Increase profits and cut costs while addressing today’s biggest challenges
By James Kahler, COO, Full Course
As we finish up 2023 and look ahead to the new year, it appears the restaurant industry is trending in the right direction. Part of that can be attributed to price increases many restaurant owners have taken to combat pressures related to rising costs from food ingredients, packaging, delivery and merchant service fees. There’s also the expenses of hourly and salary labor, lease and utility costs, marketing, equipment repair and maintenance, new technology costs and ongoing service fees, just to name a few.
This may seem all doom and gloom, but there are several silver linings among the external pressures. One is the vast improvements in technology restaurant owners have been implementing to be more agile, lean and efficient. They’re using the data to make better decisions surrounding guest experience, labor efficiencies, food cost, operational improvements and pricing that help protect profit margin erosion.
Here are some of the greatest challenges restaurant operators are facing today and strategies you can implement to still innovate and grow.
1. Talent Attraction and Retention
One of the foremost challenges is attracting and keeping skilled staff members. In a competitive job market with varying pay rates for similar positions, restaurants can strategically position themselves as an employer of choice by offering a compelling employee value proposition. This could include benefits like flexible schedules, professional growth opportunities, tip pools, employee meal benefits, tuition supplements if they are in school, paid time off for tenure of work, bonuses, profit sharing and a positive work environment.
Clear communication of these advantages is key, both during the hiring process and through regular interactions with the team. Conducting anonymous stay interviews in addition to exit interviews can help narrow down what is working and what is not. This approach not only attracts top talent but also fosters a loyal workforce invested in the restaurant’s success. High turnover rates, on the other hand, erode profit margins very quickly and add undo stress to the team as a whole.
2. Enhancing Workplace Culture
Creating a positive work environment culture is crucial to fostering employee satisfaction, engagement and improved performance. This could include regular team-building activities that promote cross-functional work ethics to foster growth, or breaking up certain tasks or functions so employees aren’t doing the same routines every day.
Employee recognition is a powerful tool when executed correctly. Be spontaneous and purposeful in the execution. Find something that is special and specific to that employee. Timeliness is important for recognizing the employee and should be meaningful. Praise in public, counsel or give constructive feedback in private.
Provide clear lanes of open communication that give purpose, meaning and learning opportunities for growth. This fosters a sense of belonging and camaraderie among the staff, leading to a more positive work environment.
3. Managing Escalating Costs
Restaurants face the complex task of managing increased costs across various aspects of their operations, including food, labor, occupancy, commissions and general operating expenses.
Creating specific and efficient operational processes and procedures, instituting portion control strategies and implementing automated data tracking solutions are a few ways to manage escalating costs. Leveraging data by regular inventory counts, pricing guides and product mix can help operators make timely decisions about menu cost and pricing. Having a well-organized kitchen with proper product rotation (first in, first out, or FIFO) can help tackle rising food costs by reducing waste.
Explore reducing the complexity of menu offerings to allow improvements to the speed of service (throughput) and order accuracy mistakes that lead to increased costs. For labor costs, adopting workforce management software can optimize schedules based on real-time demand, reducing unnecessary staffing expenses. Understanding the costs associated with take-out packaging versus dining in is critical. Review pricing strategies across all revenue streams regularly against their specific cost categories.
4. Navigating Market Competition
With heightened competition in the marketplace, the challenge lies in both attracting new customers and encouraging repeat visits to stay ahead.
To attract new customers and retain existing ones, many restaurants launch robust loyalty reward programs, not only to offer rewards or discounts for frequent visits, but as a means to garner guest feedback. However, not all loyalty reward programs are created equal. Restaurants in today’s environment must take into consideration keeping it simple and intuitive for both guests and the operators to execute.
Finding an integrated loyalty program that works seamlessly across a restaurant’s digital ecosystem and provides relative and unobtrusive data analytics can be a balancing act. That is one part of the equation though.
