Talk to Sales

How to run a cafe
(10 times more efficiently)

From the earliest examples in Revolutionary France, the pursuit of profit and the provision of ‘Hospitality’ have been at the very heart of Restaurant Operations.

Long-held traditions and societal pillars (such as the monarchy and the influence of guilds) were being dismantled, and chefs, traditionally in the employ of the noble houses, came onto the labour market and began to work for themselves. The very nature of food had changed to meet the convenience of customers, and to provide increased flexibility and choice. Much like today.

And from the introduction of the very first menu in Paris in 1770, in pursuit of more profitable meals, Restaurants have sought to understand what happens in their businesses; what their customers order, when, and how much.

These Insights have been central to successful Food and Beverage operations across the Globe, by balancing the innate Entrepreneurial flair of business owners with incisive data, and in managing internal purchasing and inventory, and staff schedules.

Origins of Restaurants

Hospitality is not a recent activity; it dates from ancient times, where many societies had traditions of traveller protection and welcoming. The very roots of hospitality emphasise the importance of relationships between the hosts, the guest, the suppliers and the employees in Food and Beverage businesses of every shape and size.

The word hospitality, in Latin, means foreigner or guest; and describes a cordial and generous reception of or disposition toward guests typically into one’s own home, or in taverns and inns built specifically for travellers.

The Restaurant as it is known today had its origin in these taverns, inns and cafes. Taverns made money mainly from the sale of alcohol, inns from renting rooms, and cafes from coffee, tea, and liqueurs.

Their food was served at fixed hours and a set price, on communal tables. Diners were often regulars who crowded the tables centre. Meals were competitive, as there was no portioning, and certainly no ordering; it was first in best fed, and payment was for a seat at the table, not for the food you ate.

Food quality was bad, lacked variety, and meal times varied from business to business.

Cafes, serving an assortment of tea, hot chocolate, and coffee, liqueurs, preserved fruit, chocolate, ices, and sorbets were successful 100 years before the first Restaurant. They had individual orders, tables, and checks, and some posted prices. The only thing missing was food service.

The early, primitive ‘restaurants’ of Europe served meals emphasising health and cleanliness; indeed, the word restaurant meant “a cup of soup”—a restorative to reclaim one’s health after a demanding day or to aid recovery from illness.

The disruption that led to the French Revolution saw cooks, waiters, and kitchen workers flood the labour market, and the great chefs of Noble Houses take their savings and open restaurants, serving bouillon to order at the customer’s convenience, at individual tables, and at a listed price.

Individual table service and diverse menus to order soon proved popular with customers, and profitable for businesses, and the modern restaurant was born. Nothing much changed for the following 100 years, until in the late 19th Century Escoffier, drawing from his military background, organised his hotel kitchen and brigade. He codified recipes, establishing consistency, and created a hierarchy and discipline, which became the inspiration for the kitchens across the globe.

Success factors

Restaurants have long been vehicles for Entrepreneurs, and the homes of innovation, though most typically focusing on product innovation; new dishes, new combinations of flavours, new ingredients or old used in new ways.

The kitchen, as we know it today, has not changed much since Escoffier, and Front of House hadn’t changed much since table service and menus began.

The business of Restaurants is making a profit; and supporting its staff, its suppliers and its customers in doing so. And though always centring upon food, its successful operation depends upon a suite of tasks ranging from scheduling, to kitchen management, to creativity to marketing, and is again in a time of profound and dynamic change through the advent of the digital economy.

So, what do successful Restaurant do differently?

marketplace, good food, good beverage and good service is only half of what is required. Delivering these in an efficient and cost-effective manner is Maramount; having the right amount of staff, not too few nor too many, purchasing the right amount of goods (too many and they sit on the shelves or spoil, too few, and sales are lost, and customers dissatisfied) and pricing the menu items at the right price are some of the myriad of concerns for successful food and beverage operations.

Innovation, so often touted as the answer to an ever-changing marketplace, must now expand beyond the plate or glass and include management innovation as well; management structures, the organisation of work, internal collaborations, directing and empowering staff and the use of technology. The rate of change in the marketplace and the evolving consumer preferences demands continuous monitoring and a deep and intimate understanding of what occurs in Food and Beverage businesses, daily.

