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Archive for the ‘Direct Operating Costs’ Category

MinimumWageRoadSign

In my last post, I wrote about a study that predicts increases in the minimum wage will lead to significantly more restaurant closures.  Clearly, many restaurants and bars are unable (or failed) to raise their prices in response to increases in the minimum wage, resulting in their ultimate demise. (more…)

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It is almost impossible to compare a restaurant’s operations with industry averages.  Organizations like the CRFA aggregate the smallest mom-and-pop with the largest chains to get their averages.  Not many restaurants are “average”, anyway.  Just about all industry statistics are based on surveys, not actual operating results.  Even though such surveys are anonymous, who wants to put down that their cost of sales is 40% or more?  So, the results are often skewed.

There is another way of compiling restaurant operating results.

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AbacusWhile there are some signs that we may be emerging from the recession, I think you’ll find that consumer behaviour has been changed, perhaps for many years to come.  Even your “well-off” customers are much more price conscious that they have ever been before.  Actually, they are more value conscious.  In order to “survive and thrive”, you have to continuously monitor your restaurant’s value proposition.

While there’s more to the value proposition than your menu and prices, these are the two aspects that can be adjusted fairly easily in the short-term.  These are also the two areas that most restaurateurs fiddle with first, when times get tough.  We could probably add labour into the mix, too.

Recessions always harm the restaurant industry.  People lose their jobs (or worry that they will lose them), cut back on meals outside the home, and spend less when they do go out.  Most restaurants experience a drop in both volume and check averages, often severely reducing (or eliminating) their profits.  To cover their fixed costs, restaurateurs will try everything to keep the customers they have and steal their competitors’ customers.  Most start with price reductions, either through coupons and discounts or with across the board price reductions.  It doesn’t take long to realize that quality or portion sizes have to be reduced to maintain profitable margins.  Easier said than done!

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I’ve been involved in the restaurant business for over 20 years, both as a chartered accountant advising restaurateurs and as an owner operator.  I started this blog to help restaurateurs improve their operations with practical information.  While I have advised a variety of different restaurant operations from fast food to fine dining, my focus is mostly in the area of licenced, full-service restaurants. 

Despite being “small” businesses, restaurant operations are surprisingly complex.  They offer a wide variety of products, using hundreds of ingredients, purchased from numerous suppliers.  The product mix needs to have some uniqueness to distinguish one restaurant from the multitude of competitor operations.  There are huge number of small sales from a team of changing salespeople.  Many of the products are “manufactured” and the prices of many ingredients change frequently.  Manufacturing needs to be closely matched to sales, because many of the ingredients are perishable, yet sales volumes are notoriously difficult to forecast.  Restaurants must comply with a variety of laws and regulations covering virtually every aspect of their business.  All this, and we haven’t even touched on how restaurants attract and retain customers.  Finally, there are several catastrophic risks that need to be managed every single day. 

The complexity of restaurant operations means that there is no shortage of topics to discuss!  As an accountant, my specialty is cost control, and you will find a wealth of practical advice to help you better manage costs in your restaurant.  The recent economic downturn has made effective cost control the single most important aspect of operating a successful restaurant.  My experience is that very few restaurateurs establish and maintain effective control over their costs.  My hope is that this blog will motivate more owners undertake this very important activity. 

My sister blog, Canadian Restaurant Tax Advisor, provides a comprehensive source of information about restaurant taxes and how to prevent unfair tax audit reassessments.  If you haven’t visited this site, I strongly urge you to take advantage of this valuable source of information that could save you thousands of dollars.

I’ve started a Linked-in Group for Canadian restaurateurs to discuss important issues.  You can join by visiting Linked-in and searching for “Canadian Restaurateur”.

I welcome your comments and questions.

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