duckling” Twitter may not appear very elegant but it has produced solid marketing results for a number of businesses. Foursquare is consistently growing its user base in many metropolitan areas. And lest we forget YouTube that gets a comparable amount of traffic to that of the big almighty Google.

While many early attempts to use Social Media in restaurant marketing were primarily experimental and didn’t produce any long-term results, these tools are now going mainstream and we are likely to see a number of reliable and repeatable marketing tactics to emerge. Become a friendly and smart user of social media and you will increase your trips to the bank.

Restaurant Marketing: To Groupon or not to Groupon?

Groupon coupons for restaurant businessAbout two years ago, a new word was entered out lives: Groupon. This company came seemingly out of nowhere and created an entire new industry. Thousands of coupon junkies are now glued to their computers waiting for the next daily deal to show up that they can share with their friends. Groupon is now arguably the fastest growing company ever promising to reach the $1 billion in sales mark within two years of its history.

Seth Godin, a marketing philosopher and the best-selling author, says that if other people are copying you, you have done something remarkable. By this standard, Groupon is an outstandingly successful company that has over 200 copycats in the United States alone and over 500 worldwide.

Andrew Mason, the founder of Groupon, has created an extremely profitable business model. Groupon sure does know how to make money for themselves.

The big question is, does it or does it not make sense for your restaurant to participate in the “daily deals” campaigns?

Let’s take a look at how “daily deals” campaigns work.

You offer a number of gift certificates redeemable at your restaurant at a significant discount (usually around 50%). The offer is valid only if the target number of certificates sold has been reached. The money your campaign generates is then split between you and the vendor (Groupon or one of their competitors).

An offer like this is designed to bring in a lot of first-time guests who have never heard of and have never visited your restaurant before. Such a campaign can literally put your restaurant business on the map.

As it is usually the case, the positives come with quite a few negatives.

This type of heavy couponing is going to bring in price-conscious customers. Many restaurants who have tried the daily-deals style of marketing report that the guests who show up with a coupon in their hand tend not to buy beyond what the coupon offers. Many don’t bother to read the terms and try to combine the coupon with other deals or discounts you may have going on that day.

Several restaurant owners commented that these guests tend to not tip a lot or not tip at all and are on a lookout for a “gotcha” even though you offer the same food and level of service as you do to non-coupon guests. What’s worse, few of these guests end up coming again.

When you plan a marketing campaign around a daily deal, you have to be prepared. Yes it’s nice to have a lot of new guests to come in and discover your restaurant for the first time. You, however, need to make sure you know how to make money and how to bring these people again after their first visit.

Train your staff on how to work with coupon holders. Add first-time guests to your newsletter, VIP club, birthday club or other type of customer loyalty program you may have in place. Teach your waiters how to capture guests’ contact details table-side. Consider programming your POS system to automatically include the tip into the check.

Offer Groupon deals only on days and hours when your restaurant is slow and only on the items that offer you a high profit contribution margin. Your food cost is probably anywhere from 28 to 36% of the menu price. Given that you only get 25% of the value from Groupon, you are almost guaranteed to lose money on this marketing campaign, even if some of the coupons do not get redeemed.

Remember: Each coupon customer walking in door puts you further in the red unless you do something to drive more add-on and repeat sales.

Managing Food Cost Recession Style

Two weeks ago, we talked about the futility of managing food cost by compromising quality, reliability, or supplier relationships. (See Food Cost: This Horse Is Lame. Stop Beating Her, Brother…“)

Here’s the deal: You shouldn’t be paying more for the ingredients than the other guy but you shouldn’t be spending the majority of your time checking prices either. Cost is just a part of management and not a whole other job.

It is easier to grow your revenues by 5%
using the right marketing tactics than it is
to bring your food cost down by the same 5%

I know it’s a stretch but… if you were to knock down your food cost by 5%, what would it mean to you in terms of profits? On a $100K monthly revenue and $30K in food cost, that’s  a respectable $1.5K in new profits. Not bad so far.

Alas, you don’t have to be a betting man to know that inevitably food cost will go up again, wiping out the savings you have worked so hard to create.

On the other hand, when it comes to marketing, you have 2 options:

  1. Get more new guests to check out your food, or
  2. Bring in existing customers more often.

The latter is much easier than the former. One good way to do that could be a V.I.P. Club. Not only can you get them to come in more often, you can get them to bring their friends too.