For though success is often tied to innovation, Entrepreneurs have the tendency to overestimate their ability. Innovation, then, begins with measurement – and then knowing what to do with it. These Insights facilitate innovative thinking, creativity, and the building of relationships between staff members that develop and implement innovations which in turn function to improve a businesses performance.

Cost control

External factors such as the economy and competition have less impact on Food and Beverage businesses success than factors under their control; the product quality and service and effective management and business strategies, including cost control.

Cost control is paramount for profitability and incorporates the key manageable variable costs, labour expense (Roster Cost), and the costs associated with the production of the menu, (Cost of Goods Sold). Food quality and taste are considered key predictors of customer loyalty, as is a high quality of service that exceeds customers’ expectations, but controlling expenditure is essential for a businesses success; Customer Loyalty must fall within budget. Management innovations powered by Insights are the difference between high performing businesses and everyone else.

Labour Scheduling

Good service compliments good food and drinks as the very foundation of customer loyalty; it is the basic, minimum expectation of guests, and Hospitality businesses of all shapes and sizes will have their success challenged without it.

But good service comes at a real cost – there must be enough staff to provide quality service and engagement, prevent service-errors, to increase the average spend per guest, and they must have enough time to do so. But, too many staff, or at too high a cost, and the business loses profitability.

The application of staff; how many and when, through rostering, is a core role of the Manager. But how Managers forecast the number of customers and the number of staff to look after them is more of an art than science; more often than not Managers assume that the same revenue has occurred in the same period last year will occur next week, or use ‘gut feel. This forecasting habit tends to lead to an under-estimating demand, and then over-compensate with their rosters; on average adjusted rosters are 4% higher than they need to be.

Setting appropriate schedules is the most effective way of controlling labour costs; Taco Bell, for example, through the implementation of a labour scheduling system, saved $53 million in labour costs, whilst maintaining the desired customer service outcomes, and achieving their strategic goal of no customer waiting for more than three minutes during lunch service.

Below are the 4 stages of Labour Scheduling;

1

Forecasting customer demand (based on Revenue from Insights data).

2

Defining staffing requirements – what skills are required, and staff availability

3

Shift schedule: how many staff are required per shift

4

Rostering: assigning staff to shifts and publishing the roster

Forecasting customer demand is the first step but requires an interpretation of collected data from Kounta Insights to anticipate the upcoming week’s demand.

How much does staff turnover cost?

There are real consequences of not predicting the customer demand of Food and Beverage operations, both financially if over-staffed, but also if understaffed, as it can lead to staff leaving. Staff turnover is a major cost to business; it adds to operating costs and decreases profitability and impacts the levels of service and the experience of customers.

The hospitality industry is labour intensive but also experiences high levels of labour turnover with some estimates suggesting as much as 30 per cent of staff ‘turnover’ annually.

Turnover is not only a significant dollar cost, with the cost of replacing an average operational employee as much as $10,000, but also a “hidden” cost associated with loss of skills, inefficiency and replacement costs. Lost productivity resulting from staff turnover may account for more than two-thirds of the total turnover cost.

Menu Management

Forecasting is also critical to Menu Management, due to the perishable nature of the food items on menus. Inaccurate revenue forecasting results in producing too much or too little food. Over-forecasting may lead to increased wastage and increased food costs. Under-forecasting may lead to shortages, which can lead to unhappy customers, and may result in stressed staff, and decreased morale.

Demand Forecasting

Accurate forecasting is essential for managers to plan effectively. Inaccurate forecasting may lead to bad or no decisions. To understand what is going to happen, we first must have to understand what has already happened within the business. What has happened in the past is important as it outlines what we can expect to happen.

And to do that, we will utilise the information available in Kounta Insights.

Kounta Insights allows the searching of revenue between two date ranges, as well as the ability to search by specified days of the week or special or unique dates across the year.

Public Holidays are an example of special dates across a year. A Manager may want to know how their venue typically responds to Public Holidays. For example, a Thursday Public Holiday may result in a busier than usual Wednesday night, and Thursday trade, but a quieter than normal Friday, if customers take advantage of a long weekend by having the Friday off as well. By understanding their own venue and its customers behavours, Managers are much better equipped to avoid periods of over-staffing or under-staffing, and the consequences of both.

So how do I forecast revenue for next week?

A forecasting method called the ‘Moving-Average’ method is a simple technique to use to utilise the information stored within your Point of Sale (POS) and to complement the experience of a Manager.