The other part is understanding what attracts your guests to your restaurant and what incentivizes them to keep coming back. Rewards can come in many forms, such as birthday rewards, anniversary rewards, guest appreciation days, merchandise, etc. Additionally, introducing unique themed nights or collaborating with local events can set the restaurant apart from competitors and draw in a diverse crowd.
5. Strategizing Operational Efficiency
Balancing the need for operational efficiency with maintaining a strong connection to the core customer base requires careful consideration and planning.
Over the last five years, more affordable and advanced restaurant technology solutions have rapidly emerged. COVID-19 accelerated integrated systems through third-party vendors, covering a whole host of operational efficiencies around inventory, product ordering, labor, ticket orders, accounting, training, marketing, delivery and catering.
Newer AI enhancements have also added cost-effective operational support. Investing in an updated POS system streamlines operations, cuts costs and provides insights into customer preferences and performance.
6. Leveraging Data Analytics
Using advanced technology and data analytics can provide valuable insights for decision-making, aiding in protecting and optimizing profit margins.
By implementing advanced data analytics tools, a restaurant can analyze sales trends, customer preferences and menu performance. This data-driven approach allows operators to make informed decisions about pricing adjustments, menu changes and marketing strategies to protect and optimize profit margins.
Increasing Profits and Cutting Costs
Optimization, creativity and streamlining will continue to be required to successfully adapt to the current conditions in the restaurant industry. Here are key areas that will make a difference:
- Upselling and Cross-Selling. Train your staff to upsell higher-margin items or recommend add-ons and complementary dishes to increase the average check amount.
- Price Adjustments. Regularly review and adjust menu prices based on food costs, market trends and customer preferences. Ensure that your prices are competitive yet profitable.
- Loyalty Programs. Introduce a loyalty program that rewards repeat customers, encouraging them to return more often and spend more.
- Online Presence. Enhance your online presence through social media, a well-designed website and online ordering platforms. This can attract a wider customer base and boost takeout/delivery orders.
- Special Events and Promotions. Host themed nights, special events or promotional offers to attract new customers and entice existing ones to visit more frequently.
- Catering and Private Events. Offer catering services for corporate events, parties and gatherings, tapping into a new revenue stream.
- Alcohol and Beverage Sales. Focus on higher-margin alcoholic beverages and creative cocktails to increase beverage sales.
- Gift Cards and Merchandise. Sell branded merchandise and gift cards, providing customers with options to support your restaurant beyond dining in.
- Customer Experience. Provide exceptional customer service and a memorable dining experience to encourage word-of-mouth referrals and repeat business.
- Online Reviews and Ratings. Encourage satisfied customers to leave positive reviews online. Good reviews can attract more customers and build trust.
- Menu Optimization. Analyze your menu to identify low-performing items. Trim down the menu to focus on the most popular and profitable dishes, reducing ingredient and inventory costs.
- Inventory Management. Implement efficient inventory tracking systems to minimize food waste, overstocking and spoilage. This can help reduce unnecessary costs.
- Supplier Negotiations. Negotiate with suppliers for better deals and bulk discounts on ingredients, beverages and other supplies.
- Energy Efficiency. Invest in energy-efficient appliances, lighting and HVAC systems to lower utility bills. Ensure that staff follows energy-saving practices.
- Labor Efficiency. Optimize staff scheduling to avoid overstaffing during slow periods. Cross-train employees to handle multiple tasks, reducing the need for excessive staffing.
- Streamlined Processes. Evaluate your kitchen and service processes to identify bottlenecks and inefficiencies. Streamlining operations can lead to time and cost savings.
- Waste Reduction. Implement waste reduction strategies such as composting, recycling and using sustainable packaging to minimize waste disposal costs.
James Kahler is the COO at Full Course. He has worked in every facet of the restaurant industry for more than 25 years and is now helping owners and operators solve problems that consistently arise across the industry. At Full Course, Kahler specializes in strategic operations management and leadership, financial management, culture and relationship building, training and development, optimizing restaurant design and layout, restaurant best practices, and solutions to help his clients remove barriers to success.