A V.I.P. Club that increases your revenue by the same 5% will put an extra $3.5K in your pocket — that’s $5.0K in extra revenue minus $1.5K in food to feed all the additional customers!  The best part is, you can do this again and again, month after month. Once a successful marketing method is in place, it works month after month, indefinitely, with little additional effort.

Now, which one would you rather have: A doubtful $1.5K once or a more likely $3.5K over and over again?

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Food Cost: This Horse Is Lame. Stop Beating Her, Brother…

food-pricesAs food prices keep rising, restaurant owners can’t help thinking about ways to deal with those eroding profit margins.

At times like this, it may seem like a good idea to shop around for better prices on your key ingredients. After all, what if you could:

  • Negotiate better prices with your current supplier?
  • Make several suppliers bid for your business?
  • Switch to new suppliers altogether?

This is a natural response. But you could be shooting yourself in the foot.

Here’s how.

Trying to get a better price on chicken breasts can only get you so far. The benefit to your business may be short-lived and illusory: The only way food prices are going is up. And you could be trying to solve the problem from the wrong end.

Think about what you’d have to give away to get a better deal:

  • Scenario #1: You sacrifice the food quality. If you are already a troubled restaurant, that could be the last nail in the coffin of your business.
  • Scenario #2: You replace your old supplier with someone less reliable. Then one night you may leave more money on the table than you could have saved on the ingredients.
  • Scenario #3: You throw yourself into heavy-duty negotiations that will suck up a lot of your time. You should know that your time has a high price tag attached to it and it may be better invested elsewhere.

Which brings us to the next point.

The fact that you can’t sustain the increase in food costs is a symptom of a bigger problem. If the menu is stale and unoptimized, if the concept is unexciting, and if you are doing a mediocre job of getting enough people to try your food, then don’t look for a bail-out from your supplier.

Sure, you shouldn’t be paying more than a fair market price for the ingredients. But you shouldn’t be paying much less either. If the basic economics of your business aren’t right, you’re fighting a losing battle against an enemy of your own creation.

That enemy’s name is “Poor Me” — and we’ve all met him at some point in our lives. He comes unannounced and turns a confident restaurant owner into a wimp who blames everything and everyone — government, weather, competition, economy, suppliers, even customers —  for the lack of profits in his business. To have a fighting chance, you need to get out of the cost-saving penny-pinching nickel-and-diming mindset and start plugging chasmic holes in your marketing.

When you can get enough customers to come and gladly pay the prices your food is worth, then you’d better be ready to seize the night. And that’s the night when you need your supplier on your side.

Tomorrow I’ll give you a tool that helps in managing food cost the right way. If you are a subscriber to RestaurantCommando.com, we’ll be sending you an email with your password to a special page on this website. And if you’re not yet a subscriber, you need to become one by tomorrow to get this special content! (Check the top right corner of this page for the subscription form.)

Do The More Successful Restaurants Offer Better Food Than The Ones That Are Not So Successful?

Do the more successful restaurants offer better food than the ones that are not so successful?

Not necessarily. Or at least, not always.

Knowing how to cook is never a guarantee of success. And we all know of restaurants with “so-so” food and recipes that have managed to create a virtual monopoly in their markets.

One thing is certain though: If your product is bad, you can’t fix it with more marketing. The product needs to be at least “okay” or “good enough.”

The food is only a small part of the equation. Your customers have a number of “wants” and “don’t wants” when they visit you. The “don’t wants” are rather basic, really:

(a) They don’t want to get poisoned;

(b) They don’t want to be ignored or — worse — talked down to or yelled at; and

(c) They don’t want to wait too long.

The “wants” are a bit more elaborate, but they are nothing that you can’t provide if you’re running what could be the beginnings of a real business:

(a) They want their entrees hot and their salads cold;

(b) They want the wait staff to be helpful yet relatively invisible; and

(c) If they are dining with someone else, they want that person to commend them for suggesting your restaurant.

Notice that the grandma’s recipe from the old country or the fancy wallpaper on the wall don’t even enter the equation yet. Nor does it matter if your recipes are authentic, exciting, or were devised by Gordon Ramsey himself — unless and until you can fulfill the basic “wants” and “don’t wants” of your clientèle.

And if you’re saying to yourself, “Oh, but we’ve got it covered; these things never happen in my restaurant,” think again.

Even the best restaurants can’t deliver on all six items with any level of consistency. They recognize this fact and they work on it daily.

Which is what makes them the best restaurants around.

Hey, did you just say, “But my business is different!”?

Puh-leease!!!