The Moving-Average method involves calculating the average Revenue over a period of time and then employing that average as the predictor for the next period. The moving average method is highly dependent on the number of weeks used, with 19 weeks considered the optimum number of weeks.

The most recent 19 weeks weekly revenue is the ideal period to calculate the moving average.

It is called moving because every subsequent week’s revenue is added into the mix.

For example;

The last 18 weeks revenue totalled together is $414,000 and averages out to $23,000 per week. Last week’s revenue was 26,000. I then add $26,000 to $414,000 and divide by 19 (the optimum number of weeks). This equals an average weekly revenue of $23,158 each week for the last 19 weeks.

$23,158

That is the starting point for forecasting revenue for next week.

Because Hospitality can be affected by seasonal changes, such as school holidays or peak summer trading periods, and events like Easter that move, assessing the same period as last year for any significant weekly changes in revenue compared to the previous 4 weeks seeks to identify seasonal fluctuations. Significant is defined by a more than 15% increase or decrease in weekly revenue.

If an experienced manager expects the summer rush to begin next week, they may increase the forecast. If next week is unlikely to experience any seasonal fluctuations, a Manager will write the roster to a revenue of $23,158.

We can further drill down to days of the week, and answer the question, what is the moving average for Monday through to Sunday for example?

This level of information is invaluable when writing rosters and assessing the success of each shift, and the performance of the staff.

Pricing

By reporting the sales by product groups, individual products, or when comparing one product against another, Kounta Insights allows the performance of the menu to be analysed. Underperforming or less profitable menu items can be removed, or changed, and high profit yet underperforming items targeted to increase. Kounta Insights can be used to specifically calculate the expected return from menu optimisations such as predicting the impact of price changes or decreases in a menu items cost of goods.

Efficiency

Efficiency is key to the survival of small independent restaurants.

On the Global stage, Australian Restaurants are far less efficient than their American counterparts. By efficient we mean that American Restaurants, Cafes and Bars achieve more revenue, and profit, for the costs they invest in labour and purchasing, etc. Most Australian businesses need to produce more sales, whilst maintaining existing labour costs, or significantly reduce their costs while maintaining existing performances.

Most food operations operate in a complex setting and using simple ratios to measure and to assess the performance of operations provide limited and inconsistent benchmarking; they are largely ineffective. Personalised Insights that measure the performance and define operational benchmarks of individual businesses are of far greater value than those simple ratios.

A useful productivity measure, which can be facilitated by Kounta Insights, is Revenue per Labour Hour, determined by dividing the weekly revenue by the number of hours staff work.

Such a measure is a powerful tool when assessing the performance of shifts across a week. Many Food and Beverage operations experience peak trade across just two days, with as much as 50 per cent of weekly revenue occurring on a Friday and Saturday. These key days can often apply labour less productively than traditionally slow days during the week, and productivity measures provide valuable insights when assessing the efficiency of these shifts.

The importance of monitoring Insights data

The hospitality industry is especially sensitive to changes in the economy; earnings volatility and customers’ own perceptions of the economy have large effects on restaurant revenue.

Between 2006 and 2009 the away-from-home spending on food declined 12 per cent in the United States; fast-food outlets and sit-down restaurants, were largely responsible for the decrease in household food expenditures, as consumers ate at home.

Kounta provides valuable information to understand the buying habits of customers and allows the monitoring of changes. Average spend per customer and their ‘basket size’, what they typically purchase, allows management to target improvements in current performance and be mindful of changes in customer behaviour.

Green Beacon Brewery

Green Beacon Brewery is an award-winning boutique craft brewery located in Brisbane. Typical of most, Green Beacon has most of its trade in two days – Friday and Saturday.

Venue Manager, Charles McKay, leans heavily on Kounta Insights to provide on-going clarity in Green Beacon’s operational performance and looks forward to growing with it.

‘Almost every time I look at the Dashboard, Insights has added a new function’. He says, ‘and as we grow and add to our core business, we will use Kounta Insights even more’

Conclusion

The Hospitality Industry has a long history of dynamic and all-encompassing change, and today is no different; technology and consumers pursuit of convenience and experiences, expensive fixed and variable costs, and economic fluctuations make for difficult and complex operating conditions.

But success can be achieved through considered and innovative management and business strategies and by utilising the vast amount of business intelligence information powered by Kounta Insights.