“Serve smaller portions”
“Don’t offer guests water”
“Hack your menu to promote more profitable dishes”
You can find countless industry tips aimed at helping you save money in your restaurant or bar; many of which are aimed at independent establishments looking to weather a downturn in business as consumers are increasingly choosing quick-serves and chains.
While there is nothing wrong with many of these tips, however they tend to focus on the microeconomics of restaurant management - the small things that can add up to costing your business a lot over time. As Kevin Moll of National Restaurant Consultants says, operating a restaurant "is a game of pennies."
But focusing solely on the micro changes only leads to micro results! There are bigger (macro) forces at play in your business which you can change right now to help you save big money. Here are 4 of the most important areas of to consider when looking to reduce costs.
Inventory And Food Costs
Your inventory and inputs are likely the largest chunk of your restaurant's budget, so it makes sense to spend time optimizing them in order to save money. This covers everything from looking into whether there are cheaper alternatives to key ingredients or setting a minimum use-by date for your inventory to make sure stock runs out well before it expires.
An often overlooked strategy to reduce food costs is looking into cooperative purchasing. If you work with other similar businesses to purchase food in larger quantities, you can usually negotiate a better price from your vendors. This is a great way for independent restaurants to compete with chains who often have higher purchasing power.
Tip: A smart inventory management app like Bluecart allows you to practice efficient inventory management by automatically reordering stock as it runs low. This allows you to carry the minimum amount required to operate, reduce your build-out size, and avoid costly spoilage.
After inventory, labor costs are often the second most expensive part of operating a restaurant. They are also the number one reason why independent restaurants are closing their doors, due in part to a “perfect storm” of rising wages and a shrinking labor pool. This is why it’s paramount that operators determine their current labor cost as a percentage of sales. For independent full-service restaurants, this figure is generally around 20% of sales.
Once you’ve set your labor benchmark, start looking at the data from your POS system on a weekly basis. Matching up this information with the data from your employee scheduling can provide considerable insight. Do you see areas which could be tweaked for improvement? Perhaps you are scheduling one too many servers every afternoon? If you can reduce your weekly labor hours (and associated costs), you can dramatically reduce your labor costs and save your business.
Tip: Implementing smart restaurant employee scheduling software like 7shifts has the dual benefit of saving managers hours of time every week. This saves you money, but also integrates with your POS to automatically track your labor costs and identify changes you can make to reduce them.
Speaking of labor, one of the most costly recurring costs for restaurants is staff turnover. Research show it costs up to 20% of an employee's’ salary to cover the cost of finding a replacement. The National Restaurant Association estimates for each average hourly employee you hire, you spend $1,500 training them. Given that turnover in the hospitality industry averaged over 70% in 2015, you can immediately see how important it is to retain staff in order to save your business money.
Besides simply offering your key staff increased salaries in order to retain them, invest in your staff by offering them more training. Additional training is shown to lead to higher job engagement, which is the number one predictor of an employee staying. This is an additional cost to your business in terms of the time you commit to training as a manager or operator, but the benefit of increasing staff engagement will more than pay for itself in saved hiring and retraining costs.
Tip: Feedback is a vital tool to connect with your employees and make them feel engaged. Ask for suggestions and acknowledge them quickly. A simple idea is creating a feedback email address employees can send suggestions to which benefit them and the business at large.
It’s not widely known, but most restaurants can save 10-25% of their annual energy bills with little to no additional work. To start saving, take a tally of all the sources of energy in your restaurant - things like lightning, refrigeration and HVAC. Then take a look at how efficiently they are being used. Are lights being left on 24/7? Is your freezer door being left open longer than it needs to?
Once you have determined the inefficiencies of your operation, set up a plan to address them. Perhaps you can work to replace your regular lighting with energy-efficient LEDs as they burn out, or replace your regular thermostat with a “smart” one (like Nest) which allows you reduce your overall energy usage.
Tip: Replacing your existing toilets and sinks with low-flow varieties can save you an estimated 20-40% on your water usage every year! You can find a list of the certified efficient products on the site of the Green Restaurant Association.
About the Author: Chris de Jong is 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.