Synergy was hired by a restaurant to help them develop a new concept by recommending a range of strategies to help them improve food, beverage, and sales. We helped them realize their potential and gave them a clear food vision that would address and meet their financial goals.  With increasing labor costs, they did not want to raise menu prices as that can often be problematic with their loyal customer base. So instead, we addressed the problem by re-engineering the menu and upgrading several items to optimize margins and improve profitability. The changes encouraged customers to try new and exciting offerings, which increased check averages while keeping the core menu prices stable. 

The specific strategy we recommended was implementing a simple “game.” We encouraged our client to focus on those quick wins by playing the $3 Game. The rules? Look for ways to increase their average check by just $3. That’s it.

We were thrilled to get an update from the client last week. They took our recommendations and, utilizing the $3 Game, were able to achieve a $4.22 increase per spiny lobster dish as compared to last year. They also made the recommended change of offering this very well-received dish every day, instead of only a few days a week.  

A robust menu is a restaurant’s best-selling tool, and if you don’t create reasons for people to spend more money, you are not optimizing your potential revenue!

The bottom line is top-of-mind for all restaurant owners in an industry where margins are very slim. Naturally, operators are seeking ways to reduce costs. The importance and logic behind this is sound. However,  we want to dispel the notion that keeping food costs as low as possible alone, is the key to running a profitable restaurant. 

There are multiple operating expenses to focus on to optimize in order to increase profit margins. Food cost is certainly a large factor, but it is not the only area you need to examine when seeking to increase profitability. For example, often restaurant operators seek to purchase the lowest cost ingredients or buy in bulk to take advantage of a discount. This type of practice can inadvertently lead to more food waste (overbuying and the resulting risk of spoilage) and ironically, increases food costs.

 

The formula for calculating your restaurant profit margin is:

Net profit margin percentage = (net profit / revenue ) x 100

Think about additional areas that can cut into your bottom line, such as labor, rent, marketing, repairs/maintenance, technology, and other overhead expenses. Can you make your labor processes more efficient? Can you utilize better technology and equipment to increase production?

Another opportunity to help increase your margins is strategic menu pricing.  Steer away from pricing menu items solely based on food cost percentage. Hard and fast rules do not apply to menu pricing. However, a deep look at your target market, food cost percentage, labor, and competition will be required. It is wise to examine your menu and look at each item’s contribution margin (menu price – food cost). You will notice that it’s not always the items with the lowest food cost percentage that are the most profitable! This type of analysis can help you further identify ways to increase your margins.

Think of the old saying, “You can’t save your way to prosperity,” which is very fitting when it comes to food costs at your restaurant! If you would like your menu or labor processes analyzed for efficiency, please reach out to Synergy.