Let’s Get Fiscal: Looking at the Other Side of Profitability

Noted economist John Maynard Keynes said, “The engine that drives enterprise is not thrift, but profit.” True. But the other truth is that the hospitality industry is the only business I can think of where there are more ways to lose money than make money………

There’s an old joke that’s sad, but true, about our industry:
Q: How do you make a small fortune in the restaurant business?
A: Start with a large one.

Noted economist John Maynard Keynes said, “The engine that drives enterprise is not thrift, but profit.” True. But the other truth is that the hospitality industry is the only business I can think of where there are more ways to lose money than make money.

So lets start with the basics. Lesson Number 1: All money is not created equal. For instance, $100 in sales is $100, less expenses and taxes. A $100 saved is $100. So while “making more money” is important, it’s sometimes just as critical to lose less, too! Here are a few practical and creative cost control training tips for those of us who need to watch our “waste”:

  • Teach everyone on your team Profitability 101. The first few pages in your training manuals, and the first topic covered live in your new employee Orientation or videos should be “Restaurant Economics 101”, even before “Guest Service”. Why would a server or cook understand the importance of suggestive selling or following recipes without first understanding the basics of gross versus net in our business? They first need CONTEXT to make their behavior coincide with your training objectives. Show them how expenses relates to revenue, explain how higher costs makes it harder to invest money in people and training. What’s the point of teaching service skills, selling skills or cost control if there’s no perspective to the Big Picture?
  • Smash the Trash. Denise Fugo, CEO of Sammy’s Restaurants in Ohio, and recent National Restaurant Association President, contends that a lot of potential profit can be earned—or lost—out dockside, by the back door. Her key learning? “One of my favorite distributors taught me three profitable words: ‘smash the trash’.”
  • Teach employees how to manage their personal finances. If they’re frugal at home, they’ll be more frugal at work. Offer this seminar semi-annually and invite spouses, too.
  • Show them the money. Most of your team members think that restaurant owners are making a fortune. Post your monthly invoices for electricity, water, heat, gas, food, beverage, insurance, and rent on bulletin boards so employees can review the so-called “invisible” costs of doing business and compare it to their own expenses at home.
  • Sell and market “waste watching” to your team with posters in your work areas, prep areas and break areas. Take digital photos of the commonly tossed, damaged or over-portioned items with their cost per unit displayed in large type, like the cost of glassware, sugar packets, napkins, silver ware, ketchup packets, or an extra ounce of meat on a sandwich or alcohol in a drink, etc.
  • Raffles. Every month post each employee’s name on a sheet of paper. Choose the raffle goals based on the behavior you want to reinforce for the next 30 days: attendance, promptness, sales, working safely, cost control. For instance, if it’s a cost control raffle in a restaurant: any time someone breaks a plate or glass, cross their names off the list. Whoever is left has their name entered into a raffle for a prize drawing.
  • Keep knives and blades sharp. Believe it or not a sharp knife actually minimizes the likelihood of cut fingers. Plus your team works more productively and it usually results in less waste and therefore better yield.
  • Follow your recipes. A driving force behind high food costs in the kitchen or behind the bar result from cooks or bartenders that choose to follow their own recipes or measure “by eye” instead of using the prescribed spoons, cups, scales or jiggers.
  • Offer a Free Pre-Shift meal for every employee. Employee theft of food or beverage is a considerable cost and risk. Two suggestions: 1) offer a free (or low-priced) meal every shift and encourage employees to bring in their own plastic cup with their initials on it to minimize the cost associated with refilling and washing dozens of glasses each shift.
  • Volume hides a multitude of sins. Just because your restaurant is busy all the time doesn’t mean that you shouldn’t find ways to minimize costs and maximize efficiencies during those peak periods. In fact, here’s a story that illustrates the point very well:

    A Bigger Truck

    Two rural Oklahoma entrepreneurs bought corn by the truckload from a local farmer in Enid for a dollar an ear.

    Every week they bought all that they could load into their pickup. They’d then drive 110 miles north to Kansas where they sold the same corn along the road…for exactly a dollar an ear.

    Business boomed. But naturally, their expenses exceeded their sales week after week, though why was puzzling to the two slow friends.

    So going over the books one night, Phil turned to Bill and said “I just don’t git it. We’ve sold 150 truckloads of corn this summer, but we’re not making any money.”

    Bill solemnly nodded, stared out the window, thought for a while and then his face lit up: “I got it! We need a bigger truck!”

    Moral: Volume can hide a multitude of sins. Sometimes the temptation of high volume can hide the downside of doing business with that customer. Even when you’re busy, find ways to be more effective and efficient, and ask each team member how we can make the process better. “Good enough”, never is.

  • Sell more of what you have. The fact is that a restaurant doesn’t make money buying; it makes money selling. So focusing your customer-facing employees on skills related to menu merchandising and soft-selling may be your best cost-cutting strategy of all. Selling doesn’t cost, it pays.
  • Clean up your act. A guest or employee getting sick as a result of food borne illness is the number one threat to your bottom line. Here’s a sensible strategy that will help you eliminate potentially catastrophic costs before they occur: don’t get any sick as a result of unsafe food handling or storage. Quick, what’s the leading cause of foodborne illness? According to the International Safety Council the Top 5 contributing factors to foodborne illness in foodservice are:
    • Improper holding temperature (59%)
    • Poor personal hygiene (35%)
    • Inadequate cooking (28%)
    • Contaminated equipment (18%)
    • Unsafe food source (11%)

    Food safety training is mandatory, not optional. Visit the national restaurant association website (www.restaurant.org) for more information and resources. Sounds like cleaning and training will help beat the odds.

In summary, remember: while making more money is important, it is just as important to lose less money, too. As the South Carolina restaurateur John Keener says, “Not everything that can be counted matters and not everything that matters can be counted.”